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By Ivy Schmerken, Wall Street & Technology

Despite all the buzz about hedge funds needing low latency market data for automated trading applications, retail brokerage firms are still taking in consolidated market data and news services. Perhaps the difference is that eyeballs are reading the information and making decisions for investors, which takes more than a few milliseconds.

This week, Hilliard Lyons, headquartered in Louisville, Ky., announced that it would deploy Thomson Financial (TF) News to be delivered through the Thomson ONE platform. In the past 45 days, Hilliard Lyons signed a contract with Thomson Financial, which will also supply the firm with market data, breaking news and analysis.

According to Darryll Metzger, EVP of branch administration at Hilliard Lyons, the firm already had a subscription to ILX and to Beta Systems, two companies that Thomson previously acquired. Beta is both for the front office and back office: it shows the client holdings, the price of the securities and the number of shares, explains Metzger. But now the firm will be migrating to the Thomson ONE workstation.

“We executed a contract with Thomson Financial. It includes their news segment, but it includes everything we’ve been getting on our wealth management platform [and] our data system — all of that through our desktop,” says Metzger. The firms’ financial advisers will access all the information — quotes, news and client positions through one work space.

The 150 year-old firm has about 450 advisers, serving high-net-worth individuals primarily in the Midwest with 75 offices in 15 states. Metzger has about 1,200 platforms supporting financial consultants, sales assistants (who are registered) and home office people who have their own terminals as well since the firm is self-clearing. (The release says the firm will need 1,400 platforms.)

The major reason for signing up with TF News was to consolidate all the separate news feeds and contracts with separate vendors. “It used to be more a la carte. We used to have different agreements with all these vendors and get all these data feeds,” says Metzger. The opportunity, he says, is to create a more integrated service and to cut down on the number of a la carte feeds.

“The real issue [of] why we went to them is to have a more consolidated place for the news. I’m just going to have one vendor — Thomson — and they better be able to deliver good news,” Metzger continues.

But is it wise for a firm to put all of its eggs in one basket?

What sold Hilliard Lyons on Thomson was that, “They now have Thomson Financial News which they didn’t have before,” says Metzger. “We can hold one provider accountable,” he adds, noting that Thomson will be able to flex its buying power to negotiate better contracts with third-party vendors, too.

For instance, currently the firm receives Dow Jones news, but Metzger was not sure that would be the case once it migrates to TF News. “Going forward, if Thomson doesn’t sign a contract with Dow Jones, we will have the Thomson news,” he notes.

According to the May 30 release, Thomson Financial News brings TF’s proprietary content together with news coverage of MarketWatch, a unit of Dow Jones & Company, to create a comprehensive newswire focused on real-time market, industry and company news. The newswire also incorporates items drawn from TF’s content sets, including IFR, CCBN, SDC deals data and Thomson First Call. In addition, Metzger says other available news services include The Bond Buyer, Reuters U.S. Newswire and Wall Street Custom Wire.

On the market-data side, Thomson ONE pulls in the various U.S. exchange feeds, including the AMEX, NYSE, Boston, CBOE, Chicago, Nasdaq, Philadelphia, the Bulletin Board, Pacific, and Canada's TSX and Montreal Exchange.

All of the market-data feeds and the news sources are integrated on the desktop, Metzger emphasizes. “They’ve gone out and contracted with different vendors and we just push a button,” he says. “If the symbol is IBM, then all the news on IBM flows through on IBM in a consolidated manner from different sources,” he illustrates.

The firm will also need to upgrade hardware and expand bandwidth. “We’re pretty comfortable right now that our sales force has what it needs, but we’re going to spend money,” [referring to the hardware] to ensure there’s no delayed response.

Metzger expects the rollout of Thomson ONE to occur in either the fourth quarter of 2006 or the first quarter of 2007, or a combination of both.

By Ivy Schmerken, Wall Street & Technology

Alternative trading systems that anonymously match equities trades are picking up more volume. This week, NYFIX Millennium announced it set a single day record of over 35 million shares matched on May 9, in a week where its average daily matching volume was 25.3 million shares. This is nearly double the average daily volume of 10 million shares that analysts have been attributing to NYFIX all year.

According to the release, for the first quarter of 2006, average daily matched volume for NYFIX Millennium surged 88 percent to 18.8 million shares, versus 10 million shares during the first quarter of 2005.

I called up Brian Carr, CEO of NYFIX Millennium to find out what’s driving the growth in volume for the continuous matching system, which does not display quotes.

First, Carr talked about “gold old fashioned sales.” Carr also notes that NYFIX Millennium leverage(s) the NYFIX technology, namely its order management systems and the order routing system. NYFIX has a growing based of buy-side institutions using its order routing system and its OMS pulls in the sell-side.

Then Carr hit upon a more interesting factor — algorithms. “In the last year, we’re riding some of the industry growth into dark algorithms – anonymous algorithms that people are writing,” says Carr.
Along with retail order flow and institutional order flow as well as hedge funds, agency broker desks and stat arb flow going into the crossing network, “We’re also seeing a huge increase in the amount of algorithmic and smart-order routing flow that is interacting in Millennium,” says Carr.

Recently firms such as Credit Suisse, EdgeTrade, ITG, Miletus, Lehman Brothers, JP Morgan have written so-called dark algorithms hunting for hidden liquidity in pools like Millennium. “As they gain more popularity we’re getting more interaction in Millennium,” says Carr.

Yesterday, NYFIX broke last week’s record high day with 36.7 million shares matched. It was also a day when the NYSE traded 2.3 billion shares, and since 99 percent of NYFIX’s executions are in NYSE-listed stocks (one percent is OTC stocks), one can argue that a rising tide lifts all boats.

But the increase is significant for NYFIX, which was founded in 2000 and then officially launched on Sept. 8, 2001 – three days shy of the World Trader Center terrorist attack. After Wall Street firms recovered, NYFIX Millennium was relaunched at the end of 2002. Carr says that 2002, 2003 and 2004 and 2005 were all growth years. But he admits that in 2005 and 2006 the ATS has seen an accelerated growth in anonymous matching.

However, NYFIX is by no means the only ATS that's growing. Pipeline Trading Systems, a block trading system that lets in both the buy and sell sides, announced that its users traded a record 35.3 million shares on April 5. Liquidnet — the buy-side only block trading system — experienced a 72 million-share day several weeks ago, its biggest day ever, according to a company spokesperson. During the first quarter of 2006, Liquidnet’s average daily volume was almost 44.5 million shares, a 27 percent increase over the fourth quarter of 2005, and nearly a 62 percent increase over the first quarter of 2006.

I would expect that exchanges are looking at these ATS volume figures closely, as are brokers that operate their own internal crossing networks. In fact exchanges may jump into the matching business too.

In a new research report titled, “Shall We Dance? A Global Stock Exchange Update,” Randy Grossman, research manager, capital markets practice at Financial Insights, says that as exchanges look to diversify their revenue streams, they will pursue the crossing network business, throwing them into direct competition with the sell-side community. “For instance, Nasdaq has been quite successful in offering crossing services in direct competition to ITG’s POSIT, Liquidnet and other crossing networks,” Grossman writes.

But he warns, “It could result in a price war, in which it will probably be a race to the bottom (of what is already a low commission business). “Great for institutional investors, but not so great for the providers of crossing services,” Grossman cautions.

But NYFIX’s Carr does not seem worried at all. “In some cases we compete with the exchanges anyway. They have been a competitive factor all along,” he says. NYFIX runs a continuous matching system (for non-displayed quotes), not a batched cross or an intra-day cross, he points out. Exchanges obviously do continuous matching with displayed quotes, he says. “There’s certainly some competitive factors, but I don’t think there’s anything new that will come out,” says the NYFIX Millennium CEO.

By Ivy Schmerken, Wall Street & Technology

Roger Burkhardt, chief technology officer of the New York Stock Exchange, is no longer working at the exchange, confirms an NYSE spokesman.

An NYSE spokesman declined to comment on when Burkhardt left the NYSE, because it doesn’t comment on personnel matters, but indicated it occurred recently.

However, one industry source learned of the news well over a month ago.

A spokesman declined to comment on who is taking over Burkhardt’s responsibilities, saying that it’s still being determined.

One question is whether Burkhardt’s departure will affect the responsibilities of Steve Rubinow who continues to be the CTO of NYSE Arca, the all-electronic stock market (formerly known as the Archipelago Exchange or ArcaEx). A spokesman at NYSE Arca referred WST to the NYSE for comment.

Burkhardt joined the NYSE as CTO and SVP in 2000, and was promoted to EVP in January of this year. According to a release dated Jan. 6, 2006, the CTO was responsible for the development of the NYSE’s trading, regulatory and corporate systems and he also managed the exchange’s relationship with Securities Industry Automation Corp. (SIAC), the exchange’s technology subsidiary, and he was on SIAC’s board. Prior to his hiring by the NYSE in 2000, Burkhardt was president, Listed Equities at Optimark Technologies, an electronic trading venture, and before that held several positions at IBM Corp.

Burkhardt’s departure comes at a time when the NYSE is working hard to complete its Hybrid Market, a new market model, which integrates the traditional floor-based auction market with automated trading. According to a second NYSE spokesman, Burkhardt’s departure does not impact the NYSE’s Hybrid Market initiative. Louis Pastina and Anne Allen are leading the Hybrid Market team from a technology and operations and software perspective, according to the spokesman, who added, “There are a number of teams engaged.”

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By Cory Levine, Associate Editor

The functions that lie between business, operations and IT, while oft overlooked, are key areas where attention and optimization can yield tangible returns. Listen to Jonathan Cohn, senior manager at consultancy Mercer Oliver Wyman discuss these "seam functions" and how financial services organizations can best utilize them to streamline business processes.

Background Music "Classic Sidewalk Stroll," Courtesy Digital Riffs Music under Creative Commons License

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