Instant messaging (IM) software is helping brokers solve important connectivity and efficiency issues related to smaller buy-side clients who do not have a way to trade electronically. In a new wrinkle, IM tools are being used to extend the sell-side brokers order management system (OMS) to their buy-side customers. Building IM communications into OMSs is a new trend in trading operations, according to Robert Iati, Director of the Securities and Capital Markets Practice of Needham, Mass.-based financial consultancy TowerGroup.
NEW YORK (PRWEB) September 30, 2004 -- Instant messaging (IM) software is helping brokers solve important connectivity and efficiency issues related to smaller buy-side clients who do not have a way to trade electronically. In a new wrinkle, IM tools are being used to extend the sell-side brokers order management system (OMS) to their buy-side customers. Building IM communications into OMSs is a new trend in trading operations, according to Robert Iati, Director of the Securities and Capital Markets Practice of Needham, Mass.-based financial consultancy TowerGroup.
One such offering is Boston-based Pivot Solutions IMTrader product which incorporates IM for users communications. Many trading desks use it because they want direct communication that is asynchronous and can be used any time between traders," says Mark Coriaty, Director of Business Development at Pivot Solutions. Of the 7,000 or 8,000 buy-side firms that are out there, only 500 to 600 have direct FIX connectivity. We saw a need to make it easier for other buy-side participants to trade over FIX and make it cost effective."
Coriaty points out that buy-side order management systems can cost anywhere from $100,000 to $500,000 per year, depending on the firms size. Many smaller asset managers and hedge funds cant afford that. We have tried to extend sell-side technology," he says. Pivot Solutions, a spin-off from Eze Castle, has encrypted the IMTrader application to offer secure instant messaging that complies with US Securities and Exchange Commission regulations.
IMTrader offers a trade blotter through which the buy-side trader can enter the parameters of a trade. When that trader enters a trade, IMTrader converts the message into a FIX message through the IMTrader server and passes that FIX message to the sell side. The sell side works the trade. As the sell side fills the trade, information is passed back to the buy-side client through the IMTrader server.
Pivot Solutions sell-side customers serve small to mid-sized hedge funds or asset managers without FIX connectivity. These funds and managers lack order management systems for various reasons. Some buy-side clients use it because they want secure IM, but they dont necessarily trade with the application," adds Coriaty.
As the SEC starts to look at the buy side more closely, especially the registered investment advisors, IM is becoming a bigger issue. Right now, 17a-4 [the SEC regulation that requires archiving of all instant messages] applies to the sell side. We have been hearing buzz that it will affect the buy side in the future," says Coriaty. IMTrader stores and logs all the information."
IM is valuable for the buy side because they can talk to four or five brokers at one time. They can figure out who is going to give them the best price and go forward with them for execution. TowerGroups Iati points out that with electronification" of the marketplace, on thing lost is the color that voice gave us. It is good that we rely on electronic execution and order taking. But it is sterile and there was value in how we used to do it. Dont lose sight that if everything is done electronically through this sterile medium, the customer in the end doesnt get as much value as they would if they were able to also have the broker on the phone talking about what they are doing."
A broker might able to offer more value through the relationship by having a discussion with a buy side customer, Iati points out. The key advantages for buy-side firms using IMTrader include providing an easier, more cost-effective way to trade electronically that reduces errors. These firms dont want to spend too much time at the end of the day entering trade tickets received by phone into an Excel spreadsheet for processing.
San Francisco-based Core Fund Solutions uses IMTrader to offer clients, Including hedge funds, operations and back-office services including outsourced chief financial officer solutions. One of my goals is to minimize errors and maximize efficiencies," says Angie Kim, Managing Partner, Core Fund Solutions. Many hedge fund managers look at a companys balance sheets and weigh its value, she explains. These hedge fund managers know what to buy or sell but often dont know how to do it. They outsource trading to a trader like Bay Point."
For that service, Core Fund Solutions pays San Francisco-based Bay Point a fee, anywhere from pennies to five cents per share. Bay Point provides IMTrader to Core Fund Solutions, which, in turn, makes it available to its customers, the hedge fund managers. Hedge fund managers can type in IMs, asking Bay Point to fill and order. In the morning, when the portfolio manager puts orders in their blotter for IBM, Intel and various other stocks, they enter the message into the blotter," says Kim. All a portfolio manager cares about is entering the order and getting it filled at their specified price. After that, the portfolio manager moves on. We do the rest."
IMTrader allows Kim to archive all IMs. If there are any discrepancies, we have time-stamped evidence to resolve the issue," she says. At any given time, Kim can see the trading progress of outsourced traders in filling a basket of stocks each day because the traders can update the IMTrader. At the end of the day, we download that information to our prime broker, the portfolio management system or our third party client," she says. For me to do the allocations manually is time consuming."
Soleil Securities Group, New York, has signed on to provide IMTrader to its buy-side customers. An aggregator of independent research, Soleil is a broker and uses the traditional brokerage execution to pay for its services. What is really key with the IMTrader product is that we are not taking straight IMs for order flow," says Ken Dengler, Head of Trading at Soleil. They are listening to the IMs and converting the messages into FIX. We have created a virtual OMS for our clients who do not have a proprietary technology department or resources to build or buy one."
IM is a quick and easy way for Soleil to disseminate bullet points in its research, according to Kelly Brown, Chief Technology Officer at Soleil. Everyone on Wall Street does that, whether by IM or e-mail blast," he says. That is nothing special. But Pivot works with our ideas to revolutionize and transform the dissemination and distribution of research."
IMTrader is not only a secure IM service but also capable of monitoring IM dialogue between the buy and sell sides, according to Brown. The system recognizes that the trader is entering an order and confirm that it is an order," he says. If the response is yes, it will then populate the OMS on the buy-side traders desk. It will also populate the sell-side order management system and will be completely compliant and completely archived. This is a productive tool."
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