MAINSTREAM FIRMS TO TAKE PLUNGE INTO DIRECT ACCESS TRADING
—Adelle Waldman & April Kabahar
E*Trade Securities, Datek Online and TD Waterhouse are all planning to roll out direct access trading platforms. Until now, mostly day trading firms have offered direct access technology, which allows investors to direct trades to specific ECNs. Charles Schwab & Co. offers direct access trading via its recently acquired active trading subsidiary CyBerCorp.com. E*Trade will be licensing a platform from New York-based A.B. Watley, while Datek has developed its own platform, dubbed Datek Direct, in-house. Frank Petrilli, president of TD Waterhouse, did not elaborate on the platform the firm will use. Petrilli said the firm is still making plans but is aiming to have a direct access system in place within six months.
The firms are making the move to tap the active investor market and in anticipation of a future where mainstream investors also will demand the technology. Industry observers note that the Securities and Exchange Commission’s recently passed execution disclosure rule will raise public awareness of execution-related issues, which is likely to excite interest in direct access trading because it enables investors, rather than firms, to control order execution ( FNN, 11/20). Additionally, the Securities Industry Association is setting up a conference call to discuss the new rule (see story, page 2).
John Mullin, president of Datek, said that the firm has been trying to encourage greater awareness of execution-related issues through its advertising, and views the move to direct access trading as part of a logical progression for Datek. Until now, Datek has offered a smart order routing system that automatically fills orders at the best available price. The direct access offering will enable investors to search manually for the best price among ECNs, market makers and exchanges, although users will still have the option of using the automatic smart order routing tool. Mullin said the firm wanted to give investors the option to do the searching on their own. “The brokerage business is not rocket science,” he quipped. The firm is currently beta-testing Datek Direct, said Mullin.
Direct access technology may give firms a leg up in trying to crack into the institutional market, noted Lisa Cullity, senior v.p. of marketing and sales at A.B. Watley. She said the offering appeals to small- and mid-sized businesses. Indeed, day trading firms such as CyBerCorp and Tradescape have been pitching direct access trading platforms in the small-scale institutional marketplace. Cullity said that E*Trade opted to license the technology to get to market faster and to save the costs associated with building a system from the ground up. |
