From Sept 1998 issue of Traders Magazine
Ten years ago, Automated Securities Clearance was a small but pushy software company that competed for order-management business with TCAM Systems.
How times have changed. Weehawken, N.J.-based Automated is no longer an upstart, peddling its core BRASS system and order-routing services.
BRASS now overshadows the rival product of TCAM, the New York affiliate of Waltham, Mass.-based Stratus Computers, and upstages the products of other vendors.
These include Londons Royalblue Group, Trinitech Systems in Stanford and New Yorks QV Trading Systems. Moreover, BRASS handles a majority of the order flow on Nasdaq desks.
But the question remains: Can BRASS, the industry standard, stay on top in a business with hostile competitors?
Bygone Days
BRASS and its competitors have their origin in a bygone era. Years ago, Nasdaq traders used paper pads to track their changing positions, profitability and average costs.
On a busy day, the traders assistant scribbled down trade information. Sometimes keeping track of information was not easy. Mistakes were made.
Clearing and settling trades was another matter. After a trade was executed, a ticket was typically dropped into a box which was taken to the backoffice. Keypunch operators then entered trade data for processing.
Eventually, entrepreneurial vendors developed order-management and trade-processing systems to make post-execution support speedier and cheaper.
BRASS, for instance, allows traders on Nasdaq desks to adjust their quotes; to hold limit orders if necessary; to monitor profit and losses, or P[L] and to interface with clearing brokers.
Faced with a cost-efficient alternative, traders abandoned the paper-based record-keeping and order management for TCAM, BRASS and others.
Two Categories
Wall Streets order-management and trade-processing systems fall roughly into two categories: proprietary software developed by firms, accounting for 40 percent of the business; and the rest, handled by vendors such as BRASS.
BRASS is estimated to control 50 percent of the market, and has about 130 accounts.
Order-management and trade-processing firms make money by selling their software and hardware to the sell-side community, and through subscriptions, with sell-side firms paying for each terminal or for licensing the vendors software.
In the latter, the trading firms do not have to buy and maintain the products.
TCAM sells and licenses its product and competes with Royalblue in the outright sale of its business.
BRASS sells a total package to some firms, particularly the largest, and it runs the software and provides backup for other firms.
First Vendor
In 1982, TCAM became the first vendor to develop an electronic trading system. In the roaring 1980s, TCAM was the only game in town. Mentioning Automated to a trader would have invited a blank stare.
In the early 1990s, computer-hardware maker Stratus acquired TCAM, hoping that the software-makers dominant position would help it sell more computers on Wall Street.
The shaky marriage, however, distracted TCAM from its core business product for equity-trading operations, say people familiar with the firm.
The timing of the marriage could not have been better for BRASS and Automated, which had launched a new software written for the newly-popular UNIX platform.
Under sustained attack from BRASS, TCAM fired back in 1994, acquiring Marlboro, Mass.-based Femcon Associates, then the number-two player in the order-management business.
Upheaval
While BRASSs dominant position is still not in dispute, upheaval in the securities industry can sometimes take even the smartest players by surprise.
The advent of electronic trading, alternative trading systems, FIX the Financial Information Exchange, a computer protocol for buy-side and sell-side firms and other developments is also contributing to the upheaval, said Joseph Rosen, managing director at New York-based technology consultants Enterprise Technology Corporation.
Stratus was recently acquired by Alameida, Calif.-based Ascend Communications, a networking hardware maker. Ascend indicated it will spin-off or sell non-core networking and telecommunications businesses.
If it does, TCAM will embark on an amicable divorce from Stratus and revert to being an independent company with $25 million in sales and 150 employees worldwide, say people familiar with the firm.
Dave Bennett, TCAMs sales director for North America, is optimistic, but he cautions that the vendor needs to refocus on software. We were distracted by the acquisition, he said.
TCAM has mapped ambitious plans that could unsettle the field of competitors.
Our real thrust is to provide an Interment-based front-end to capture order flow, Bennett said. TCAM said it had signed accounts recently with Detroit-based Olde Discount Corp., New Yorks National Discount Brokers and St. Louis-based Edward Jones.
The plan clearly does not surprise one industry expert.
Technology has advanced so much that there is a lot of opportunity for new and existing players, Rosen said. Trading firms, meanwhile, are looking for alternatives.
Some experts think TCAMs strength lies in winning business from stock exchanges around the globe. TCAM, for instance, has already signed deals with the Istanbul Stock Exchange and the National Stock Exchange in India.
Big Plans
TCAM is not the only vendor with big plans. Royalblue is also upping the ante.
Royalblue makes the Fidessa trading systems, which are used on the London Stock Exchanges order-driven market.
The U.S. subsidiary, Royalblue Technologies Corporation, has signed its first major order, worth $2 million, and has passed the breakeven mark on a monthly basis.
However, Royalblues threat to BRASS is questionable.
As the company tries to take the product international, Fidessa is a threat, but not a major one, to BRASS, said Lawrence Tabb, director of technology research at The Tower Group in Newton, Mass.
In the U.K., Royalblues accounts include brokerage giants Merrill Lynch & Co., Dresdner Kleinwort Benson and Morgan Stanley.
Most recently, Royalblue signed an agreement with Tradepoint Financial Networks, the U.K. electronic stock exchange, and with the London Stock Exchange. The agreement will enable investment banks using Fidessa to execute orders on either exchange.
Even more seasoned players, such as Trinitech, are muscling in on the order-management and trade-routing marketplace.
Trinitech is marketing NYFIX, the Exchange Access Network and FIX-compliant system that links buy-side and sell-side firms and exchange floors.
We are seeing a rapid increase in quarterly recurring revenue supporting our strategic vision of electronic order routing, which we began executing in late 1997, Peter Kilbinger Hansen, Trinitechs president and chief executive, noted in a recent earnings announcement.
Bothered?
The competition does not overly bother Robert Greifeld, who heads up Automated. He is confident that his company will not only retain its leadership position, but will take market share from competitors.
Moreover, Greifeld is prepared to take on all comers even though the competition is formidable. Some rivals are said to have more open systems than Automated. Royalblue, for instance, has been complimented for being accessible to other industry systems.
We have, and we are going to take market share away from our rivals , Greifeld said.
Partly to retain traders loyalty, Automated launched several other products, including BRUT, an electronic communications network. Before that, it launched BNET, which allows broker dealers to route orders to other broker dealers.
Greifelds next big project is a so-called OATS-in-a-box system which basically combines the traders needs on one desktop. As the name suggests, that includes compliance with the Securities and Exchange Commissions Order Audit Trail System, or OATS.
Minneapolis-based Piper Jaffray and brokerage giant CIBC Oppenheimer recently signed up for the new products.
The only way we can grow is by being more responsive to our customers needs, making sure that we meet the demands of the trading community, Greifeld said.