Monday, March 17, 2025

SIA Tech Fest’s Trading World: Trade-Group Technology Conference is Mecca for the Pros

Some of the most important technological changes on equity-trading desks are only a few years old.

New systems and procedures, meanwhile, constantly enhance the productivity and performance of every trader.

Paperless trading, electronic order routing and a computer protocol dubbed the Financial Information Exchange, or FIX, are good examples.

Innovation is absolutely breathtaking, and the speed at which machines become obsolete is more stunning than ever before.

Wall Street is a hotbed of technology spending. The spending is of gargantuan proportions. And it shows no sign of slowing down.

Not convinced? Just consider the Securities Industry Association's Technology Management Conference and Exhibit at the New York Hilton, June 23 to June 25.

Visitors will discover vendors presenting products and services in areas such as wireless communications, workstation furniture, training, information storage and disaster recovery.

The conference is not short on variety, or of attendees with checkbooks stuffed into bulging briefcases.

As Pim Goodbody, the SIA's vice president of management services, wryly observed to Traders Magazine, "This is the place where industry pros can come to get answers to their most pressing technology questions."

Of hundreds of products exhibited, traders and trading-floor managers will be eagerly eyeing the next generation of trading systems, which promise to streamline operations and boost productivity.

OMR Systems Corp., based in Princeton, N.J., is showcasing the Trading Assistant, its front-to-back trade-processing engine that supports multiple trades from a single-entry screen.

The engine's processing capability includes trade validation, advice and payment processing and accounting usages.

The technology is compatible with the Financial Trading Network, which links individual trading-assistant systems on a trading floor or in seperate locations via messaging technology.

Midas-Kapiti International will highlight its Windows NT-based Front Office DBA trading system. The London-based company says its product is designed to eliminate the expense and confusion of running different applications for a series of specific tasks.

Consisting of independent but integrated components, Front Office DBA delivers real-time and historical market data and news, performs sophisticated pricing and market-risk calculations and automates deal capturing and position keeping all on a single workstation.

Front Office DBA offers traders access to real-time spreadsheets, graphic technical-analysis capabilities, free seating and support for occasional users. Other features include straight-through processing to the backoffice, market-risk management and the ability to expand support into various financial markets.

Trintech Systems, based in Stamford, CT. is showcasing a wide range of trading technologies. FloorLook is the company's electronic quote-routing system, connecting traders to the floor of the New York Stock Exchange.

Trintech's FloorReport supports the management of orders and executions between traders and exchange-floor operations, while its FIXTrader provides order management and routing for both buy-side and sell-side institutions.

Other Technologies

While trading systems take center stage, other technologies will certainly draw the attention of this year's crowd. Several companies are presenting new desktop display technologies.

Acton, Mass.-based Pixelvision is demonstrating its SmartGlas flat-panel display, which maximizes display space while minimizing eye strain.

Designed to replace bulky CRT monitors, SmartGlas resembles a thick sheet of glass and can be mounted on a desktop or wall.

The device allows traders to control more than 30 inches of high-resolution screen area from a keyboard or mouse. SmartGlas is designed to let traders view multiple applications simultaneously, and work collaboratively.

The display combines multiple-information tiles in an electronic mosaic, giving traders quick access to financial applications. The product also offers high brightness and wide-viewing angles, allowing traders to monitor applications and data whether they're standing or sitting from previously obstructed side angles.

Value Displays

Another SIA vendor will demonstrate how companies can derive more value from conventional displays. For the past 11 years, Colorgraphic Communications has been a leader in the design and manufacturing of multiple-display technologies for numerous vertical markets.

At the SIA show, the Atlanta-based company will introduce the Twin Tuna, a product that aims to combine innovations in multiple CRT screen-display technology with real-time video overlays. The plug-in PC card will allow traders to display their financial windows across two monitors. Users can also watch multiple television channels, cameras or satellite feeds in fully scalable windows.

The Twin Tuna occupies a single, full-sized PCI slot and ships with support for Windows 95 and NT 4.0. Software that provides full control of video and audio properties is included.

On the database side, Soliton Associates, based in Toronto, will exhibit TimeSquare, a database manager for financial-market data. TimeSquare integrates the acquisition, management, verification and dissemination of market data into a single product.

The software is SQL-based, making it accessible from any trading environment. Designed specifically for managing time series, TimeSquare aims to deliver fast, efficient updates.

As computing power grows almost exponentially, market-data storage and analytical tools are gaining in speed and sophistication. Inventure will use the SIA event to showcase its Ranger Enterprise Architecture, an innovative new solution for the distributed integration of data and analytics.

According to the New York-based firm, Ranger serves as an attractive alternative to data-warehouse technology, integrating disparate data and analytics, and delivering them globally to traders and other users over a corporate intranet. Users can view and manipulate all Ranger-linked data and analytics through familiar desktop applications, such as Excel, or through more specialized power-user tools developed by consultants and software specialists.

Ranger is optimized for the fast and accurate analysis of large, time-aware data sets, such as stock-price histories. The product solves problems faced by every company operating in the financial markets: seamless integration of multiple databases, irrespective of format or physical location, rapid data access, complete real-time and historic data integration, powerful analytics and sophisticated visualization tools. Ranger is available in both Windows NT and Sun computing environments.

Quotation services are also benefiting from advancing computer and communications technologies. CQG for Windows, for example, will present its real-time, graphically-enhanced quotation service at the SIA show.

The New York-based company's CQG for Windows is a decision-support system that's designed to meet the needs of a wide range of traders. CQG for Windows is a 32-bit application that operates under Windows 95 or Windows NT.

CQGNet provides the application through a user's internal network. Market databases available through CQG for Windows include 1,800 of the most actively traded U.S. equities.

All U.S. equities, their options and selected foreign equities will be available by year's end. CQG for Windows also provides more than 80 technical indicators, including Market Profile, Elliott Wave and Tom DeMark Indicators. CQG for Windows data may also be exported to Excel.

Integrating disparate and incompatible trading technologies into a single, cohesive system is a thematic pitch among vendors at this year's SIA conference.

In this area, Software Technologies Corp. of Monrovia, Calif. is marketing DataGate, a system that provides guaranteed message delivery, secure Internet access, mainframe connectivity and NT and UNIX support.

DataGate enables different information systems to exchange data in real time, regardless of the network, platform, operating system or application.

The product's point and click graphical-user interface allows companies to build a complete information infrastructure with intelligent routing and translation of data, creating a seamless enterprise architecture for disparate applications. DataGate also gives traders and other users access to virtually any system, thus preserving a company's investment in legacy hardware and software.

By linking different software and networking applications, and making all the translations, DataGate aims to provide complete integration across diverse platforms and geographies.

The New York Hilton is located at 1335 Avenue of the Americas, New York, N.Y. Telephone the SIA for more conference information at (212) 618-0577.

The AutEx Group

The AutEx Group is a Boston-based solutions developer for the automation of pre-trade processing and execution information for the global securities market. Its products are targeted toward buy-side and sell-side traders. Among the AutEx suite of products are:

* AutEX+, a global standard for electronic communication of pre-trade indications of interest and block-trading information for listed, Nasdaq and over-the-counter securities, American Depository Receipts and ordinary and convertible securities.

* AutEX+Web, a secure, Internet-delivered version of its equity trade-information service. AutEx+Web provides institutional users not on the front line of trading an additional liquidity tool without any investment in hardware or software.

* TradeRoute, a private, dedicated network that connects investment managers directly to more than 32 broker dealers and alternative sources of liquidity. Using a personal computer, investment managers access TradeRoute from TradeRoute+, vendor order-management systems and in-house management systems.

* MatchPoint, which allows AutEx+ users to directly access State Street Brokerage's Lattice trading system through their TradeRoute+ order-entry screens. The system allows orders to be electronically routed via TradeRoute's dedicated network to State Street's Lattice Match system, providing access to Lattice's internal book.

* BlockDATA/BlockONLINE, a global trade-information source for institutional-trade information, the reporting service of the AutEx+ network. BlockDATA, and its online service BlockONLINE, generates customized reports on trade activity as advertised over AutEx, focusing on specific securities, brokerage firms and industries.

Instinet Corporation, a subsidiary of London's Reuters Group PLC, provides agency brokerage services in global equities to securities professionals in more than 30 countries, delivered primarily through sophisticated computer technology.

Instinet provides its equity transactions and research services to a global base of institutional fund managers and plan sponsors, other broker dealers and exchange specialists. Founded in 1969, Instinet was acquired by Reuters in 1987, and now has offices in eight key financial centers worldwide.

Instinet is registered with the Securities and Exchange Commission as a broker dealer and is a member of the National Association of Securities Dealers, all U.S. regional exchanges, the American Stock Exchange, the Chicago Board Options Exchange, the European Options Exchange and stock exchanges in Frankfurt, Hong Kong, London, Paris, Stockholm, Toronto and Zurich.

As an agency broker, Instinet said it remains neutral in its transactions, neither buying nor selling for its own account. Its only business is providing brokerage services for the benefit of its customers through its application of computer and communications technology.

For Instinet's customers, the primary benefit of using Instinet as their broker is the ability to reduce trading or transaction costs, and in doing so, improve investment performance.

The Nasdaq Stock Market hardly needs an introduction. But its large capital investment in new technology is worth noting.

Employing elaborate computer and telecommunications networks, Nasdaq facilitates the trading and surveillance of more than 5,000 securities. Brokerage firms across the U.S. are able to compete freely via a floorless, screen-based trading environment to execute transactions quickly and efficiently.

Over the last 25 years, the world's first electronic stock market has propelled the securities industry into the 21st century, with its innovative market structure. The average daily share volume on Nasdaq has soared higher than any other stock market in the world. Now, more than half of all equity shares traded in the U.S. every day are traded on Nasdaq.

Nasdaq's web site (www.nasdaq.com), provides market participants a valuable world of trading data, trading services and Nasdaq news.

The Acorns Don’t Fall Far

Richie Fink got his start in asset management as a Yonkers schoolboy almost 40 years ago.

In elementary school, Fink's father set up an imaginary mutual fund to teach the third grader about the stock market. Fink loved following his stocks, and even wrote about his new hobby in a school essay.

In sixth grade, Fink's father let him buy five shares of stock, to teach the prodigy how to research a company. He bought Xerox, and would sneak out of his classroom to a pay phone to call his father's broker for daily updates. "I finally sold the stock after it tripled in value," Fink said "After that, I was hooked."

Today, Fink is still managing assets, although on a larger scale. He is the head of trading at U.S. Steel & Carnegie Pension Fund in New York, the registered investment advisor for U.S. Steel Corp.

The investment advisor manages the pension accounts for U.S. Steel Corp. and its smaller subsidiaries. Ten analysts handle more than $11.5 billion in assets. Of those assets, roughly $6.8 billion is invested in equities, $3.8 billion in bonds and $900 million in a short-term cash portfolio.

Executing the bond and equity transactions for the analysts, Fink estimates he makes 100 trades each week, and works regularly with 50 brokers during the year.

Aside from trading for the U.S. Steel analysts, Fink manages the $900 million cash portfolio. He handles the account with the same schoolboy enthusiasm that first blossomed in the sixth grade. Over the last six years, he has doubled the short-term return rate of the cash portfolio with option buy-writes.

"Buy-writes give me the opportunity to participate directly in our performance," he said. "I know I'm personally responsible for a small percentage of our growth."

An option is a right to buy or sell a security at a prespecified price in exchange for an agreed-upon premium. An option has an expiration

date usually three, six or nine months and if the right is not exercised by that date, the option buyer forfeits the premium.

A call option, for example, gives a buyer the right to purchase a set amount of shares of a security at a fixed price before a prespecified date. For this right, the call-option buyer pays the seller that is, the writer a premium. If the buyer does not exercise the option before the expiration date, the premium is forfeited to the seller. A buyer speculates that the price of the underlying shares will rise before the expiration date. So, for a premium, the buyer can buy the shares at the lower exercise price and sell at the higher market price.

A buy-write, on the other hand, is on the seller's side of a call option. Fink will buy a stock and simultaneously sell an option against the stock, hoping the stock price doesn't fall significantly before the option expires. By selling an option against the stock, Fink in effect lowers the price of the stock purchase by the price of the premium. As long as the stock does not drop more than the premium before the expiration date, Fink will profit. And if the option is not called because the stock rises, he will pocket the premium.

"If I can make money on eight out of ten buy-writes, I can beat the average money-market return," Fink added. "Buy-writes allow me to put my own two cents into our growth. They keep me on my toes."

Fink has been contributing to the growth at U.S. Steel since 1970, his first year out of college. He started in the asset manager's treasury department before moving over to the trading desk in 1974.

"When I started, I felt like I was the young guy, trading with my father," Fink said. "Now I've come full circle. I feel like I'm dealing with my sons."

Fink and his wife Dr. Jeri Fink, a psychotherapist and published author have two sons, David and Russell. The couple live in Bellmore, N.Y., the Long Island town made famous by tabloid queen Amy Fisher.

Russell, Fink's younger son, is a film and television student at New York University. David a 1997 graduate of Georgetown University prices securities in the equity department at Bankers Trust in New York.

David recently set up a brokerage account with his father, and the two buy and sell securities together. They talk on the telephone every night about stocks, the market and their investments.

"It's a great hobby for the two of us," Fink said. "David is a late bloomer in the business, but his passion is as strong as mine was when I first got hooked. We're having a lot of fun together."

Knight & Trimark

The success of Jersey City's Knight Securities, and its affiliated Trimark Securities in White Plains, N.Y., bodes well for a hot initial public offering by the firms' parent. The preliminary prospectus, however, raises important considerations. One is that a large percentage of the company's growth in Nasdaq and third-market trading is due to retail-sized order flow. Narrowing spreads have encouraged the company to penetrate the institutional market.

At the same time, the company has changed its payment-for-order-flow arrangements, paying broker dealers only for orders providing a profit opportunity. Limit orders do not receive rebates. Payment for order flow, in fact, decreased 10.3 percent to $16.3 million for the three months ending March 31, 1998, from $18.1 million for the comparable period in 1997.

In another area, it is possible a top company executive will be suspended from the industry, arising from the Securities and Exchange Commission's three-year Nasdaq probe. The SEC intends to recommend the executive be charged with failure to supervise several transactions executed by traders at another major wholesaler. The executive was employed by that firm before he joined Knight and Trimark in 1995, the prospectus noted.

Technology Squeeze

Some of the major technology projects on trading desks are receiving the resources necessary for their completion. According to a study by Boston-based research firm The Tower Group, for the Securities Industry Association, securities firms are wasting no time or money preparing for the Order Audit Trail System, Year-2000 compliance, decimilization, T+1 and capacity expansion. The study, however, stresses that implementing the Year-2000 and other projects – which have Dec. 31, 1999 deadlines – must not compromise separate projects.

"Information technology is critical to the strategic direction and the day-to-day operation of securities firms," said Marc Lackritz, president of the SIA, in a prepared statement. "Industry participants must work together to clearly define project scopes and develop realistic implementation schedules."

ART-

Alternative Trading

When the Securities and Exchange Commission announced potential ground-breaking proposals on the regulation of alternative or private trading systems, the reaction was dull.

The proposals, however, should not be overlooked, raising the possibility, for instance, that a major Nasdaq trading firm will establish its own stock exchange.

The SEC proposes to give alternative trading systems more choices on how they are regulated, and to provide brick and mortar stock markets a chance to compete with these ambitious electronic networks.

The proposals, which should come before the agency for final approval by year's end, require screen-based systems to register with the SEC either as stock exchanges or as broker dealers. More requirements would be added if volume rises.

The proposals give Nasdaq and the New York Stock Exchange an opportunity to developed their own systems unhampered by the SEC for two years, unless their systems exceeded certain trade volumes. The same proposals apply to alternative trading systems that elect to be regulated as exchanges.

31(a) Relief?

Sen. Alfonse D'Amato (R-N.Y.) is reportedly considering a bill that could save Nasdaq traders up to $20 million annually on 31(a) transaction fees on wholesale orders.

D'Amato, the chairman of the Senate Banking Committee, was apparently prodded by Nasdaq President Al Berkeley, who has expressed support for a concerted campaign by Nasdaq traders for the abolition of fees on dealer-to-dealer trades. National Association of Securities Dealers President Frank Zarb has added his voice to the chorus of protests.

However, D'Amato and the crew may need to win the support of Sen. Judd Gregg (R-N.H), chairman of the Senate Appropriations, Commerce, State and Judiciary Subcommittee, who is not impressed with the traders' fight. He told our man in Washington that the fight was just a "rhubarb" and a lot of hot air.

Traders’ Fears Over a ‘Compulsory’ NASD CLOB: Do the Primary Market-Making Rules Foreshadow NASD

The order-delivery and execution system recently proposed by the National Association of Securities Dealers is still mired in controversy over its consolidated limit-order book.

Traders fear that the NASD-sponsored book – designed to give them a new option for executing their customers' limit orders – may compete directly with market makers for customer order flow.

Now another equally controversial fear has flared over whether the limit-order book will effectively evolve into a mandatory utility traders must use to remain profitable.

That view became increasingly evident when the NASD recently filed its proposed set of standards with the Securities and Exchange Commission for broker dealers that want to become primary market makers in Nasdaq stocks.

Reemerged

Primary market-making standards were essentially abandoned in the wake of the order handling rules, but have now reemerged as an important carrot to drum up market-maker support for the limit-order book.

Fulfilling the new primary market-making standards allows a market maker to sponsor institutional access to the book. That alone may force scores of market makers to become book users.

"There's not much wiggle room, is there?" one trader asked rhetorically. "A market maker that values his institutional business could be compelled to use the NASD's limit-order book."

What's more, traders say, investors may view the book as the best place to execute their orders. The SEC published the NASD's primary market-making rule proposals in April. The NASD has stressed the marketing value that primary market-making compliance gives trading firms, as well as the more tangible benefits, including exemption from the short-sale rule.

"The exemption frees a market maker to aggressively unwind a position, or otherwise to aggressively sell," one expert explained. "The SEC's intent is to encourage deeper and better-priced markets"

At the same time, the NASD recently suggested that it would engage in profit-sharing arrangements with market makers using the limit-order book, provided they adhere to the new primary market-making rules.

Reincarnated

The new standards have the support of the NASD's Quality of Markets Committee. Under the reincarnated primary market-making rules, a market maker's performance will initially be measured against two standards: how often the market maker buys at the bid when the market is moving down, and how frequently he sells when the market is moving up.

For example, if NASD computers show the market maker is always buying in a down market, the market maker bats a 1.000 average, according to an analogy provided by an NASD official. Always selling when the market is heading up will also produce a 1.000 average. A market maker with an average of at least .670 will be viewed by the NASD as worthy of a primary market-making designation.

However, measuring a market maker's performance in connection with the standards is complex. The NASD's computers will evaluate the proportion of a market maker's trades in a particular stock, and the proportion of the market maker's share volume in that stock. The most valuable traders will produce a high number of trades and a large volume.

The NASD said it would like to implement the new standards on a pilot basis as early as possible. The first month of operation would be used to begin calculating whether market makers are meeting the new criteria.

Market makers would receive their initial ratings and then have the second month to more fully adjust. The third month would produce an actual effect for market makers.

Senate Confirms Levitt’s Renomination

Securities and Exchange Commission Chairman Arthur Levitt has survived the chill in his relations with Sen. Phil Gramm (R-Texas) and Sen. Lauch Faircloth (R-N.C.).

As previously reported, the lawmakers were unhappy with Levitt's support for new derivative-related rules initially proposed by the Financial Accounting Standards Board. Politically, the worst is now behind Levitt.

The Senate Banking Committee Chairman, Sen. Alfonse D'Amato (R-N.Y), asked the Senate to move Levitt's nomination for a second term by unanimous consent.

He got his way, albeit on a voice vote and with most members out of town. Levitt's second term will expire June 5, 2003.

Setback for Thomson’s Trade-Confirm Gambit? The Problem: Thompson ESG May Have to Create SEC-Supe

Thomson Electronic Settlements Group's (Thomson ESG) successful fight to win regulatory approval to provide direct, institutional trade-confirmation links to the Depository Trust Company (DTC) has hit a roadblock.

The Securities and Exchange Commission has effectively stalled the plan, pending consideration of a review by the SEC that could require Thomson ESG to create an SEC-supervised clearing depository.

The latest development cast doubt over whether Thomson ESG will become the DTC's first competitor in the potentially profitable business of comparing institutional trades before settlement.

Clearing Depository

At issue is whether Thomson ESG will be allowed to provide one of the final steps in the settlement process, automatically matching trades without being required by the SEC to do so as a registered clearing depository.

The DTC in New York is the exclusive provider of institutional trade-confirmation services, largely because it is a registered clearing depository, filling current rules stipulated for providing automatic matching services.

Industry trade groups, and even the DTC, support Thomson ESG's efforts. The New York Stock Exchange and the National Association of Securities Dealers have also indicated support. (Self-regulatory organizations have filed rule amendments with the SEC to allow private vendors to enter the confirmation business.)

SEC Chairman Arthur Levitt, however, has raised some concerns on allowing private vendors to enter the clearing business outside the regulatory orbit. Levitt said he and the SEC staff will examine the issue further and issue its recommendations over the next several weeks.

His stand comes in the wake of congressional inquiries over why the SEC is considering linking institutional trade-confirmation services to a requirement that third-party vendors register as clearing agencies.

Letter to Levitt

In a letter to Levitt, two congressional securities-industry watchdogs, Rep. Michael Oxley (R-Ohio), chairman of the House Commerce Subcommittee on Finance and Hazardous Materials, and Rep. Edward Markey (D-Mass.), a member of the same subcommittee, demanded an answer.

Levitt responded to the letter by stating that his staff will examine the issue and recommend parameters for industry-wide automated matching. The recommendations will be carefully studied by the SEC.

Levitt favors competition. After a number of meetings with Thomson ESG, the DTC and other parties, he publicly stated that competition is beneficial. "I agree with Thomson that allowing vendors to compete in this area will enhance efficiency in the marketplace," he wrote the two congressmen.

However, SEC approval of the proposed rule changes will prove to be a pyrrhic victory for Thomson ESG if regulators require vendors to register as clearing agencies. For one thing, it raises a laundry list of costly, time-consuming burdens for Thomson ESG.

Levitt acknowledged in his letter to the congressmen that matching services appear to be "the next step in streamlining the confirmation and affirmation process." But he warned that matching services "may raise a variety of issues relating to the safety and soundness of our financial system."

Petition

According to a well-informed source, Thomson ESG had its eyes on providing a matching service. However, this was not at issue when Thomson ESG first filed a petition seeking SEC confirmation and affirmation approval last year.

The source said Thomson ESG "logically assumed" it would eventually be able to combine into a matching service "the two disparate functions of processing allocations and processing affirmations and confirmations."

However, several sources said it is doubtful that Thomson ESG would ever choose to register as a clearing agency. "I would guess that would just not be in their business plan," an industry observer said.

(Thomson ESG is a subsidiary of Thomson Financial Services, the parent company of Securities Data Publishing, publisher of Traders Magazine.)

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