Love, compassion and charity. Wall Street has never had so much of it. In the wake of the darkest chapter in its money-making history, the trading community has been drawn closer, horrified by the attacks on the World Trade Center, deeply saddened by the death and destruction.

Wall Street has stepped forward to show the world how much it cares – comforting the family and the friends of the missing and the deceased, opening up its pocketbooks to make life a little easier for those left behind in a new and unsettled world.

Wall Street itself has become a closer-knit family.

Business competitors are allies, coming to the aide of colleagues displaced by the WTC tragedy. Others are manning telephone lines opened to take calls from grieving families. Some are coming out of retirement to temporarily help at understaffed trading desks.

Temporary Space

UBS PaineWebber, Goldman Sachs, Prudential Securities and Sungard Trading Systems/BRASS and countless others, are providing temporary office space. Some have established relief funds. Citigroup set up a $15 million scholarship for children of the victims. Prudential Securities is donating $5 million to the American Red Cross. Bear Stearns, Goldman Sachs, J.P. Morgan Chase, and Merrill Lynch are each contributing $10 million for the disaster relief efforts. Credit Suisse Group has set aside $2 million.

Nasdaq created the Nasdaq Disaster Relief Fund, which will be contributing to private and public charities. It will match contributions, dollar-for-dollar, up to the first $1 million.

Cantor Fitzgerald, which suffered painful losses – some 700 employees were listed as missing in the aftermath of the World Trade Center attack – is donating 25 percent of its profits to the victims' families. "We want to help the families pay their bills," said Peter DaPuzzo, co-president of Cantor's institutional equity trading. "We want to make sure there is enough money for them to send their children to college. We want to keep the Cantor name going in honor of those who died."

Donations are pouring in from across the land – Chicago in the Midwest, to San Francisco in the West and from up north in Canada. The Chicago Mercantile Exchange is donating $1 million. The Toronto Stock Exchange and the Canadian Venture Exchange are each writing checks for $50,000 to the Sept. 11th Disaster Relief Fund, created by The United Way and The New York Community Trust.

"We are going to do all that we can to help," said Peter Driscoll, president of the Security Traders Association of Chicago. "We want to be involved in the long-term help. We want to be there for the people who need help right away," added Driscoll, a senior equity trader at the Northern Trust Company.

The Chicago STA affiliate is donating money to a college scholarship fund created by parent body, the Security Traders Association. The Chicago traders group is also earmarking the proceeds from a fund-raising event held last October for the victims' families. A fund-raising raffle is in the works for the mid-winter meeting of the Chicago STA in January.

"We feel it's very important, especially now, to show that we [the STA] is a fraternal organization," Driscoll said. "We want to show our love and support for our colleagues in New York."

Each year the Security Traders Association of New York sponsors two fund-raising events for a charitable organization. This past spring STANY selected the New York Police and Fire Widows and Children's Benefit Fund.

STANY president Jim Toes, a managing director of Nasdaq trading at Merrill Lynch, and the son of a retired NYPD Captain, never imagined what would happen on Sept. 11. "Normally, we just sell five thousand [$20] tickets and raise about $100,000. But this year we are trying to sell as many as we can. We're throwing the limit out the window," Toes said. "We are selling tickets so fast that we have to print up a lot more."

Reconstruction

Charity and love are a major part of the reconstruction of ordinary life on Wall Street.

Dr. Ari Kiev, a psychiatrist who advises top Wall Street firms on trading strategies and is an expert in post-traumatic stress disorder, said those who were either in the towers or were in the neighborhood on Sept. 11, will be transformed by their horrific experiences.

"A lot of people are assisting the victims because they themselves feel almost guilty about surviving," Dr. Kiev said. "It does hit so close to home. Some are saying, we're lucky we weren't there.' The experience is traumatic."

The upcoming months will not be easy. "There will be much sadness," Dr. Kiev said. "The events [of Sept. 11] will cause stress. Thanksgiving and Christmas will be particularly difficult periods."

Wall Street is working hard, working overtime, to help ease the pain.

The average number of days it takes a venture-backed company to go public has grown dramatically.

From an average of 140 days between its first round of financing to its initial public offering two years ago, this period has expanded by – get this – 247 percent, growing to 487 days, according to Thomson Financial's Venture Economics.

Historically, it has taken seven to eight years for a company to go from its founding to an IPO, said Jay Ritter, professor of finance at the University of Florida.

Ritter, who has tracked IPO data for the last 21 years, says the last two-year period was a fluke and is unlikely to be considered an IPO benchmark, even though much money was raised. "We saw lots of Internet companies with incredibly high burnout rates," Ritter said.

It was more than greed that was driving the market in this period, Ritter said. "The 1999 to early 2001 [period] was unusual in terms of one industry dominating things. Very few IPOs outside of these sectors saw these sky-high valuations."

In fact, the IPO market in 1996 – and, further back in 1986 and 1983 – saw more deals completed.

IPO Bottleneck

The latest data didn't surprise the experts given the bottlenecked IPO market this year. Now the question is whether today's longer path to an exit strategy is toxic for the VC community?

In spite of the spring downturn, last year's market still saw 174 VC-backed IPOs. According to Ritter, venture-backed IPOs accounted for 59 percent of the total offerings from 1999 and 2000. From 1997 to 1998, it was at 29 percent. Through mid-August of 2001, there have been just 28 deals, according to Venture Economics.

But these numbers, contends business and finance attorney Ken Koch, do not paint an accurate picture.

"Those statistics don't reflect other vehicles being used. Although 1999 and 2000 were aberrations, the 2001 figures understate the level of market activity," said Koch, a partner at Mintz Levin Cohn Ferris Glovsky & Popeo. Koch noted the rise this year in public shells, or reverse mergers. (Public shells are a method for a private company to go public. The private company acquires a majority ownership in a publicly-listed company that has no assets or liabilities and is only a shell.')

"There's no question that it's much tougher to get VC financing," Koch said, "but there has been a rise in these previously shunned vehicles."

Another question the latest data raises, how long is long enough? Peet's Coffee and Tea (Nasdaq:PEET), the first IPO of 2001, had a gestation period of five years before going public. "In 1996 we were a strong Bay Area player with a vibrant mail order business, but we were not in grocery stores and in offices, where we wanted to be," said chief executive Chris Mottern. "Building the brand became the central focus. There are not many shots to take in the public market, and if you look at dotcoms, you'll see that it's true. That's why it's worth waiting."

IPO Craze

Mottern admitted "a variety of people" pressured the company to go public sooner, particularly during the IPO craze. He added that the wait paid off. Underwritten by W.R. Hambrecht, Peet's stock was offered at $8. At press time, the Emeryville, Calif.-based company was trading at $8.50, one of just 31 IPOs this year to trade above offering. Unlike most chief executives of newly traded public companies, Mottern is able to say he's "pleased being in the public market."

In the embattled 2001 IPO market, Warburg Pincus stands out as a survivor. It is one of two private equity venture firms that can log more than one public offering this year.

"We've had some frustrating times in 1999 and 2000, when the model was not in our favor. You saw successive rounds at very high valuations," said Jim Neary, a partner at Warburg Pincus LLC. "Going to different VCs, the expectation was to see a payoff in a short time period. None of that was justified."

(Another survivor is Robertson Stephens, with investments under the former BancBoston Robertson Stephens name.)

In March, Warburg saw a $100 million offering from its energy-related Encore Acquisition Co. (NYSE:EAC) priced at $14. The stock closed at $14.77 at press time. More recently, another company, Wright Medical Group (Nasdaq:WMGI), a maker of orthopedic devices, priced at $12.50 in a $93 million offering. At press time, it closed at $15.70.

Encore was 31 months away from its first funding round to its IPO, according to Neary. Wright Medical was 20 months from its initial funding to the IPO, "but the company has been around for 30 years," he noted.

"The market wants solid companies that make money with good management teams," Neary added. "An important caveat this year is being in the right sector. Telecom for example, is not the right sector, even if the company was solid. Both [of our IPOs] were in good sectors."

As venture capitalists, investors and I-bankers assess the market, they are filled with hope. "The infrastructure has been built for the next generation of Internet products," Koch said. "It's similar to what it was in the 1980s – lots of biotechnology companies failed but amazing things have come out of it."

Still, despite one of the strongest performances in the public market from a VC firm, Neary said he is cautious. "In certain sectors and geographies, we will have opportunities," he said. "We cover multiple industries and we will have the opportunity to take additional companies public [this year]. The breadth of the market, overall, will be narrow."

Colleen Marie O'Connor is an associate editor at the IPO Reporter published by Venture Economics, a Thomson Financial Company.

Bernie Schaeffer, the major domo at Cincinnati-based Schaeffer's Investment Research, is an options guru, a market technician, a natural-born contrarian, a gentleman and a scholar. He has also, since last March, been a bear, quite a transition for a market analyst who'd stayed doughtily bullish through most of the bull's decade-long romp.

But that doesn't bother him. What does, currently, is the complacency he detects among institutional investors, especially in the way they've been piling into riskless' options strategies in a trendless' market that's just broken some longstanding support levels.

KMW

What's your take on investor sentiment here, Bernie?

Still way too complacent. But then, why not, with Wall Street strategists recommending allocations of 72 percent to stocks, 3.8 percent to cash? I think, though, that we're in a very high-risk environment. I would point out to you what we are seeing in options sentiment. That is, the 21-day moving average of the CBOE equity put/call ratio. We look at it as an overall market-timing indicator, looking for indications of when sentiment is getting extreme. We've got data on it going back to 1990. What we are seeing is an interesting phenomenon, which is not surprising, when you think about bull and bear market dynamics. What seems to be happening is that, over the past few years, the peaks are starting to get higher and the bottoms are starting to get higher as well.

Why should that be?

Well, you would expect, as you move from a bull into a bear market environment, that when people get extremely bearish, their bearishness would go to even greater levels than it got to when they were getting bearish before. And people would never quite get as bullish, when they're feeling better in a bear market, as they used to get when they were feeling good in a bull market. That's what's happening. We recently got a bottom in the equity put/call ratio at about 0.6, which used to be a level where you would put in some nice peaks. But that's where it actually bottomed. We now have moved into the mid-0.60s on it. I suspect, if some of these negative possibilities come together, we could see the put/call ratio going to some sort of record, which would have people calling a bottom in the market, because the put/call ratio went so high. But all it would really mean is that, very understandably, as the bear market continued to knock stocks down, people were getting more bearish. It wouldn't mean that they are as bearish as they'll ever be. Simply, that as they recognize the bear, they get more bearish. So it'll be interesting to see if we put in a new high in the 21-day moving average of the put/call ratio, if this market continues to frustrate from here.

What else makes you think investor sentiment is still disturbingly complacent?

There are all kinds of things going on in the options market that point to that. Most of the talk you hear is that option volatility is very low, which means that the market isn't going anywhere. But what everyone seems to be forgetting here is that volatility is mean-reverting. Usually, in fact, when volatility contracts tremendously, it's a precursor of a big move. It's sort of like-

The calm before a storm?

Precisely. Now, although people usually want to buy options when volatility is low and options are cheap, not this time. This time, they want to sell calls against their stocks. And they want to buy stocks because they're cheap and sell some calls against them-even though they're not being paid much premium to do so.

Why is that?

Think, for a moment, about who has been making money in the market since April-May. Most traders are trend followers and there have been no trends (up or down) to follow over this period. Most long-term investors are flat. The only players who've been consistently making money over this period have been option premium sellers. But what has happened to option premiums amid this relentless premium selling?

Let me guess, they've fallen.

To record lows. What concerns me is that interest in selling put and call premium has nonetheless continued strong, even though option volatilities (the price that can be collected) are so low. The Nasdaq 100 Trust Volatility Index (QQV) is currently not far off the bottom of its roughly 40-70 range. Some options traders aren't worried, because market volatility has also declined sharply, and they figure low market volatility translates into lower risk in their positions. But that's the rub.

Meaning risk is actually higher, if this is a calm before a storm?

Exactly. Everyone with experience trading options knows that volatility is mean reverting' in the long run, though we often forget this maxim at precisely those times when it is most important to remember it. Remember the "this time it's different" arguments regarding valuation that were invoked near the peak of the Nasdaq bull market in 2000? Well, according to some big players in the options market "this time is different" for market volatility and we can continue selling cheap premium because this new market' isn't going anywhere.

Seriously?

Yes, there was an excellent piece, for example, on the Dow Jones newswire on Aug. 15, quoting a senior options strategist to the effect that "now we have to be receptive to the possibility that we might be entering a new phase where market volatility is going to decline and stay down…Not surprisingly, institutional investors [who've adopted this view] haven't let up selling options, even though investors typically see periods of low volatility as an opportunity to buy options… So as the Nasdaq Composite has slipped to a four-month low, many investors have sold options, both to generate income and to boost returns on their flagging portfolios, as well as to help reduce the cost of buying stocks as they looked for bargains." Another example comes from a Business Week piece called, A Deep Freeze in Options – low volatility is pummeling traders of puts and calls.' It's a quote from a risk manager for Botta Capital Management: "In a nutshell, there are no [option] buyers." It's my contention that those two quotes, taken together, form an incredibly powerful microcosm of what's wrong with this market and why we've not yet put in a market bottom.

Just because institutions are selling options?

What I am getting at is this: If this was a bear market bottom, fear would be rampant and investors would be selling a big chunk of what they own ("just get me out"). They'd also be buying put option protection at any price on any stocks they decided to hold. Instead, they are now selling call options on their "flagging portfolios" at ridiculously and historically low premiums. Will these trifling premiums protect them from the consequences of a major market plunge? Not enough to even mention. In addition, they're buying stocks that they consider "bargains." At bear market bottoms, nothing is considered to be a bargain, no matter how "cheap." Everything is for sale. Want some perspective on this? Consider that according to a book that I recommend to traders at every opportunity, Bill Eng's Trading Rules,' you could have bought a controlling interest in RCA, the Cisco of the 1920s, for $25,000, at the bottom of the stock market in 1932. At the top of the market in 1929, $25,000 would have bought an odd lot.

Surely someone must be buying options?

Sure, but the lopsided investment interest in selling premiums is manifest in many ways. The put/call ratio on what is by far the most actively traded option these days, the QQQs, has dropped precipitously to the area of 46 percent of open interest, puts to calls. Which means 46 puts are sold for every 100 calls, a level that was twice as high in May. It has come down from 92 percent from 46 percent over the past few months – during what you'd have to call at best a neutral period for the Nasdaq, more likely, negative. Yet nobody has bothered very much to buy put protection. Option premiums are pretty low overall. Put premiums, which are generally juiced up at any point relative to call premiums, particularly as you go to the spec end, to the out-of-the-monies, show very little of that bias these days. From an options standpoint, it's kind of scary. That's what investors were doing in '87. One of the warning signs before that market crack, as I recall, was the predominance of put sellers. While many got hurt in the 1987 crash, it was the put sellers who were totally destroyed. The lure of selling option premium became irresistible, and the market crash followed this frenzy of option premium selling. I remember a particular seminar presentation that was just blowing the doors off in the summer of '87, all about the sure-fire' strategy of selling puts. As a matter of fact, a few months after that crash, I put together a bullet point list of the factors that had caused me to be bearish ahead of it. And some of the other points on that list also seem particularly relevant today. Things like: "Wall Street strategists very bullish." We've already noted how familiar this sounds in the summer of 2001. "Big index option volume." Back in 1987, OEX volume and open interest had grown exponentially and dwarfed the individual equity options. It was supposed to be the next best thing to minting money. In 2001, it is QQQ option volume that has exploded to monstrous levels. Now, these days, they talk more in terms of "buy stock, sell calls," rather than in terms of "sell puts," as they did back then, but those are mathematically equivalent strategies. If you get a crash, you get killed. And your profit potential is very limited – essentially, to the premium you're receiving for selling these options. What really is a killer is that premium levels now are so low. So you're not even getting paid what you normally would to sell these options. So if this is the calm before the storm, these strategies are suicide. In other words, institutions are employing exactly the opposite of the textbook options strategy that would protect their longs in a weak market like this one, in which option premiums are low, which would be to buy puts. By doing so, they'd protect themselves fully below the put striking price should the market continue to weaken – and do so at a very modest cost for this downside insurance.

So are you predicting another market crash?

No, though I wouldn't rule out the possibility. What I am predicting most strongly is that this is not the bottom in this bear market, despite the collective wishes of the tech CEOs, Alan Greenspan and the option premium sellers. And the more they work to delay the inevitable, the more ugly the inevitable will be.

Aren't you being an alarmist? All the institutions are doing in selling calls is trying to scrape a little more performance out of their portfolios in a difficult, trendless environment. And what are the odds of a crash?

I'm not saying that they are high. Just that those risks aren't being priced into the options market. I'm not predicting a 22 percent decline in one day. But I certainly see the lack of concern about any risk of a crash as one of the many symptoms that we're not at the bottom yet. And there are potential crash triggers out there, particularly the dollar. You know how the currency markets can trade. I mean, we talk about the fact that stocks trade more like commodities these days. Well, the dollar is a commodity. You could be up to parity on the euro before you turn around, if some kind of a snowball gets rolling. Then what happens to stocks? What happens if bonds go to 5.75 percent or 6 percent as stocks are declining? Where are the valuation models at that point?

You're asking nasty questions there, Bernie.

I'm just saying, there are mechanisms. You can construct a scenario without having to be terribly imaginative about how something like this could get rolling in this pretty darn high-risk environment.

But you're a contrarian. Haven't things gotten bad enough in the corporate world to figure they can't get much worse-and to get invested?

Nowhere does that line of thinking show up more than in the semiconductor sector. But it's not contrarian at this point. Not when it's what so many investors want to believe. Look what happened when they announced some book-to-bill numbers recently that could be interpreted, I guess, as something less than disastrous. But still awful, something like $67 of orders booked for every $100 shipped.

So how low do you see the market going?

On the Nasdaq, I wouldn't be surprised if we had a test in the next 6 -12 months, not of the 2001 lows, but of the 1998 low, which was 1,357. My target is actually somewhere in the range of 1,300 -1,350, for two reasons. No. 1, since 1,357 was the low in 1998, it should provide some support, at least for a while. No. 2, there's a phenomenon that I've noticed in just about every one of the big tech names, with the exception of the ones that just refuse to go down (like Microsoft and IBM). What happens is that as they get down to 50 percent of their old highs, they find some support. And that was also the case with the Nasdaq down at the 2,500-2,600 level. But once they break that support, lo and behold, most of the techs are down another 50 percent before you know it. If that also happens in the Nasdaq, that would take the index down to something like 1,296. So somewhere between 1,300 and 1,350 is where I am drawing a line in the sand as a reasonable level this thing can go to over the next 6 – 12 months.

And after that?

Who knows.

What about the Dow?

Well, with that kind of level on the Nasdaq, I've got to say that we could probably see the Dow down around 7,500, the level where it found support in both 1997 and 1998. But my point is that the weakness, like the mania that preceded it, will continue to be concentrated in the Nasdaq. Nonetheless, the corollary to that is not to therefore go out and buy everything else. The corollary is more like, therefore, how much longer can the rest of the market levitate? You can add to my litany of potentially destabilizing factors the fact that we're down 70 percent or so on the Nasdaq without fund managers having to liquidate their portfolios due to redemptions. What happens when investors wake up to the fact that many of last year's favorite tech stocks are companies that may not exist in a couple of years?

So you're bearish on the Naz. You're bearish on the Dow. There are ominous similarities out there to 1987.

Right! If you're asking, "Can't this market rally. Couldn't we see 11,000 on the Dow?" the answer is sure. But I'm looking at the big picture, what are the potential rewards – and what are the definable risks. And there's no way that the potential rewards I see are worth the risks here.

Bummer, Bernie. But thanks.

Kathryn M.Welling is the editor and publisher of welling@weeden, an independent research service of Weeden & Co. L.P., Greenwich, Conn. http://welling.weedenco.com

New York's trading commu nity is scrambling to change its disaster recovery plans.

Most brokerages were apparently unprepared for the magnitude of the September 11 calamity at the World Trade Center. Their back-up plans were predicated on localized damage that was easily reparable within a week. Skeleton crews would simply maintain positions in small back-up facilities or other offices until it was safe to return.

None expected an entire section of Manhattan to be declared off limits for weeks, or even months. Very few firms maintain fully redundant sites outside Manhattan which allow them to trade at 100 percent of capacity. And, of course, none expected the tragic loss of life.

The disarray has hit not only the unfortunate tenants of the World Trade Center, but those in nearby buildings. Merrill Lynch, CIBC World Markets, Lehman Brothers and Fidelity Capital Markets all maintained large trading floors in the World Financial Center. Gruntal & Co. and National Securities were located at One Liberty Street. All had to evacuate buildings and resume trading elsewhere.

"Nobody had a disaster recovery plan for the buildings being out of commission for this long," said Gerard Nizich, head of Nasdaq trading at Gruntal. The firm is conducting its Nasdaq trading at the offices of M.H. Meyerson in Jersey City. Listed trading is conducted at space provided by SunGard Trading Systems in Jersey City.

None of the firms are trading at capacity. Lehman Brothers has about 70 percent of its trading staff working out of a building in Jersey City and may not be able to return to the World Financial Center for up to a year. Lehman had to spend five days readying its new site for the restart of trading on Monday, Sept. 17. Telephone work still needs to be done.

Merrill Lynch's traders have doubled up with those at its wholesaler subsidiary, Herzog Heine Geduld. Fidelity has split its trading between Boston and Carlstadt, N.J.

CIBC World Markets is making markets in the Jersey City offices of its BRASS order management system vendor, SunGard Trading Systems. With 30 seats in its Jersey City offices, CIBC is making markets in 400 of the 600 stocks it normally trades. Its disaster recovery plan was limited to a short stay at the bank's midtown office where six or seven traders maintained positions, according to John Giovannello, CIBC's head of Nasdaq trading.

Despite the inconvenience, CIBC is not leaning towards establishing a fully-redundant trading site. "It's very expensive to build and maintain a room and keep updating the technology every couple of years," Giovannello said.

That's certainly true. Bernard L. Madoff Investment Securities built one across from LaGuardia Airport in the New York borough of Queens at a cost of $3 million after the 1993 bombing of the World Trade Center. It costs a few million dollars per year to maintain it, according to Bernard Madoff, the firm's president. Traders at Madoff spend one week of every month trading at the site so it is always functional.

Charles Schwab Capital Markets also maintains a site in Piscataway, N.J., says a spokesperson. It is staffed year-round as well.

But such sites are rare. "Firms in the financial services industry spend more on recovering their IT infrastructure than they do on business operations," said Ken Smith, president of disaster recovery outfit SunGard Planning Solutions. "Far, far less than 50 percent of the trading stations had a defined recovery location."

Experts say recovery of a trading operation involves a new site, complete with workstations; computer file back-up; and voice and data connectivity to customers and trading partners.

Connectivity was a big headache in the current disaster after a Verizon switching station that reportedly carried 40 percent of Wall Street's lines was destroyed.

"I certainly hope and believe this is a one-time event," said Matt Johnson, head of U.S. cash trading at Lehman. "But every firm on Wall Street is now going to think more seriously about their disaster recovery plans."

When elephants dance, so the saying goes, the ants get crushed. That hasn't happened yet to Transaction Network Services (TNS), but Wall Street's smallest extranet must now shimmy with three very large competitors.

Radianz, Savvis and Global Crossing Financial Markets all made their bows in the last two years with plans to wrest from TNS the business of transporting trade messages.

All four networks are now waging a fierce battle to link together as many banks, brokers, institutions, alternative trading systems and vendors as possible. Ultimate success lies with the firm which captures the most message flow.

All four hope to profit from the pressure Wall Street faces to process securities transactions electronically from start to finish. That's known as straight-through processing.

The vendors bill their service as a happy medium between the cheap, but unreliable Internet and the reliable, but expensive home-grown networks.

They are finding success. Many brokers are ripping out their proprietary networks and outsourcing the job. But the heightened level of competition is a far cry from 1999 when TNS itself was part of a giant telecommunications organization and faced a single struggling competitor.

That year, TNS, whose main business is transporting credit card transaction data, was acquired by PSInet, the large Internet service provider. The deal was to give TNS access to PSInet's plentiful bandwidth, but the marriage foundered when the two groups clashed over strategy.

TNS was never able to use the PSInet backbone partly because PSInet refused to give it the managerial controls it sought, according to Alan Schwartz, the general manager of TNS' financial services division.

Ultimately, the collapse of the technology and telecom sectors claimed PSInet as a victim. Forced into bankruptcy earlier this year, it sold the Herndon, Va.-based TNS to a private equity firm.

TNS is now flying solo. A small 12-person-financial services division serves 500 customers. It last disclosed revenues of just $5 million for the first nine months of 1999.

Although it dominated the financial extranet business in 1997 when it took over the network operations of agency brokerage ITG, it must now contend with the sprawling networks of Radianz, Savvis and a refocused Global Crossing. Those organizations boast thousands of users because of their relationships with the market data firms, Reuters and Bridge, and the SWIFT clearing network, respectively.

Size Not Issue

Schwartz insists size is not the issue. "Our network only carries mission-critical transaction-based products – indications, executions or something surrounding that," he said. "We don't do things that attract the low-end market. That means our clients are sitting with a high-availability, focused network."

For Schwartz, data is either high-end or low-end. Orders and IOIs, the meat and potatoes of the trading desk, are high-end. Market data, voice, video, e-mail, etc. are low-end. Too much down-market traffic jeopardizes the smooth flow of high-end traffic, says Schwartz.

TNS' competitors don't see it that way. Their orientation is "down-market," but their goal is up.

Radianz, a joint venture formed last year between market data giant Reuters and European telecom company Equant, derives the bulk of its $400 million in revenues from the delivery of data to Reuters' 60,000 terminals. Half of those connections are in Europe, according to Brennan Carley, Radianz's chief product and technology officer. North America and Asia account for one quarter each.

Savvis, a public company spun off last year from the now-bankrupt market data vendor Bridge, makes most of its money transporting Bridge's data. Its Financial Xchange reaches about 4,700 firms with some 15,000 connections.

It grossed $186 million last year, but its stock is in the dumps, recently trading for about 70 cents per share.

Bridge still holds a 48 percent stake in Savvis, but the recent acquisition of its North American market data operation by Reuters leaves a big question mark over Savvis' future. Reuters has an option to buy Bridge's stake in Savvis.

Global Crossing Financial Markets started out life in 1999 as IXnet, a voice network that carried the traffic of its parent, IPC, a popular turret vendor. IXnet attempted to leverage its network to compete with TNS for data traffic, but did not make much headway.

A unit of the giant Bermuda-based telecom network since last year, GCFM may have found its way in a brand new partnership with SWIFT. GCFM, which has 1,200 customers, will now develop its extranet on the back of the well-known clearing and settlement organization's 7,000 connections.

To do so, however, it must overcome the problems currently besetting its parent. Global Crossing is also a victim of the telecom fallout. This year, it had to fire 2,000 of its 11,000 employees and write off billions of dollars in assets. Sales are running at a rate of $4 billion this year, but its stock now trades below $3 per share. (Global Crossing intends to divest itself.)

Despite their precarious financial situations, GCFM and Savvis are racking up impressive wins among the exchanges and ATSs. GCFM has signed the New York and Chicago stock exchanges as well as the International Securities Exchange, an electronic options market.

Savvis, acclaimed for the quality of its network by the editors of Network Magazine, has landed such accounts as the Boston and New York stock exchanges, State Street's Global Link trading system and the Chicago Board Options Exchange.

Radianz, too, is going after the new age trading systems. It counts the ECNs Instinet, Island and REDIBook among its clients as well as the new Nasdaq/Liffe joint venture and the New York Stock Exchange.

Schwartz, of TNS, discounts much of this. "We all have the ECNs," he said. "TNS has had them all along." (The executive adds that following the World Trade Center disaster many ECNs asked TNS to increase their bandwidth. They apparently wanted to be ready for a possible deluge of trading if the established markets could not reopen.)

In any event, the fact that a single client may be an endpoint on more than one network is not uncommon, especially if the client is on the sellside.

That's because a broker must be on every network as his clients if the broker expects to capture their orders. Knight Trading Group, for instance, uses both Radianz and GCFM. "Brokers are frustrated because they must join every network," a source said. "But they have to chase the order flow."

No Slam Dunk

However, just because a broker must join every network, doesn't make the extranet business a slam dunk. Vendors only make money if they move a lot of messages. A broker may connect to all four networks, but only use one regularly.

"You charge a very small fee for the pipe, but the big kicker comes in the volume," explained Dushyant Shahrawat, an analyst at TowerGroup.

Shahrawat says TNS is safe for the next few years, but will face "severe cost pressures" in the long run. Unlike Radianz and GCFM, for instance, with their low-cost sources of bandwidth, TNS must purchase its bandwidth from telephone companies around the world. "They should get rid of their own pipes and sit on top of Global Crossing," said the analyst.

TNS' viability during the next few years could also be abetted by the possible demise of Savvis and a slow-to-boil SWIFT/GCFM partnership.

Under the bankruptcy, Reuters has agreed to keep Bridge afloat for three years, but it will likely migrate the service to its own platform, according to Shahrawat. A Reuters customer is unlikely to pay for the network services of both Radianz and Savvis if it gets everything over Radianz. So, many of those 15,000 Bridge connections could be subsumed by the 60,000 Reuters' endpoints. Savvis could slowly vanish unless it can replace the lost revenues with new business.

The SWIFT/GCFM partnership is brand new. SWIFT is gearing up to offer its services to trading desks, but it is not there yet. It is best known in backoffice circles. Shahwarat is optimistic, though.

"SWIFT is aggressively targeting the middle-office and the trading functions," he said. "It is trying to determine how it can best serve the messaging needs of the middle-office for traders."

Still Moving

TNS isn't standing still. While its heart may be in high-end traffic, it is dabbling in the low-end. Schwartz won't divulge the supplier's name, but says TNS is running some company's market data over its network. Using a technology called IP multicast, which Schwartz says requires very little bandwidth, TNS is able to blast out to multiple recipients a single data feed.

"We don't allow anybody to leverage it the way we leverage everything else," Schwartz said. "It's very small and manageable."

TNS has also moved into hosting others' applications. Javelin's Javcentral order routing service sits on TNS servers as does Flextrade's program trading front-end. Javcentral allows traders to route to $2 brokers on the floor of the New York Stock Exchange while the Flextrade service gives traders access to ECNs.

Although Schwartz claims "there is nobody in our league" it is clear TNS is feeling some heat, especially from Radianz. "One prospect only wanted to sign a certain length contract with us because they believe [Radianz] may soon be in business with a product they may be interested in," Schwartz said.

Trading professionals smirk when they hear the term day trader.

But the technology of day trading is no laughing matter. The institutional pros should turn it into a money-making opportunity.

That's the view of Terra Nova, the Chicago-based direct access, online trading broker, a mostly retail outfit that is eyeing the NYSE and Nasdaq institutional trading community.

The institutional part is a big transformation for a company that cut its teeth building electronic trading platforms for the day or direct access' trader since inception in 1994.

What's more, an alliance with Townsend Analytics, Ltd. provided early customers, such as SOES traders, with quote information and a seamless order routing interface to Nasdaq. That eventually led to the day trading service currently operated by Terra Nova.

Terra Nova also co-created Archipelago, which has grown into one of the world's largest ECNs as measured by share volume. Terra Nova's customers -the company calls them professional traders' – can execute trades on five exchanges and five ECNs. Terra Nova Online offers one of the lower Archipelago rates and is one of the few firms that provides direct access for option orders.

In anticipation of a bigger push into the institutional market, which currently comprises about 25 percent of its volume, Terra Nova has acquired two trading firms. These purchases give Terra Nova more access to trading markets, including more links to several ECNs.

Terra Nova purchased accessBROKER.com, Inc., a trading firm for active traders based in Richardson, Texas. That brought Terra Nova 1,000 new retail-size accounts, while fortifying it financially for its institutional approach. To hold onto its traditional customers, Terra Nova had previously merged with Market Wise Securities of Bloomfield, Colo., a direct-access broker dealer and the operator of Market Wise Stock Trading School.

More importantly, earlier this year, Terra Nova rolled out trading in New York Stock Exchange and American Stock Exchange securities via the Island ECN. That meant Island orders could include all listed

stock symbols – including exchange-traded index funds like QQQ, DIA, SPY and others.

By adding the Island-listed route to the existing ECN choices of Archipelago and Instinet, Terra Nova aims to provide a comprehensive solution for all types of traders who use ECNs as a primary execution point.

But can Terra Nova grow beyond a day-trading outfit and provide market makers and specialists with unique tools?

"I'm not so sure," said Scott Hein, professor of finance at Texas Tech University and a longtime follower of institutional trading markets. "Floor traders already have a lot of the things

that Terra Nova offers, if not at their price range. I suspect that the company may be targeting institutional traders because its day-trading base has bit the dust. Whether that's a good deal for traders or not is hard to say."

Terra Nova defends its strategy. "Traditionally our firm has been devoted to retail, Internet-based traders," said David Nassar, president and chief executive of MarketWise Securities and Market Wise Trading School. "But now we are heading toward professional traders who trade for a living. Institutional investors are interested in our single source trading system that gives access to multiple points of liquidity."

Terra Nova provides technical trading expertise that is unique, according to Chris Doubek, president of the direct access broker. Its principal software is known as RealTick. The features of this software include functions that allow deferred and conditional orders as well as trailing stop orders, which let traders limit losses when prices fall.

"Our system is built by traders for traders," Doubek said. "We enable institutional traders to trade multiple destinations at one time. We have the tools a market maker wants in one package."

Internet Fan

Terra Nova uses OC3's with SPRINT, Level 3, UUNET for connectivity. It is a proponent of Internet-based tools to facilitate market trading, especially for smaller shops. "Customers want a trading system with low overhead where you don't have a lot of circuits to maintain. They want a trading system for traders who are off site and want to trade remotely," Nassar said. "The Internet gives you all that."

Terra Nova contends it is making inroads into the hedge fund community. "They're becoming some of our best customers," Nassar said. "For hedge fund customers [trading via] the Internet is attractive because the point to point lines are cost-effective."

Doubek sees steady institutional growth. "Market makers and specialists are using our system in larger numbers," he said. "Our institutional clients know that when we return to trending markets, instead of trendless markets like we have seen, they will see volume come back. And they see that we've taken the floor trading mentality, brought it into the electronics environment, and improved it."

After spending nearly 20 years as a technology executive at the New York Stock Exchange, it's no surprise that a virtual Big Board is suggested in Chris Keith's vision of a stock market for the 21st century. In this brave new world, robotic floor brokers dart from electronic post to electronic post trading stocks with other robotic floor brokers.

To that end, the 70-year-old Keith, chief technology officer at the Big Board until 1989, claims to have harnessed emerging intelligent agent' technology to create a liquidity-seeking system that will antiquate all other forms of trading.

The first tangible result of his new research for ExchangeLab, the technology incubator that he heads, is expected by the end of the year. It is a product called InterELF.

This leap from the drawing board to the assembly line is made possible by a $6 million investment into ExchangeLab by Salomon Smith Barney, Madoff Brokerage & Trading Technologies, an affiliate of Bernard L. Madoff Investment Securities, and Sri Lanka's Millennium Information Technologies. Millennium, best known for building electronic stock exchanges in Sri Lanka and Malaysia, will build InterELF.

A new corporation, also called InterELF, has been registered to commercialize the technology. Just a shell at this point, it will have an exclusive franchise in the financial industry. It will both operate the system and license the technology to brokers and others.

If accepted by traders, the finished product will be a network of sellside and buyside desks, exchanges and alternative trading systems (ATSs) interacting through intelligent agents called electronic liquidity finders' (ELFs).

Overseeing the interplay between two ELFs will be umpires,' software applications embedded with rules of conduct written by the individual participants. Keith likens the ELFs to floor brokers and the umpires to specialist posts.

"This is a new model of the market," he said. "It has all of the efficiency of an electronic book, but it preserves the nature of the relationship between two people. It's hard to imagine, in ten years, anything of size being done any other way."

Electronic books – ECNs or the limit order books of specialists and market makers – may be the state of the art of electronic trading, but their capabilities are limited, Keith says. "Individuals can do something that electronic books cannot," he explained. "They can agree on a price and execute at the same time."

Using an ECN, for instance, a trader might post a bid at 10 a.m., but not receive an execution until 10:30 a.m. In addition, a buyer may be willing to pay $33 per share while a seller may be willing to accept $32. Whichever posts first, loses.

So, while an ECN is nominally an agent, it's a relatively dumb' one. It may offer smart order-routing and reserve functionality, but it lacks the human characteristics of an ELF. An ELF doesn't just route orders away; it sticks with them. It can take special instructions from traders. It can request information of others. It can locate vest-pocket' liquidity. It can execute against standing orders or it can negotiate with other ELFs.

"This is unlike anything that exists today," Keith said. "You don't send your orders to a trading system. You send them to your electronic broker, an ELF."

Intelligent agents are best known as bots,' computer programs that search the Internet for requested information. Search engines send out bots that crawl' from server to server collecting URLs. Shopping bots are used to hunt down pricing data on consumer products at vendor Websites. Bots are agents that do the user's bidding.

Some sophisticated brokers do write trading programs that stay with orders, Keith notes. Such systems send out limit orders in waves to market centers at multiple price points. Each order is accompanied by cancellation instructions. If the order is not executed at a certain price point within a certain time frame, it is cancelled and the next order is posted. Behind every execution is a stream of limit orders and cancellations.

ITG, through its QuantEx trading platform, offers similar functionality. QuantEx's AutoCore Strategy combines automatic executions with the monitoring of a trader's limit orders and market conditions.

Pegging Service

Instinet offers a pegging' service which lets a trader peg the price of his order to certain indexes and market indicators. As they move, so does the trader's order price. Instinet also offers discretion.' A trader can post at one price, but indicate to the system that he would be willing to trade at a different level for larger quantities.

For such retail-sized orders, an ELF could do something similar. For example, assume the best prevailing bid and offer are $16.90 and $17.10, respectively, and the next best bid is $16.10. If a limit order trader is willing to pay up to $16.50 for the stock, the ELF might first bid $16.11, just topping the next best bid. It can increase the price at given intervals per the trader's instructions.

For large block trades, according to Keith, ELFs can be used to hide intent. A human trader with a 100,000-share order, for example, risks moving the stock's price adversely if he makes enough telephone calls. To avoid that, he could instruct an ELF to find a counterparty on the network. An ELF could dial up' several other ELFs to request a peek at their interest tables,' lists of stocks and the quantities available to trade.

Once it has sniffed out a trading interest it would report back to the trader or negotiate the trade itself. "You've made about 5,000 phone calls,' but not disclosed it to anybody," Keith said. "Only the people who want to bid would know." Trust between participants is obviously essential. Keith notes that each must agree to accept the other's ELF sniffing around its trading blotter. "It must be a matter of relationship," he said. "You'll deal with my agent if I deal with yours."

To enable one trader's ELF to communicate with another's, there must be a go-between. In Keith's liquidity city,' as he refers to it, the middleman is called an umpire. An umpire is an application that does two things. It translates between ELFs. And it defines the rules under which they interact. It consists of both a communication protocol and standard operating procedures.

Just as two floor brokers meeting at a post must follow the rules of the exchange, two ELFs must follow the rules of the umpire. Like an exchange, an umpire is a standard process. It is both a rules-maker and an enforcer. There is a set way to represent prices. There is a set way to execute. "If your ELF doesn't like a certain umpire – its rules may require exposing all bids, for example – you won't go to that umpire," Keith explained. "The idea of a standardized process is new with this system."

Many different types of umpires will populate the liquidity city, Keith says. There will be umpires that just give trading advice. There will be umpires that compare lists of potential stock trades. There will be liquidity umpires' that bring ELFs together – such as ECNs or other ATSs. An umpire could be written that mimics the functionality of trading systems such as the now lifeless OptiMark and the new wave LiquidNet.

"An umpire can be as simple as something that handles a phone call between two intelligent agents and it can be as general as the Paris Bourse," Keith said. "It is one set of structure. It's a standardized process."

Well, that's the dream anyway. But InterELF has no capital, no office, no chief executive and no customers. Its place of business depends on who puts up the money, according to Keith. He hopes Salomon will be an early customer. He notes that Merrill Lynch has also expressed interest. But he says it's not necessary for several brokers to sign on for the system to work. A small broker with 30 to 40 hedge fund clients, for instance, could operate the system successfully by trading among its clients.

"The first broker to get on this will have a big advantage," Keith said. "I absolutely guarantee you that in ten years this will be the standard."

A Maestro's Long Tech Career

InterELF is not the first new-fangled trading system to come from the mind of Chris Keith. DOT, FAN, MMX, and EPIC all have made an impression on Wall Street over the maestro's 30-year career. At the New York Stock Exchange, Keith and his staff developed the Designated Order Turnaround, or DOT, system to shepherd small retail orders to specialists. Keith spent nearly 20 years with the Big Board, his last five as its chief technology officer.

Shortly after leaving that post in 1989, Keith worked through variously named research organizations – Global Trade, ExchangeLab and Financial Auction Network. He produced variations on an electronic matching mechanism. MMX came first. The multi-price auction system was developed at the behest of the Chicago Stock Exchange, but never caught on with traders. Dubbed Chicago Match, it was subsequently scrapped.

EPIC, the successor to MMX, appeared in 1996 and was to form the heart of WIT Capital's online trading system. That project also failed. Keith then developed FAN, or the Financial Auction Network, in 1998. After being shopped around for about a year, Bernard L. Madoff Investment Securities purchased the rights to the technology. A kernel of FAN can be found in Madoff's Primex electronic auction market in which Keith is an investor.

Under pressure to automate from regu lators, brokers and management, buyside desks are increasingly turning to their brokers for help. At CAPIS, a Dallas-based agency brokerage, Jim Morrow, first vice president of electronic trading, and his three-person staff spend much of their time guiding the firm's institutional clients through the maze of issues surrounding electronic connectivity.

That boils down to the transmission of orders, indications, reports, as well as allocations between sellside and buyside order management systems in the FIX protocol.

Morrow's involvement with electronic connectivity began in 1993 at a time when brokers' DOT-boxes were piled high on buyside desks. CAPIS clients complained they wanted to trade with all of their brokers through one system.

Because a significant portion of CAPIS' business is soft-dollar brokerage, Morrow said the firm has experience in helping clients to acquire appropriate technology and forge strong links to the vendor community.

Morrow took some questions from Traders Magazine technology editor Peter Chapman.

Traders: Next-day settlement is looming. Should traders be concerned?

Morrow: Oh, yes. Much of the automation will be done by the custodians and the clearing firms, but to get the trade and account information to these people there will have to be electronic connections – real-time communication with the trading desk. That means the electronic delivery of orders back and forth and the electronic delivery of allocations with the orders. Without it, you won't be able to allocate the next day.

Traders: What is the actual deadline?

Morrow: T+1 is expected to go into effect in June 2004, although that date has not been mandated. The regulators have said they will mandate it at least two years in advance, so we should hear something in the next nine months.

Traders: What is your role?

Morrow: We help [institutions] wade through those issues associated with T+1. Because we know the broad market we help them narrow their choices.

Traders: When buying systems?

Morrow: Right. We don't take these decisions on OMSs and allocation systems through the buying process with them. But we'll give them some advice as to what they should ask the vendors. We'll also set up appointments with vendors, but at that point, we step out of the discussion.

Traders: Helping clients leads to more order flow?

Morrow: If they are existing clients we suggest they feed us a little more business. If they are prospects, we ask them to throw us a few trades. Also, if it's a client that does soft-dollar brokerage, we can help them to buy the part of the OMS that can be soft-dollared.

Traders: Any other benefits?

Morrow: Well, eventually most investment managers will be using order management systems. The trader will use it to trade out of. They may use it tied to an ECN, an alternative trading system, broker or market maker. So, as a broker wanting to get order flow you need to be aware of what they're looking at and what they are doing. If they are going to send their orders from the system, you want to be able to go get them. You want the client to be comfortable sending you the orders. You don't want any downtime. You don't want to lose anything. You don't want to send the order to the wrong desk. There are a lot of little issues that you want to get the clients comfortable with.

Traders: Which OMSs are making headway?

Morrow: The market breaks down into two parts: the institutional desks and the hedge funds. You have two vendors that have really gone after the hedge funds: SS&C Antares and Eze Castle. They are also both finding success in going after the investment managers, the mutual funds. If you're a hedge fund, we would probably direct you to one of these.

Traders: How about the big mutual funds?

Morrow: Merrin, Longview, and Charles River are dominant. Occasionally, there is a fourth used by some like Eze Castle, SS&C Antares, Thomson's OpenTrader, or Bloomberg. But when they send out their RFPs [Request for Proposals], when they narrow their choices, it comes down to those three.

Traders: What do traders want in an OMS?

Morrow: They need their blotter. They need to be able to trade electronically with their brokers. They need to get their IOIs into their blotter. And they need simple trading tools. For instance, they need to be able to combine orders or send partial orders to brokerages.

Traders: Partial orders?

Morrow: If they have a 500,000-share order, they might just send 100,000 shares to start. Later they will send another 100,000 and so on. Then they combine them at the end of the day. Most of the order management systems are starting to offer that functionality. But, a year ago, not all could break up orders. Or break them up to different brokers.

Traders: Does CAPIS accept orders in FIX?

Morrow: We started with FIX in early 1996. Currently, over 200 of our clients are sending us orders in FIX. Many others are just receiving indications. Our goal is to be better at FIX than anybody else.

Traders: How? I thought FIX was FIX.

Morrow: FIX is a standard,' but there are still a lot of variables. Brokers do things differently because they use different FIX engines. How does the engine handle cancel/replaces? How does it handle busts? People always do it slightly differently. We try to be flexible.

Traders: Buyside traders need an OMS to send orders in FIX?

Morrow: Not necessarily. They can send them through [such market data systems as] Bloomberg, Bridge or Reuters. Also, they can do it through trust accounting systems such as SunGard's Charlotte and Series 7 and 11.

Traders: What's new with FIX?

Morrow: Well, right now most people are using FIX 4.0. Even though 4.1, 4.2 and 4.3 are out, they tend to confuse the process. For pure equity trading, they're not needed. But, the New York Stock Exchange is moving to 4.2. So, when that is demanded, most firms will have to move to 4.2. Also, MacGregor [the largest OMS vendor-editor] plans to move to 4.2 by the end of the year. That will also force their clients and brokers to move to 4.2.

Traders: What does 4.2 do for traders?

Morrow: It allows for allocations and international order routing. Both are hot topics.

Traders: Allocations is a hot topic?

Morrow: If, for instance, an institutional trader does a 100,000-share trade on behalf of ten different customers, he must inform us so we can settle the trade through the ten accounts. Today, this part of the trade is often done over OASYS or by phone or fax. But, as we get closer to T+1, it becomes more important to do it electronically. We have to know on the day of the trade. The FIX group is trying to make it possible for people to do it in FIX.

Traders: Where does CAPIS stand?

Morrow: We will do allocations in either OASYS or FIX. Whatever the client wants. Right now we are one of only about ten or twelve brokers able to handle FIX allocations. That compares to hundreds of brokers on OASYS. So, at this point most buyside desks won't do FIX allocations because too few brokers accept them. In addition, only MacGregor and SunGard offer systems that allow for FIX allocations. So, it's not there yet, but it's the future of FIX.

Traders: One of the problems with FIX is that orders sometimes end up at the wrong desk. A client will route an order for a listed security that gets lost at the Nasdaq desk. How do you handle incoming orders?

Morrow: We have something called a nag' screen. When a block order comes in, a little screen will pop up on the trader's desktop asking him to acknowledge the order. He has 30 seconds to do so. If he does not, then a back-up trader gets the nag. If he doesn't respond in 30 seconds, then the whole desk gets a big red block with a message that tells them to take care of the order. Many brokers' systems will automatically send an acknowledgement to the institution once they receive an order, even if the proper trader never got it. We don't send out a message until the trader confirms receipt. So, the institution knows a trader is actually working the order.

Traders: Thanks, Jim.

Five years ago at a conference usually associated with the backoffice, one topic was avoided like the plague. The topic was FIX, shorthand for Financial Information Exchange, the globally accepted standard for electronically communicating trade information.

Today, at the same SIBOS conference hosted each year by SWIFT, the topic is centerstage. Now the vendors serve the interests of the front as well as the interests of the backoffice. (SWIFT, an industry-owned cooperative, provides secure messaging services and software to about 7,000 financial institutions in some 200 countries.)

What has happened? There is, of course, Straight-Through Processing, the push towards settling trades one day after trade execution. But that does not answer the question of why concerns have changed. STP is still mostly an area dominated by U.S. parties while the SIBOS conference is global in outlook.

The driving force is trade globalization – the idea that U.S. fund managers can trade seamlessly with European and even Asian points of liquidity, and visa versa. This global marketplace requires a sharp focus on protocol compatibility. That means counter-party connectivity while ensuring that trading networks are free of both error and risk.

One example of protocol compatibility came earlier this year when FIX and SWIFT announced plans to combine the two protocols. While this will require work by U.K.-based FIX Protocol Ltd. (FPL), SWIFT and the vendor community, it does recognize that the trading process must be absolutely seamless if transactions are to be processed globally with efficiency.

While FPL and SWIFT focus on the actual structure of what will become ISO 15022 XML (the new protocol when SWIFT and FIX are combined), vendors must look at the solutions they are providing the industry. Many focus only on providing solutions around either FIX or SWIFT. That limits their expertise. Vendors must expand, becoming more open on protocol and focus on the overall trading process.

When FPL proposed that the securities industry introduce FIX certification, it led to a new level of efficiency in industry connectivity. Fund managers and broker dealers could ensure that trade counterparts were speaking their language. This would make the business of trading much easier. Having ascertained the huge cost of creating such a certification infrastructure, FPL continued to promote the idea but left it up to the industry to work out the details.

The idea of certification is still essential, even if it only focuses on the FIX community of users. But this issue is compounded in a world built on FIX, SWIFT, and ISO 15022 XML communication, not to mention protocols like RIXML, FpML. (On the fixed-income side, the Bond Market Association is looking for standards too. Therefore, a vendor should aim to provide a network that accommodates all types of certification for all financial instruments and for communication market data.)

By strengthening external counter-party connectivity, both risk and error are taken out of the equation, facilitating errorless global trading. But it doesn't stop there if the focus is on the entire process.

Ultimately, a firm will take all this external trade information (which will increase once the industry steps up its trading across continents) and bring it in-house. There it will weave its way around the network, touching disparate systems and complex applications.

If and when problems arise, even in a limited trade environment, will these issues be addressed expeditiously and by the right trade partner? The answer is to make the network more intelligent.

An intelligent network is not just a new industry buzzword, or an oxymoron. It is a necessity. A network that is aware of the health, not only of the protocol connection between firms but also of the communications among systems within firms, will reduce the complexity of a system.

This provides an appropriate approach for building solid global electronic trading and settlement architectures across multiple networks and protocols, with a level of reliability not seen today.

SIBOS is an example of where the securities industry is headed. It shows how far the industry has come in acknowledging that the trade process (not just a piece of this puzzle) is what requires concentrated focus.

Sam Johnson is the president and CEO of TransactTools, a company based in New York that provides a platform solution for external electronic trade connectivity.

Some buyside traders have a background in Wall Street operations.

Anthony Iuliano, who knows operations like the back of his hand, built one trading desk from scratch and revitalized another. Now he heads the trading desk at The Glenmede Trust Company in Philadelphia, Pa.

His journey began in 1989 when he earned an undergraduate degree in business administration from Washington and Jefferson College in Washington, Pa. His next stop was at Morgan Stanley in New York. He worked in operations as well as in clearance and settlement.

"I was the grunt for everyone," said the 34-year-old Iuliano. "I started off doing the really undesirable jobs." He spent about five years at Morgan. He became a jack of all trades. He became an expert in retail brokerage and in the capital markets.

By 1994, Iuliano was eager to move to the buyside. He wanted to become a full-fledged trader. So he joined Mellon Equity Associates in Pittsburgh. At Mellon, he helped head trader John Keller build a trading desk from the ground up. "My responsibility was to set up the operational side," Iuliano said.

Three years later, he joined Brandywine Asset Management in Wilmington, Del. Within about a year, Glenmede offered him the opportunity to overhaul its trading desk. It was a challenging spot that Iuliano was happy to undertake.

Founded in 1956 and named after the Bryn Mawr, Pa., estate of Joseph N. Pew (founder of Sun Oil Company), Glenmede was originally formed to manage the charitable initiatives and assets of the Pew family. Today, it is one of the largest independent trust companies in the country and its clients include high net-worth individuals and institutions. The firm has some $20 billion in assets with 75 percent invested in equities, and 25 percent in fixed income.

Iuliano heads up a desk that comprises four traders. Seven portfolio managers handle the firm's institutional client base and some 25 managers are dedicated to serving its high net-worth clients.

Glenmede's trading desk performs some 700 trades each day for the firm's wealthy individual investors and about 25 for its institutional accounts. The desk has a roster of 50 broker dealers but only half are used on a regular basis.

Iuliano found his experience in operations invaluable while he helped to turn Glenmede's trading desk into a state-of-the-art facility. "They were way behind the times," he recalled. "They were writing trades down in a book instead of using an order management system."

Besides revamping the firm's order management system, Iuliano added fixed routing for the desk's smaller trades and helped install several information systems, including OASYS, Alert, Bridge, and Bloomberg.

Iuliano and his wife, Lisa, are the parents of a newborn baby boy named Dante. Awakening in the middle of the night is nothing new for Iuliano. You see, his desk also trades non-U.S. equities. "When I trade international stocks I sometimes get calls at three in the morning," he said.

On the desk, Iuliano has a hands-off management style. "I believe in letting people who have the trades do the trades," he said. "I don't believe in looking constantly over their shoulders. I feel that hampers their efficiency and ability to make the correct decision."

The biggest problems facing the buyside today are finding liquidity as well as the lack of transparency, according to Iuliano. "You don't know what's on the specialists' book anymore," he said. "People are holding back and doing larger prints. They are scared to put the whole piece out there and get it done. It's become more difficult to trade large blocks."

The increased difficulty in finding liquidity, Iuliano contended, can be attributed to the introduction of decimalization and the current market conditions. "Decimalization on the OTC side obviously hurts," he said. "They have to figure out whether they want to charge commissions or do the trades as net trades."

To Iuliano, trading Nasdaq and OTC stocks on an agency basis is a lot more preferable than trading on a net basis. "It's an explicit cost. You can show the client exactly what you paid," he said.

As far as the sellside's performance goes, Iuliano thinks "the sellside sometimes falls down on its obligations." But he added, "I also feel the buyside sometimes puts too many demands on the sellside."