The Securities and Exchange Commission (SEC) has granted the Boston Stock Exchange (BSE) approval to launch Beacon Remote--a trading system that will allow brokerage firms to trade BSE-listed stocks, as specialists, outside of the floor of the exchange.
Starting in September, two existing members of the BSE will start beta-testing the off-site system, which has been modeled after the exchange's incumbent electronic limit order book--Beacon.
Though he refuses to specify the firms that are beta testing Beacon Remote, James Crofwell, president and chief operating officer of the BSE, says the system is expected to go live in the "late September to mid-October" time frame. The exchange, he says, is targeting Beacon Remote at two separate groups: 1) BSE member firms that already have a specialist post on the floor of the exchange but want to expand their market-making stock coverage at an off-site facility; and 2) brokerage firms that are not currently BSE members but would like to have the ability to act as a specialist in BSE stocks from a remote location.
Initially, BSE will install Beacon Remote only for the former group of firms. Those BSE members, Crofwell explains, want to have the ability to make markets in BSE-listed stocks away from the floor of the exchange. However, while conceding that it is possible that members that adopt Beacon Remote will eventually scrap their floor trading units, Crofwell says, at the present time, the firms participating in the beta tests have no plans to scrap their existing specialist posts. "We really don't see them down-sizing their current floor operation at all, at least in the near term," he says. Rather, those firms plans to have both floor-based and off-sited specialists making markets in different BSE stocks.
Sometime after Beacon Remote goes live at the beta sites, the BSE will start to heavily market the system to non-exchange members that would like to make markets in BSE stocks from a remote location. This segment of BSE's target audience, says Crofwell, will include brokerage firms that make markets in equities listed on other regional stock exchanges. Beacon Remote, he says, will empower those firms to compete as an off-site specialist in a "whole cadre of BSE-listed stocks."
However, in order to use Beacon Remote, a non-BSE member will have to both sign on to become an exchange member and register to trade as a specialist. Moreover, unlike the BSE members (who will be subject to a less extensive education program), clients new to the exchange will have to take part in a 30-day installation and training program before going live with Beacon Remote.
Following the training period, clients of the remote system will have to install BSE's Beacon Workstation--an internally developed front-end application that runs on Solaris, Sun Mircrosystem's flavor of the Unix operating system. Through the Beacon Workstation, says Crofwell, clients will be able make "firm, two-sided" markets in BSE stocks.
One other benefit the exchange plans to offer to Beacon Remote users is seamless front- to back-office connectivity. The BSE, says Crofwell, will handle clearance and settlement for all trades specialists execute over the platform. "These specialists become our customers on our stock record here within BSE's own back-office environment," says Crofwell. "It's sort of a turnkey package that links directly to Beacon or Beacon Remote." All trades executed over the system will eventually get settled at the Depository Trust Clearing Corp.
The launch of Beacon Remote, admits Crofwell, could potentially be the first step in the exchange's transformation into an all-electronic market. Currently, however, BSE members want both floor and remote capabilities, and the exchange therefore has no plans to get rid of its physical trading facility. "Most of the trading community now prefer to come to work here and exchange ideas about the markets, and be part of the buzz," says Crofwell. "But we are customer driven. And if our customers want to go all-electronic and investors want that, we're going to have it."
Beacon Remote will basically use the same technology as Beacon, the BSE equivalent of the New York Stock Exchange's SuperDot system. That system presently executes a daily average of 50,000 trades, accounting for 20 million shares.