The house that BRASS built is being remodeled. BRASS is not called Automated Securities Clearance (ASC) anymore and it's not just about managing Nasdaq orders. It's now a linchpin in a grand scheme to electronically connect traders everywhere.

The vendor of the BRASS order management system that dominates Nasdaq trading rooms is now called SunGard Trading Systems (STS). It's a division of Wayne, Pa.'s SunGard, a billion-dollar financial technology conglomerate that is battling about a dozen other firms for the right to wire Wall Street.

At the helm of Weehawken, N.J.-based STS is Tom King, a former top salesman at ASC. King took the post a year ago after the then president Bob Greifeld was moved upstairs. Greifeld is now one of five senior vice presidents at Sungard who report to president Cristobal Conde and chief executive James Mann. Greifeld's responsibilities include STS.

SunGard's strategy became clear in February when it introduced the SunGard Transaction Network (STN). The new routing mechanism will tie together the buyside, the sellside, and various execution points and clearing and settlement departments.

Trade Automation

The goal is to satisfy Wall Street's need for straight through processing, or the total automation of the trade cycle. On the trading end, STN processes orders, indications of interest, confirmations and allocations.

"We are in a unique position to tie everything together," Greifeld said. "STN will be the pipeline to connect buyers and sellers."

Analysts say STN is a smart move. "It's a wise business judgement to try to tie their diverse product mix into a sort of central plumbing," said Norman Jaffe, a finance technology analyst with New York broker dealer Fox-Pitt Kelton.

"To gain a greater share of the customer's business an end-to-end seamless approach makes a lot of sense," he added. "That is especially true as the industry faces T+1 settlement and decimalization."

A key component of STN is B-Net, a routing network used by Nasdaq agency desks to send orders to market makers. SunGard picked up B-Net along with BRASS when it bought ASC in March 1999.

Right now most of the 250,000 trades that pass through STN are the agency orders of about 250 B-Net subscribers. To stimulate more institutional traffic, SunGard bought Decalog, vendor of Idee, the buy-side order management system. Like BRASS, Idee is now a node on STN, enabling buy-side traders to electronically route orders to sales traders also on STN. The two OMSs are crucial to SunGard's plans to compete against the half-dozen vendors that dominate the buyside-sellside order routing game.

"We have the desktop," Greifeld said. "Now we're providing the highway." Nevertheless, SunGard has agreed to link to rival networks: Thomson Financial's TradeRoute, and Bridge's IOE/2 and Triad systems.

Once those institutional orders hit the sales trader's screen, SunGard also hopes to carry them to their final destination. Whether it's to a market maker or to the floor of the New York Stock Exchange, SunGard wants STN to be the vehicle.

B-Net does it for agency orders in the Nasdaq world, competing with Nasdaq's ACES, the Advanced Computerized Execution System. It is also being readied to go up against Nasdaq's SelectNet, the e-mail-like service traders use to take out the quotes of other market makers. "The industry should have an alternative to SelectNet," Greifeld said. "Right now Nasdaq has a monopoly."

It's an audacious move. Roughly one-third of all Nasdaq trading is done over SelectNet. But Greifeld insists SunGard is not trying to become a stock market. "The overall moniker would be B2B e-commerce," he said.

Nasdaq, itself, is moving to replace the automated SelectNet with an automatic execution service called SuperSOES. Greifeld says the B-Net offering will be configurable. Traders will be

able to choose the accept/decline functionality of SelectNet or the auto-ex of SuperSOES.

In the listed world, SunGard is ready as well. The Big Board's rescission of its Rule 390 preventing member firms from trading certain stocks off the floor has retail brokers scrambling to integrate listed stocks into their market making activities. That represents a huge opportunity for SunGard. More stock trading means more BRASS terminals.

BRASS is already used by third market firms, according to STS president King. So little tinkering is needed to ready the system for what King expects to be a trading bonanza. "The third market has gone from a backwater to front and center," he said.

The two largest third market firms, Bernard L. Madoff Investment Securities and Knight Capital Markets, do not use BRASS. But big wirehouses such as Morgan Stanley Dean Witter, Paine Webber and U.S. Bancorp Piper Jaffray do.

Blocks

Internalization of small retail orders has yet to fully kick in at NYSE-member firms, so SunGard is keeping busy with the block side of the business. It is positioning BRASS to capture and transmit block trades to exchanges. While much retail flow is expected to move off the NYSE's floor, block orders are still expected to find their way to the crowd.

STN is now linked to the NYSE's Broker Booth Support System (BBSS), the order routing network that connects upstairs traders with the floor. Traders can now use BRASS to send their block trades to their firm's booths or those of the independent floor brokers. If necessary, BRASS can determine which booth is closest to the specialist in a particular stock. CIBC Oppenheimer, Charles Schwab Institutional and Dain Rauscher Wessels are using BRASS to get to the floor.

In offering connectivity to the floor, SunGard invades the turf of such network operators as

S1 (formerly Davidge), Belzberg Technologies and NYFIX. Once again, Greifeld says his desktop applications give him a crucial edge, and that routing is no longer enough. "BRASS takes the listed world out of the routing game," he said.

SunGard's message to desks is to use BRASS to consolidate their booth-bound orders with those they keep in-house. That results in greater order management efficiency. Block trading desks and Nasdaq market makers that once operated separately now have a reason to move closer together.

SunGard isn't stopping with the BBSS. Concluding that technology will only take it so far, it has invested in human beings to reach the point of sale. In moves that put it in direct competition with many of its customers, it bought Cassidy, Jones as well as McSherry & Co., two independent NYSE floor brokers. Dubbed AXIS, the new floor unit is now the largest $2 broker and the second largest floor broker at the NYSE overall. Its traders are outfitted with wireless handheld devices that link to BRASS.

The Chicago Stock Exchange, the Boston Stock Exchange, the BRUT ECN, and several exchanges in Europe are also plugged into STN. The Tokyo Stock Exchange and other ECNs will follow. "In the equity world, it is STN's goal to connect to each and every exchange," Greifeld said.

Ambitious Goals

These are ambitious goals for an organization that not too long ago was bogged down with complaints from BRASS users over perceived shortcomings in customer service. Traders liked BRASS, but not the quality of the technical support they received. They cried for more choices. That brought London's RoyalBlue and Spear Leeds & Kellogg's Eagle Software into the market.

Since it took over, SunGard has more than doubled STS' staff to 210 employees and installed a telephone call tracking system. Many of the new bodies now field the 500 to 600 service calls STS gets every day. To house its exploding workforce and the computer equipment piling up in its growing data center in Weehawken, STS is moving to roomier quarters in nearby Jersey City.

Traders using BRASS have noticed a difference in the last six months. "They're a lot more responsive than they were before," said Greg LeMaster, head trader at St. Louis' Stifel Nicolaus. "More people seem to be specifically assigned to you."

That is certainly the case for large customers like Morgan Stanley Dean Witter. The giant wirehouse wanted a higher level of service so it entered into a facilities management agreement with SunGard. SunGard dedicates both staff and equipment to Morgan Stanley. Morgan Stanley pays more than the typical service bureau customer. "They get almost everything they would get if they were running it in-house," King explained. "But they have experts – that's us – running it for them."

Scott Lenowitz, a Morgan Stanley executive responsible for trading room technology, did not return phone calls seeking comment.

Customers' Needs

It's all part of a plan to tailor technical support to customers' needs. The level of service varies with transaction volume. Greifeld says the service arrangement is now explicit rather than implicit. One size does not fit all. "We want to be seen as the EDS of equity trading," he said, referring to the large and successful provider of computer outsourcing services.

Good reviews from customers don't mean the vendor is out of the woods. Two new competitors with significant resources are gunning for BRASS' near monopoly on trader desktops. Both Nasdaq and Bloomberg will debut sell-side OMSs in the coming months.

Nasdaq recently bought Jersey City's Financial Systemware, vendor of the popular Tools of the Trade which allows traders to sweep several market makers' bids and offers simultaneously over SelectNet. The firm has spent the last few years developing an OMS. Currently in beta tests at a handful of small firms Nasdaq hopes to launch it early next year.

"Our subscribers lobbied for alternatives to BRASS, Eagle and [RoyalBlue's] Fidessa," said Bob Turynsky, president of the renamed Nasdaq Tools. "They're happy with [Tools of the Trade] which means we have our foot in the door." Nearly 130 market making firms subscribe to Tools of the Trade, according to Turynsky.

Nasdaq Tools will market to the smallest of the approximately 500 market making firms registered with Nasdaq. New rules requiring electronic trade reporting and a need to stay competitive in an increasingly electronic environment mean even the smallest of trading firms must consider an OMS, Turynsky said. Beta-tester Huberman Financial of Dallas is a typical prospect, processing 1,000 transactions per day.

Most Nasdaq Tools customers are expected to deploy the OMS on a standalone basis. That contrasts with most BRASS users who subscribe to the service bureau. The cost will be lower, according to Turynsky. Tools of the Trade subscribers will pay an additional $200 per terminal per month on top of a minimum $2,500 per month they pay for Tools. BRASS costs $1,000 per terminal per month. A Nasdaq Tools customer, for example, with 10 terminals would pay $4,500 per month while a BRASS user would pay $10,000.

Nasdaq Tools can charge less partly because it doesn't have to build and maintain a network as does SunGard. Parent Nasdaq already has a vast network of 5,000 brokerages. Turynsky says the existing Nasdaq network was a key reason why he chose to partner with Nasdaq rather than market his OMS solo.

Bloomberg also hopes to leverage its vast network to knock the industry king BRASS off its throne. More than 50,000 of its famous terminals are deployed in the U.S. on both the buyside and the sellside. Some of those, especially on the buyside, already offer trading functionality. Bloomberg offers a buy-side OMS called the Portfolio Trading System; an indications of interest service; and an order routing service called the Electronic Equity Marketplace (EEM) that connects hundreds of buy-side firms to over 80 broker dealers.

The new sell-side OMS, currently in development at eight broker dealers, will not affect the monthly price of the Bloomberg terminal, now at $1,285.

Bloomberg's Achilles heel is its low penetration rate of Nasdaq trading rooms. "There are not as many terminals as we would like in Nasdaq trading rooms," said Lori Schreiber, Bloomberg's head of sales for the new system. "They may have two or three terminals scattered about." More prevalent are the less expensive ILX and Bridge services. Bloomberg hopes that the added trading features will help it to sell more terminals.

At least one sell-side firm serving institutional clients is interested. First Union Securities, a BRASS-user, subscribes to Bloomberg and is considering the new OMS. "I think Bloomberg probably offers the most going forward in terms of integrating everything for straight-through processing," said Mike Murphy, head of equity trading at First Union in Baltimore. "They're doing a lot with trade entry. Anybody with a Bloomberg terminal can access your book. That is especially important when it comes to the buyside." Murphy is taking a wait-and-see approach.

Despite the star-power behind the new systems, history has shown it is difficult to dislodge SunGard from its perch. RoyalBlue has sold only two systems since it landed in the U.S. in 1996 and Eagle Software beat a retreat earlier this year after failing to sell a single system. King is confident SunGard can withstand future competitors as well. "They're shooting at the current watermark," he said. "We will continue to raise the bar."

SunGard's entrant in the ECN sweepstakes, BRUT, was an also-ran for its first two years, struggling to attract trades. Then BRUT met UMA.

UMA is the Universal Market Access system, a quote management front-end that competes with Nasdaq's NWII product. SunGard launched UMA in April 1999 chiefly to help traders comply with their obligations to display limit orders. But, in a clever combination of engineering and marketing, SunGard integrated it with BRUT, its majority-owned electronic communication network. Nasdaq dealers could now access an ECN without taking their eyes off their markets.

SunGard introduced UMA to help BRASS-users avoid accidentally deleting a customer limit order BRASS has automatically reflected in their quote. On busy days a trader using NWII may think the quote an error and change it. In eliminating the limit order he violates the Securities and Exchange Commission Order Handling Rules. But if he uses UMA a pop-up window lets him reinstate the limit order. NWII provides no such recourse because it merely interfaces with BRASS.

That feature alone may be worth the price of switching from the Nasdaq standard. But since that price is zero (UMA is free to BRASS users) SunGard banks nothing. The profits come with BRUT.

SunGard licensed UMA to BRUT which largely took over the marketing of the front-end. It became a crucial tool for BRUT salespeople. UMA obviates their need to convince the trader to put another terminal on his crowded desk. He doesn't have the space nor the inclination to shift his attention from his quote screen. But if he replaces his NWII with UMA he doesn't have to. He gets both better limit order control plus an ECN.

"BRUT is now integrated into the trader's main tool," said Bob Greifeld, a senior vice president at SunGard and former president of the affiliate that operated BRASS. "That's a powerful reason for the BRUT salesforce to push UMA." Push they did. About 110 firms now use UMA and most subscribe to BRUT. Volume on the ECN soared 90 percent in the final quarter of 1999 over the previous quarter to a daily rate of 23 million shares, according to a report from Chase H&Q. It now stands at about 40 million shares per day.

Easy access, however, only partly explains the surge in BRUT's volume. Anonymous trading between market makers is what sets BRUT apart from the rest of the ECN pack and is a key factor in its success. Market makers place an order on BRUT which then sends a replica over SelectNet to a quoting counterparty. Only the BRUT I.D. is given up. The user remains unknown, but pays BRUT a fee for the privilege.

In the beginning there was TCAM. The order management system vendor predates BRASS by some 10 years and was the first to sell a trading system. But it has almost vanished from the scene, according to traders. Not true, says Greg Johnston, general manager of OM Technology's securities systems division, formerly TCAM. "We have 22 customers who rely on our market making system," he said. "We still feel it's a credible competitor to BRASS."

Nevertheless, since buying TCAM in February 1999, OM has delayed the integration of a market making module into its flagship OneWorld Service Bureau used by brokerages to manage their orders. TCAM's Traid-Gold market making software is used by firms like Peters Securities, Arnhold and S. Bleichroeder, and International Assets Advisory Corporation, but is not being aggressively marketed. Johnston says Traid-Gold is being revamped and will become part of the OWSB sometime in the next four to eight months.

OM has had the luxury of sitting out the trading systems wars over the last two years because it found success selling retail order management systems. It rode the Internet trading revolution begun in 1996, selling routing technology to brokers like NDB and Edward Jones.

Retail proved a blessing for TCAM. Its institutional efforts hit a brick wall when parent Stratus, a computer-maker, forbade it to re-code its software to work with non-Stratus equipment. It got so bad, TCAM founders Bijan Monassebian, Martin and Jeff Hakker even sued Stratus over the matter in late 1995.

The break with its legacy code began a year before that when TCAM introduced its service bureau. Then, in 1995, it discontinued support for OMSs previously sold under license to such large trading houses as Bernard L. Madoff Investment Securities, Lehman Brothers, Bears Stearns and 12 others, according to Johnston. The firms bought the code and took on the maintenance themselves.

Companies that harness the Web's potential may be at the forefront of a stock market revival this year.

That's because the demand for superior Internet services is exploding.

Some facts: The rate of U.S. companies selling their products online is expected to grow by 56 percent this year over 1999. About 64 million adults go online in the U.S. every month, according to New York-based Mediamark Research Inc. There are an estimated 800 million Web pages.

"Companies are now at work aiming to strengthen the speed and power of the Internet," said George Nichols, an analyst at Morningstar, the Chicago-based market watcher. "Technology is speeding up optical traffic and facilitating the switch from telecom traffic."

More importantly, investors are discovering the opportunity derived from optical networkers and Internet infrastructure companies. "It's another sector in the IPO market that has traditionally been overlooked," Nichols added.

Magic Gone

With some 40 percent of high-tech IPOs trading below their original offering price this year, and the magic gone from the dotcom brand name, companies related to Internet infrastructure have been the only ones to debut with impressive results this year.

In fact, of the top 10 best-returning IPOs for the first quarter of the year, eight were related in this way to the Internet.

Optical networking equipment manufacturer Sonus Networks Inc. (Nasdaq: SONS) had the hottest cumulative gain in the second quarter. Its stock traded 586 percent above its IPO price, vaulting from $23 to $157.88 at the quarter's close.

Nuance Communications (Nasdaq: NUAN), a producer of voice interface software platforms, had a 390 percent gain since its IPO. That company saw its offer price spike from $17 to $83.31 at the close of the second quarter.

New Focus Inc. (Nasdaq:NUFO), a manufacturer of fiber-optic products, saw a 311 percent jump in its $20 offer price. It closed the second quarter at $82.13.

Other Internet infrastructure-related companies had similar success in the quarter so leaden with dead weight that just 98 companies went public, compared with 145 at the same time just a year ago.

Marvell Technology Group Ltd. (Nasdaq: MRVL) saw its $15 offer price jump 280 percent to $57 by the end of the second quarter; Centillum Communications Inc. (Nasdaq:CTLM) and Stanford Microdevices Inc. (Nasdaq:SMDI) saw 263 percent and 262 percent gains, respectively.

Centillum, an integrated circuits manufacturer of DSL equipment, saw its stock leap from a $19 offer price to close the second quarter at $69.

Stanford, a maker of integrated circuits that boosts the performance of wireless and broadband communications systems, saw its $12 initial offer jump to $43.44 by the close of the quarter.

Fiber-optic communication equipment enabler ONI Systems Corp., (Nasdaq: ONIS) posted a 396 percent gain since its IPO, going from a $25 offer price to $117.20 at quarter-end.

Bookham Technology, (Nasdaq: BKHM), a company that has done extraordinary things with the light processing functions of optical components, rounded out the list of top achievers, as its $15.83 IPO rose 274 percent to $59.25 by the end of the second quarter.

Growing Faster

"The Internet is continually being replaced," said Steve Harmon, chief executive of e-harmon zero gravity, an Internet-based investment firm in San Francisco, Calif. "It's growing faster. It's growing better and it will grow beyond our expectations. Unfortunately, people are not clear on what the Internet landscape looks like. They're still asking, what does that mean?'"

Industry ignorance has caused many investors to wait in the wings, while many of these companies have demonstrated profitability, he added.

Buried under the glitz and glamour of dotcoms for the last 18 months, fiber optics and Internet infrastructure companies may prove to be a needed anchor in the IPO market this year.

Information technology sectors are growing at double the rate of the overall economy and have jumped as a share of the economy from 6.4 percent in 1993 to 8.2 percent in 1998, according to the U.S. Department of Commerce.

Furthermore, as an industry, fiber optics has had 53 percent earnings growth so far this year. In addition, the U.S. ISP (Internet Service Providers) market generated $15.1 billion last year, a 45 percent increase over 1997.

"There's been a global upgrade in communications infrastructure," said Jeffrey Lipton, a senior research analyst for Chase H & Q. "This [optical networking] is one core component of it."

Colleen O'Connor is associate editor of The IPO Reporter, a sister publication of Traders Magazine.

If Nasdaq block traders want to continue

their age-old practice of net trading, they'll have to ask their customers for permission. That's the fine print of the NASD's new riskless principal trade reporting rules.

From November 1, dealers must report the customer leg of a two-sided transaction as "riskless principal" if it is filled at the same price as the first leg. In addition, the NASD expects both legs to be filled at one price. That means no mark-ups or mark-downs as is customary in net trading. If market makers want to trade net they are now required to send a letter to the customer requesting approval.

The contentious ruling is a small, but telling victory for Nasdaq over dealers in its ongoing war to reshape the market along the lines of a New York Stock Exchange-style auction. In dictating how a market maker should report so-called "riskless principal" trades, the ruling reclassifies certain block trades as agency transactions.

Traders consider them risk' trades and were outraged when they first got wind of Nasdaq's plan two years ago. They appear stoic and resigned today.

Nasdaq considers riskless all block trades done with the Street by institutional dealers to satisfy customer orders. The dealer is not filling the order from inventory so he is not risking capital, Nasdaq contends. He should therefore execute the customer leg at the same price he received from the Street. The dealer is, in effect, acting in an agency, rather than principal, capacity. That gives him the right to tack on a commission, but not a spread.

In effect, Nasdaq is saying the block market for Nasdaq shares is no different than the one for listed shares.

The NASD is implementing the riskless principal trade reporting rule to appease retail traders who complain they are required to double count certain transactions. That causes them to double-pay their Section 31(a) fees to the Securities and Exchange Commission. The fee is levied at 1/300 of one percent of the value of each transaction. Retail traders are less concerned than institutional dealers about the loss of spread revenue as they may already be charging customers a commission. Also, customer limit orders earn them no spread.

Nasdaq's insistence that both trades take place at a single price flies in the face of the traditional dealer practice of net trading. Dealers typically transact the Street leg at one price, then mark it up or down to fill the customer leg. Thus, two prices. Dealers are understandably bitter. "It's all part of a larger plan to get to where consumers can trade stock without the intervention of a dealer," said one dealer who wished to remain anonymous. "They don't like my profit margins."

Those margins aren't that much higher than a listed trader's commission, however. Spreads on the most heavily traded Nasdaq stocks are only 6.25 cents while commissions on listed block trades are around five cents.

The victory, however, appears more symbolic than economic. The ruling does not prohibit dealers from trading on a net basis as long as they get their customers' approval. Dealers must send "negative" consent letters notifying customers that they intend to trade the account on a net basis unless the customer objects in writing. Dealers do not – as Nasdaq initially wished – have to send "affirmative" consent letters asking the customer to respond with a letter granting permission.

The customer-letter is the result

of a year of negotiations between several large institutional trading houses, the Securities Industry Association, Nasdaq and NASD Regulation.

The talks were kicked off by the NASD's August 1999 release of its Notices to Members 99-65 and 99-66, explaining the ruling and outlining its block trade presumptions. (The SEC approved the ruling in March 1999.) Both Nasdaq and the firms successfully petitioned the SEC three times to postpone the implementation date.

In February, Goldman Sachs, Morgan Stanley Dean Witter, Merrill Lynch, Salomon Smith Barney and Donaldson, Lufkin & Jenrette co-authored a letter to the SEC (also signed by an additional eight firms) requesting postponement. The reasons: systems issues and Nasdaq's "presumption that our institutional trades are effected on a riskless principal basis." None of the five firms would comment.

A NASD Regulation official, who requested anonymity, said the negotiations focused solely on how to obtain the required customer consent and not Nasdaq's presumptions. "It really is just one trade economically," the official said.

A trader disagrees. "If you bid for stock and you buy it, that's your firm's capital at work, period," he said. "I sat on the bid. I assumed risk."

Another half agrees. "If someone gets a call from a customer saying hey, I want to pay you for your research. Take 100,000 to buy and call me with a report' then I might agree with Nasdaq's thinking," he said. "But I don't get those calls. If we get 100,000 to buy it's because we already shorted them 25,000. Only one percent of what we do is riskless."

Customers call him if they see his offer on Nasdaq's Level II screen. He will fill 25,000 off his own book to win a mandate to work the remaining 75,000. He does not consider that 75,000 to be riskless, however.

"In my mind, the whole order is a risk order," he added. "If I lose money on that first 25,000, when does the 75,000 become riskless?"

Nasdaq believes the answer should be clear after the second, or customer leg, is filled. Nasdaq initially hoped firms would report the first, or Street leg, of the transaction as riskless principal and suppress the second leg when reporting to the ACT system. In the letter to the SEC, the firms called that set-up unworkable because they would not know if the first leg was riskless until after they had completed the second leg. They wanted to report the first leg as principal, per usual, and report the second leg as riskless principal. Nasdaq could then suppress the report of the first leg itself.

Nasdaq will now allow this as an alternative approach. In essence, it has decided that firms cannot judge the risk nature of the transaction until it is all over. Nasdaq is making changes to ACT to accommodate the new report.

"We will soon issue a new Notice to Members that will talk about this alternative approach as well as the net trading issue," said the NASD Regulation official. "We're coming to the conclusion of a long process where we've reached a result that works for everybody. Everybody seems to be happy with this."

Resigned may be closer to the truth. "Once we go to decimals next year the whole dynamic of how you charge on Nasdaq will change anyway," said Tony Cecin, director of equity trading at U.S. Bancorp Piper Jaffray. "We're not going to do our institutional business $10.00 to $10.02. You're not going to see two transactions. It will be a one-price transaction and an agency commission look-alike on both sides of the transaction. That's the same as we do for our listed institutional business today."

At the legendary Gleason's Gym, on the second floor of a nondescript warehouse near New York's Brooklyn Bridge, some of the Wall Street's toughest financial pros have traded in their pinstripes and wingtips for boxing trunks and sparring gloves.

Mike Tyson may soon have blockbuster competition – heavy duty – from Wall Street.

And it all started ten years ago when Gleason's opened up its ring to the white-collar brigade of male and female pros.

Now stock and bond traders and investment bankers (and folks like doctors and a New York state judge) work out with IBF welterweight champion Zab "Super" Judah and other boxing giants.

"The fellows on Wall Street are very aggressive," admitted Bruce Silverglade, Gleason's owner. "They have to be. In this business you need the desire to win."

"That's exactly what boxers have," added Silverglade in an interview one Saturday morning at the gym. "Fighters are extremely good businessmen. If they had the education, they would be top Wall Street executives."

Bronx Origins

Founded in 1937 in the Bronx, Gleason's relocated to midtown Manhattan before moving recently to its current location. Gleason's now has more than 800 regular members. The pugilists include 200 professional boxers and 200 amateurs. The rest includes more than 200 white-collar pros and other regulars.

Among them is a straight-talking Texas native John Oden, a partner and money manager at Sanford C. Bernstein & Co.

About eight years ago Oden was adding a middle-aged bulge. "What led me to boxing was the challenge of remaining physically fit as I grew older," said Oden, speaking with a friendly Southern drawl. "I love a challenge in business, in sports, in any aspect of life."

On this morning, he is gearing up for a match billed "Capital Punishment – Settlement Day in the City." It's a boxing tournament that is scheduled to take place in London between New York- and London-based white-collar boxers.

Oden, who's "a little over 50" and stands a strapping 6-foot-4, has participated in three white-collar sparring matches. He is now set to fight his fourth – a fight against Marcus Overhouse, a derivatives trader at Deutsche Bank AG London.

The Sanford C. Bernstein money manager steps out of the ring, unhitches his protective helmet, and sits down for a chat about his fascination with the world's most combative sport.

In his early 40s, Oden "jumpstarted" his athletic career by taking up two sports he had never done before. (He was already an avid tennis player and long distance runner). The criteria were great exercise and fun. Oden chose basketball. The second choice was boxing.

Over the course of a year he undertook a daily regimen of running three miles around Central Park, jumping rope, weight lifting, and shadow boxing. "There's a tremendous amount of training," Oden said. "You don't need to be a body builder. But you need to have a certain amount of strength."

Oden eventually became a member of the New York Athletic Club Boxing Team. He began to compete in matches at the NYAC and had some success (unofficial record 6-1-1). He currently holds the tile of Heavyweight Champion of the NYAC. "I am just looking for great exercise and camaraderie," Oden quipped. "I am not looking to turn pro."

Oden was far from super-confident when he entered the ring. "It is so intimidating to see this big, ugly guy coming right at you with a mean look in his eye and he is about to swing at your head," he recalled.

Other Wall Street pros sympathize. But like Oden, they are not discouraged.

Jeff Triana, 34, a managing director at Tiburor Asset Management, a New York hedge fund, said he boxes at Gleason's for the sheer challenge. "It's a very difficult sport," he said. Added another Gleason's pugilist Ken Livingston, a 33-year-old operations trainee at Bear Stearns & Co., "I like to train at something where you try to achieve a goal."

World Famous Boxers

Over 100 of the world's most famous boxers have trained at Gleason's. The gym's walls have photos of Mike Tyson, Jack Dempsey, Joe Frazier, Jake La Motta, Muhammad Ali, and dozens of other boxing greats.

A vintage poster, inscribed with an inspirational message, intones: "Now, whoever has courage and a strong and collected spirit in his breast let him come forward, lace on the gloves and put up his hands – Virgil."

Silverglade looks more like a financial analyst than the proprietor of a boxing gym. He holds a degree in economics from Gettysburg College. For 16 years he worked as a manager at Sears Roebuck & Company. Silverglade quit his job at the department store chain in 1976 and turned to refereeing and judging amateur boxing matches. Two years later, he switched over to the administrative side of the sport. For the past 22 years he has owned and operated the world's most famous boxing gym.

The super-charged, macho and sweaty atmosphere at Gleason's brings to mind images from so many of the classic fight films – Body and Soul, The Champ, The Great White Hope, The Harder They Fall, Raging Bull, Requiem for a Heavyweight, Somebody Up There Likes Me, and the innumerable Rocky movies.

Like market making and position trading, boxing requires a fair amount of preparation and incredible concentration.

"Boxing is not just two guys brawling it out, it's actually an art," said Ricky Young, a former junior welterweight and world contender and a trainer at Gleason's and at Columbia University. "You have to get in great shape. You have to build up your endurance and learn your skills before you step into the ring."

Rocky Graziano, the former middleweight champion of the world, once said, "The fight for survival is the fight." That's exactly what attracted Oden to boxing.

All sports, said Oden, are mock forms of combat. "Boxing is the ultimate sport," he said. "It is one-on-one, mano-a-mano. There is no team. It's you versus him."

Boxing is the ultimate challenge for Oden. "You have to be in great shape and it has an element that all other sports do not have – the fear factor," he said. "If you are not prepared, you are going to get hurt."

While some white-collar pros like Oden revel in the highly-competitive environment at Gleason's, others come just to exercise and to fight stress. Kenny Perrin, 29, a stockbroker at FAS Wealth Management in Jericho, N.Y., used to lift weights but he found that incredibly boring.

Now he boxes at Gleason's and is no longer bored. "There's nothing better after a rough day on the job than to come here and hit those punching bags," Perrin said. "By the time you leave here you are whistling and singing out the door."

Goldman Sachs & Co. has the highest overall quality of listed and Nasdaq executions, according to a new survey.

Goldman, Sachs & Co. is the King of the Hill. A group of buy-side and sell-side pros and hundreds of publicly-traded companies, delivered the verdict: Goldman has the highest overall quality of listed and Nasdaq executions – in U.S. large-cap and in small to mid-cap issues.

The venerable investment bank took the top honors in each category in separate surveys conducted recently by London-based Tempest Consultants. The complete survey, sponsored by Reuters, examined investment research, sales and trading and investment banking.

Goldman outclassed Salomon Smith Barney and Merrill Lynch & Co., second and third place winners respectively, in the small to mid-cap categories. On the large-cap side, Goldman took the top trophy again, beating Morgan Stanley Dean Witter and Salomon Smith Barney, second and third place winners respectively.

"We put our customers first and are committed to excellence," Jody G. Mansbach, vice president, equity trading at Goldman Sachs told Traders Magazine. In a brief interview, she added that, "the relationships we have and the breath of experience that our traders have" makes Goldman special.

Methodology

The survey of large-cap companies polled 368 corporations, 372 sell-side analysts, and 49 heads of trading at funds accounting for about $328 billion of equity assets. The survey of small to mid-cap corporations polled 536 corporations, 374 sell-side analysts and 27 heads of trading at funds accounting for about $321 billion in assets. (Respondents at corporations included chief financial officers and investors relations directors.)

Overall, about 100 of the largest buy-side firms were contacted.

"The survey offers extraordinary insight about perceived excellence of equity research, sales, trading, and investment banking services in markets around the world," said Michael Fidance, vice president at Tempest and a former senior position trader at Lehman Brothers and at Credit Suisse First Boston.

Goldman had an impressive record on the many categories the respondents were asked to judge the dealers' desks for: consistency of execution and/or market making; capital commitment; executing large blocks as principal (at risk); market knowledge and trading intelligence; morning news sheet/research synopsis; program trading and settlement and backoffice efficiency.

The so-called Reuters Survey, underlined a distinction between trading mid-to small-cap and large-cap stocks: the role of capital commitment. That made Goldman's double victory all the sweeter.

Tempest noted that the amount of business conducted as principal is nearly double for U.S. small-caps (42.22 percent) than it is for U.S. large caps (22.65 percent).

Best Execution

To be sure, the poll is based on a tally of essentially subjective responses.

The survey does not, in effect, measure best execution, a goal set by regulators with their emphasis on price improvement and individual investor protection.

The best way to accurately measure "best execution," noted Alan Shapiro, chief executive of Transaction Auditing Group (TAG), a trade measurement service for dealers based in New York, is through "in-depth, quantitative measures rather than qualitative analysis."

The Reuters Survey does not pretend to fulfil that goal. Howard Haykin, president of Compliance Solutions, a compliance consultant in New York, said it was possible that some dealers in the survey were ranked near the top because they received "positive responses."

"But firms that provide best execution or even better execution might not have been identified," he added.

One trader had mixed views about the Reuters Survey. The "problem" with it and similar surveys, said Peter Jenkins, director of equity trading at Scudder Kemper Investments, "is that there are so many ways of doing them. Not everyone agrees with the outcome. They are only as good as the information and data they have."

Nonetheless, Jenkins does believe the survey provides some valuable feedback to the broker dealer community.

Qualitative Factors

Fidance of Tempest noted that there are a number of qualitative factors, captured in the survey, that help achieve excellence in best execution: portfolio manager input; commission targets; directed commissions, arrangements on step outs and on soft dollars, marketing agreements, and broker lists.

"All these are internal factors within the fund' manager's trading department that have an impact on best execution," Fidance said. "We think they are part and parcel of the kind of things that we [measure] in the Reuters Survey."

Straight through processing was viewed as an impor tant but expensive luxury just a few years ago. How the pendulum has swung.

Today, most financial institutions regard STP – the uninterrupted flow of data from order entry and execution to clearance and settlement – as a competitive imperative as well as a business requirement. The alternative is high processing costs, unacceptable levels of risk and exposure, as well as lost e-business. Ultimately, it means poorly served clients.

STP now appears on the agenda of most financial service organizations. In a survey conducted a few years ago by the Securities Industries Association, STP was not considered one of the leading technology priorities.

Some analysts estimate the annual losses in a non-STP capital markets environment would exceed a staggering $10 billion.

It is increasingly evident, therefore, that to withstand the stresses of the current and the coming financial services environment, organizations must implement STP.

Two forces are at work. The first is an overwhelming and compelling business case. The second is a likely shift from the "carrot to the stick," namely, the establishment of a firm date to implement T+1.

Let's face it, the days when organizations enjoyed the luxury of reaction time are gone. Trade volumes have tripled since 1995. Market volatility has heightened. Market value losses of some 20, 30 or even 40 percent on a particular stock in a single day are not uncommon. The safety net is gone.

The business case is clear. Think of STP as an enabler that allows the industry to flourish in terms of capacity, scalability, liquidity and transparency, among other areas. The advantages STP brings are apparent:

* More speed and accuracy – inefficient settlement processes limit investors' ability to trade. Automating bank processes through STP reduces duplication of effort and cuts errors significantly.

* Lower costs – S.W.I.F.T. estimates that a mere one percent increase in payments automation yields some $15 million in annual savings, much of which can be passed on to clients.

* Fewer trade failures – STP consolidates all the activities associated with trade processing and settlement into a single electronic process. That provides a single window to monitor issues for timely resolution. This translates into better service and greater satisfaction for clients.

* Finally, STP ensures that information is available to investors in real time, providing them with the essential tools to make sound investment decisions with a high degree of confidence the trade will settle.

New technology has made it vastly easier for investors to compare U.S. companies and their counterparts overseas. Yet, the operational challenge remains to consummate such transactions. STP goes a long way toward alleviating that challenge.

Progress is being achieved. Over the past 10 years, for example, huge strides have been made in immobilizing securities, creating STPs for even the most exotic and complex of them, namely mortgage-backed securities.

In the early 1990s, mortgage-backed securities were processed physically, creating enormous bottlenecks and capacity issues on settlement dates. Now, with electronic processing and confirmation, these problems virtually are extinct. However, not enough progress has been made to claim complete success.

T+1 will greatly help motivate the industry. I believe a firm date for implementation will be set in the not-too-distant future. We are moving closer to a greater understanding of the facts, namely the risks and opportunities that support such an implementation. A T+1 date will be to STP what systems repair was to Y2K. Yes, a great motivator.

We all remember the traumas of the Y2K countdown. Infrastructure budgets were stretched to the limit and seemingly impossible dates were set for systems repair. Nonetheless, target dates were met consistently and successfully. Why? Because no other choice existed. Repairs were mandatory. The same motivating force is likely for STP.

Of course, several technological, process and regulatory changes would need to be made before T+1 can be implemented. Among these are major changes in the execution of trade cycles, namely, the transition from a process with numerous hand-offs and frequent manual handling, to a redesigned flow that is exception-based.

When the date is set, T+1 should be the common cause around which capital markets companies rally. The business case will no doubt be clear. STP will pave the way. Now is clearly the time for STP implementation.

Joe Anastasio is chief client partner, The Capital Markets Company, an e-solutions provider for the global financial markets, with offices in New York.

Quantitative trader

CooperNeff Group is crossing the Street to make markets in baskets for institutions. Its plan is to use technology to differentiate itself from such entrenched competitors as Deutsche Bank Securities and Lehman Brothers.

CooperNeff, a subsidiary of French banking behemoth BNP Paribas, is one of the largest basket traders on Wall Street, but little known outside of a select circle. Nestled inside a suburban Philadelphia office park, it uses sophisticated software and mathematics to trade for its own account, accessing the market through sister company, BNP Securities.

It recently formed a broker dealer unit called Enhanced Portfolio Strategies (EPS) to bid, on a principal basis, for the multi-security basket trades of large institutions. In so doing it joins a handful of big investment banks which trade proprietarily and also bid for the portfolios of others.

Deutsche Bank and Lehman are reportedly the most aggressive program traders while Salomon Smith Barney, Goldman Sachs and Morgan Stanley Dean Witter make up the second tier. Merrill Lynch also offers the service.

Institutions typically buy and sell large baskets of securities when "rebalancing" portfolios to match changes in a stock index or shifting money between money managers. Seventy percent of the stocks are New York Stock Exchange names; the balance is in Nasdaq issues.

Approximately 70 percent of those trades are done on an agency basis, according to industry sources. The balance is bid blind (the market maker doesn't see the securities unless he wins) on a principal basis. That's the business CooperNeff intends to enter.

To run EPS, CooperNeff signed Mony Rueven and three others from renowned quant shop D.E. Shaw. Shaw folded Rueven's operation and sold certain assets to Knight Trading Group in February. A big player in the blind bidding game, Shaw's presence has been missed for at least a year, buy-side traders say. They hope CooperNeff will fill that void.

Senior managing director Robert Cavallaro oversees EPS. He says the decision to make markets was made out of a need to access liquidity above and beyond that which is available in the open market.

More trading is taking place "upstairs," leaving less liquidity on the NYSE and Nasdaq for CooperNeff. Large baskets of listed stocks are crossed after-hours and overseas while huge quantities of Nasdaq stocks are crossed internally at wholesalers like Knight.

"This order flow never makes it to an established exchange," Cavallaro said. "It's usually printed on a crossing session or after-hours. You can't get it just showing up on the floor of the New York Stock Exchange."

Market structure changes have also turned the environment increasingly hostile to large trades. The switch to trading in sixteenths, for example, has reduced the size of the typical trade as well as the size quoted by market makers and specialists, according to Cavallaro. That makes it much harder to get a large block done. Decimalization will only exacerbate the situation, Cavallaro believes.

By bidding for baskets in the range of $20 million to $500 million, CooperNeff will be able to access order flow from which it is currently excluded. The additional volume helps it to trade for its own account without impacting prices. "Doing more volume for the sake of having more market share would've cannibalized returns," Cavallaro said

On the flip side, institutional clients benefit from CooperNeff's volume, which ranges from 15 million to 30 million shares per day.

Sell-Side Challenge

But crashing the sellside of the basket-trading party is easier said than done. Firms like Goldman and Salomon have the clients as well as large block trading operations and distribution networks. "You need distribution," said Peter Forlenza, head of global portfolio trading at Salomon Smith Barney. "That means a Nasdaq desk that makes markets in a lot of stocks and a block desk. We rely on the expertise of our cash desk to move some of the large blocks we bid on."

Cavallaro concedes the point. "It's an area we are working really hard to develop," he said. "It's definitely important. You want to be able to call up a Fidelity or a Putnam to ask them if they want to trade 500,000 shares." He says CooperNeff is planning to build a distribution network similar to the one BNP Paribas runs in Europe. Some of the necessary ingredients came with the team from D.E. Shaw.

But it's banking on technology to get its foot in the door. To trade its portfolios, CooperNeff uses software to predict returns and assess risk. It will offer its risk management technology to customers. That will help them better understand the risks of their existing portfolios or those they plan to construct, according to Cavallaro. It will also guide them when preparing a basket for bidding.

CooperNeff builds its own risk models, having found off-the-shelf products lacking, Cavallaro said. "Our back-testing has proven that we generated a superior product," he said. (BARRA, Inc. of Berkeley, Calif., is a supplier of such software.)

Its risk models combine security- and sector-specific analysis. "When you look at a portfolio of stocks you have to understand not just the riskiness in the individual name, but the overall exposure of the portfolio to industries," Cavallaro explained.

An examination on a stock-by-stock basis of Internet and utility stocks will, for example, produce one risk profile. But research that takes into account that the two sectors move together would show a riskier portfolio.

Cavallaro notes sector rotation, or the movement of institutional funds in and out of different industry sectors, is higher than ever in today's stock market. That has created volatility which impacts execution quality.

"You'll see days when Nasdaq is down considerably and the Dow is up," Cavallaro said. "Investors are rotating money out of high growth into value or cyclicals. Sectors can move violently."

Changes in the economy also effect CooperNeff's models. "Five years ago the Internet was on no one's radar screen," Cavallaro said. "To adapt, the components important to your risk model must change. The evolution of your technology is crucial."

Cavallaro points out that a trader must also understand the risks inherent in executing lots of varying sizes-whether 10,000 or one million shares. "For each unique security there's a liquidity history and risk associated with having a position of a certain size," he said.

Such variables are often impacted by changes in market microstructure. Decimalization, for example, is expected to change the complexion of market liquidity. As the number of trading increments increases, spreads are likely to decrease so traders will be less willing to quote in size, Cavallaro predicts.

"Since we're doing ongoing maintenance and development in these areas we think it's a smart move to provide tools like this to institutions," Cavallaro said. The firm's risk management software comprises some 20 or 30 metrics such as momentum, value and sector analysis.

The plan is to make the technology available to large institutional clients such as pension and mutual funds in hopes of fostering long-term relationships. CooperNeff would like to avoid trading against savvy quantitative hedge funds that dart in and out of less-liquid stocks. Cavallaro sees relationship building as a five-year process.

CooperNeff's plan does have precedent. TLW Securities, initially a successful proprietary trading firm, now offers its TradeFactory basket trading system on a service bureau basis. Customers are mostly broker dealers either trading for themselves or their customers.

CooperNeff also plans to use the Internet to get closer to clients. Typically, a dealer bidding for a portfolio will send the client a CD-ROM with its pricing model. That gets installed on the client's computer. He inputs his portfolio data and the model produces a rough portrait of the risk inherent in the trade as well as an estimated bid price. Salomon's software is the leader in this area, according to industry insiders. Salomon's Forlenza says it's on 300 desktops worldwide.

The client then faxes print-outs to his brokers of choice that sketch risk characteristics, but do not divulge the actual securities. The bidders see sectors, liquidity characteristics and the size of the trade. From that information they determine their bids on a cents-per-share basis. Prices currently range between five cents and 30 cents.

CooperNeff wants to take the process two steps further. First, it plans to make its pricing software available over the Internet. Second, it plans to embed its positions in the analysis model. If CooperNeff is short and the client is long IBM, for example, the client may save money because the trade will offset a CooperNeff position. By offering the software over the Internet, the customer's analysis will always incorporate CooperNeff's latest positions.

"It's a great way to provide risk management technology to the customer because the risk model works best when it's fed with current data," Cavallaro said. CooperNeff does not hold positions longer than one month. Some are traded in a matter of minutes. The plan will also cut out any systems administrative work at the customer end.

Incorporating a bidder's positions into the model is not a new twist. Salomon once offered the service, but customers balked at having to divulge their positions, according to Forlenza. D.E Shaw, on the other hand, found some success with this modus operandi, sources say.

D.E. Shaw Missed

Those on the buyside also say D.E. Shaw is sorely missed and that a new player in the market is good news. "This is definitely a welcome development," said Greg Rogers, head trader at the $4 billion Philadelphia quant shop Aronson & Partners. "Bidding in the principal package market has not been as aggressive since Shaw left. It's great that those folks from Shaw are back in the game at CooperNeff. Since it's a competitive bidding process, the more people the better."

Forlenza agrees, but cites history. "There's always room for somebody new to the business who will offer good prices," he said. "But the key is consistency. A lot of people are in the business for six months then they lose money and get out." CooperNeff, of course, is thinking in terms of five-year plans.

In early 1997, a little-known electronic communication network called Archipelago approached CooperNeff Group asking for its Nasdaq business. The basket trader, frustrated in its dealings with market makers, was all ears.

Dealers shunned CooperNeff's savvy order flow, preferring the "uninformed" orders of long-term retail investors, according to Cavallaro. Archipelago offered CooperNeff anonymous access to those same dealers over SelectNet as well as a pool of liquidity of its own. CooperNeff became one of Archipelago's first big institutional customers.

"It was very difficult to have a relationship with a dealer," said Robert Cavallaro, senior managing director at CooperNeff. "Our order flow didn't fit them. It was fast-moving. They tended to like slower-moving order flow." The result was a relationship that culminated last November when CooperNeff bought a small, undisclosed stake in the ECN.

Archipelago recently merged with the Pacific Stock Exchange. "We think they are one of the leading candidates to become the exchange of the future," Cavallaro explained. "You'll find Nasdaq and listed stocks trading harmoniously on one platform."