NYFIX Millennium, a new alternative trading system (ATS) targeted exclusively at broker/dealers, has signed a contract with SG Cowen Securities that calls for the firm to roll out Millennium-s order-entry screen on the trading desktops of its clients nationwide.
Specifically, the deal stipulates that SG Cowen will install Millennium at the trading locales of more than 50 regional specialist firms. Millennium is expected to provide those SG Cowen clients with an order-matching alternative to traditional U.S. stock markets and electronic communications networks (ECNs).
The agreement between SG Cowen and Millennium actually pre-dates the scheduled official launch of the ATS. Dean Stamos, NYFIX Millennium-s president, says the ATS will be made available to the entire U.S. broker/dealer community on October 5. Today, however, Millennium-s order-matching capabilities are being used only by brokers at the ATS- founding partners--a network of firms that includes SG Cowen, Morgan Stanley Dean Witter, Lehman Brothers, Deutsche Bank, ING Barings, UBS, Warburg Dillon Reed and Sanford Bernstein. "Real trades are currently occurring between the partners in Millennium, but in a test environment," explains Stamos.
Broker/dealers that sign up to use Millennium will have a couple of order-matching options. The primary option will be a so-called pass-through order, in which clients designate an execution destination (such as the floor of the NYSE) to send the order to, but agree to first expose it to Millennium-s matching engine. In that scenario, if the Millennium engine provides an improved priced or enhanced liquidity for the customer order, the order gets automatically filled.
But if the engine cannot provide any enhancements or improvements, the order then gets routed to the client-s preferred execution destination. "The idea of sending a pass-through order is a no-brainer, because either you get some type of enhancement or improvement, or you go right to the execution destination you were going to originally," says Stamos.
The second type of order clients will be able to place in Millennium is a conditional order. In a conditional order, says Stamos, a broker/dealer will typically offer a price improvement for the best bid or offer for a stock. Stamos expects conditional orders to be particularly appealing to broker/dealers that want to buy a large block of a stock (via a price improvement) but don-t want to tip their hand to the rest of the trading community. Through Millennium, he says, those brokers can purchase those blocks and still have their anonymity protected. In addition, says Stamos, brokers that provide a price improvement that is better than the national best bid or offer for a stock will be able to trade on Millennium free of charge.
Stamos says one of the main differences between Millennium and many ECNs is that orders are free to flow to another execution destination if the ATS cannot find a match within its engine. Moreover, on top of not holding orders captive, he says that Millennium will not struggle to find order flow.
More than 300 million shares a day currently flow through the FIX-enabled order-routing network of NYFIX Inc, Stamos notes. And NYFIX Inc.--a Stamford, CT.-based supplier of electronic trading systems--is Millennium-s sister company. "Every other ECN is trying to chase down order flow...but all of our order flow is already resident in our order-routing network," says Stamos. An executive at SG Cowen did not return a call seeking comment.