Demand for International Trading Booms

According to TowerGroup's Peter Delano, who spoke at last week's SIA Conference in New York, the demand for trading solutions that specifically facilitate international trading will continue to grow. The senior analyst points to a recent TowerGroup study that reports that global spending on order management systems (OMS) by buy-side firms will increase from $450 million in 2006 to $750 million by 2010 - a 66 percent increase.

Firms are "trying to take advantage of local market conditions as opposed to trading ADRs [American Depositary Receipts], because there is more opportunity," Delano explains. "Plus, because investors are ultimately becoming more sophisticated, we are seeing both asset and hedge fund managers with broader mandates to seek alpha and get results. And there is plenty of evidence on the floor of the SIA show that solutions providers are gearing up for this expected boost in spending."

New York-based Tradeware Global was showing off its GlobalX system, which was launched in the third quarter of 2005. GlobalX is targeted toward sell-side firms that are looking to execute trades abroad on behalf of their institutional clients.

Tradeware chief executive officer Howard Schwartz says this is "really the right product at the right time." With both buy-side and sell-side firms looking to go abroad and diversify away from U.S. markets, and the demand to go into more emerging or developing markets, we have seen a great deal of interest."

Another company looking to capitalize on the increased demand for both algorithmic trading and overseas investment is London-based Royalblue Fidessa. Fidessa's Execution Management Workstation is a software program that sits on the buy side's desk. It routes order flow based upon the buy-side firm's preference and/or relationships with some 140 executing brokers on 67 exchanges worldwide, according to the firm. The software gives buy-side firms access to Level I and Level II data, and allows firms to route orders to brokers with which they already have relationships, or to other local brokers in individual markets. Likely buyers of the product are hedge funds, proprietary trading desks and mutual funds, according to Martin Hakker, Fidessa's EVP of marketing.

The advantage of the software, Hakker contends, is that, "It prevents buy-side firms from having to make multiple phone calls - if that is the way they currently do business - in order to route order flow. It also prevents the firms from having to download multiple software programs from each and every individual executing broker the firm uses.

Fidessa also was showing its BlueBox algorithmic trading system for sell-side firms. UBS Capital Markets consultant Anand Sathe, who reviewed Fidessa's offerings at the vendor's booth, tells WS&T that he is interested in Fidessa as a backup to UBS' internal solution to connect to the markets. "Should, for some reason, UBS' routing system go down for any reason, we would need to find a way to connect to ECNs and/or other sources of liquidity, particularly under Reg NMS and the trade-through rule," Sathe says. "That is where Fidessa could come in."

Martin Koopman, president of Cameron Systems, offers a slightly different perspective on why demand for international trading solutions is perking up. "Although diversification is a source for demand, we are seeing that traders really want to take advantage of opportunities and benefit from less-efficient markets than the United States or the U.K., for example," Koopman contends. "And we are seeing that traders want to do this at a low cost and with products that have low latency."

Cameron Systems was featuring its CameronFIX Market Data Server, which provides FIX (Financial Information eXchange) market data from more than 100 markets, at the show. Released six months ago, the product was developed specifically for firms with high market data distribution or consumption needs, such as exchanges or algorithmic traders.

Peter Bennett, a consultant with HCL, a London-based trading solutions provider, relates that he is looking at Cameron as a front-end FIX provider. Bennett says that because of Cameron's "excellent name, good products and longevity in the business," he is considering bundling its technology with other programs to develop a trading platform that he could in turn sell to a firm such as Deutsche Bank, HCL's largest customer. Bennett adds that the SIA show was "his own personal shopping expedition to come up with a unique, marketable trading platform."