good article about evwap-like trading
from the rB board.
Looks like ATG will have a new competitor soon
Nyfix Looks for Big Payoff From Stock-Trading System
By GASTON F. CERON
Dow Jones Newswires
NEW YORK -- A new millennium is set to dawn for Nyfix Inc., and investors in the company hope it will lift the beaten-down stock.
Up until now, the Stamford, Conn., company has been mostly known for its trading technology that funnels orders to buy and sell stock to the New York Stock Exchange and other markets. But Nyfix wants to be more than just a plumbing network, and so the company has spent much of the past two years developing an alternative trading system, Nyfix Millennium, that will actually match buy and sell orders.
For Nyfix, the payoff may be just around the corner. Millennium, which is owned by Nyfix and a consortium of large financial-services companies, has set Sept. 5 as the date when it goes into action. The Millennium system will specialize in stocks listed on major exchanges such as the Big Board, a market that other trading networks, which mostly deal in Nasdaq Stock Market stocks, have had difficulty penetrating. "The idea is to create a more effective market," said Peter Hansen, Nyfix's chairman and chief executive.
There is a lot riding on Millennium. Analysts are projecting that Nyfix's earnings will quadruple next year, to $1.24 a share from an estimated 31 cents a share this year, boosted by the revenue that the trading system is expected to bring in. "We are comfortable" with these forecasts, Mr. Hansen said.
Higher profits may be what is needed to lift Nyfix's sagging stock price, which has languished recently amid uncertainty as to how Millennium will fare. Bradley Berning, an analyst at U.S. Bancorp Piper Jaffray who has a "buy" rating on Nyfix shares, estimates that the stock could reach $32 within the next 12 months. (U.S. Bancorp Piper Jaffray was an underwriter for a recent follow-on offering of Nyfix stock.)
Shares of Nyfix have traded as high as $60 and as low as $16.75 over the past 52 weeks; they recently changed hands at just under $20. "The potential upside of Millennium has always been the hook on the stock to get people interested," said Mark Foster, chief investment officer at Kirr Marbach & Co., a Columbus, Ind., investment management firm that held about 227,000 shares of Nyfix as of last week.
To spark interest in Millennium, Nyfix has launched a marketing campaign, sending salesmen to persuade buy-side institutions -- mutual funds, money-management firms and the like -- to send order flow to the system. "We already have a lot of commitments," said Mr. Hansen.
Holly Stark, director of trading at Kern Capital Management, heard Nyfix's pitch for Millennium recently, and said she walked away interested. Although most of her trading activity is focused on Nasdaq stocks, Ms. Stark will consider sending some of her listed-stock volume to Millennium. "Why not?" she said.
But before Millennium can bolster Nyfix's stock price, it must first overcome a hurdle faced by all trading systems. Millennium needs to prove that it can be consistently liquid -- that is, it must have sufficient volume so that trades can actually get done, instead of being routed for execution elsewhere.
Over the past few years, regulatory and technological changes have led to the creation of several electronic communications networks that execute stock orders. But not all have been able to build a large book of orders. "Growing liquidity is not an easy exercise," warns Douglas Atkin, the CEO of Instinet Group Inc., a New York company that operates one of the largest ECNs. "It takes a long time and it's very difficult to pull off."
Moreover, Millennium is looking to expand its business at a time when the slumping stock market has sapped enthusiasm for new trading technology. The weak conditions could limit Nyfix's upside. "Does [the stock] get the same multiple it would have a year ago?" said Mr. Foster. "Probably not."
Nyfix Looks To Build On Existing Clientele
Nyfix CEO Mr. Hansen said Millennium can capitalize on a unique advantage: the firms that use Nyfix's existing trading technology. And these clients account for a lot of market activity. During the second quarter, an average of about 500 million NYSE shares passed each day through the Nyfix Network, up from 456 million shares in the first quarter.
"Nyfix is already part of most brokers' day-to-day activities," said Scott Lenowitz, a managing director in Morgan Stanley's institutional equity business. "The client base won't be built from scratch."
Morgan Stanley is part of the group of banks and securities firms that are backing Millennium. The consortium now owns 50% of Millennium, with Nyfix holding the remainder. But Nyfix can raise its ownership stake to 80%, and Mr. Hansen said there is a "very high likelihood" that it will exercise this option "inside of this year."
There is, of course, a more central question, namely, whose loss will be Millennium's gain? Analysts said the trading system should take some volume, however small at first, away from the securities professionals who trade stocks on the floor of the NYSE. If Millennium is ultimately successful, "the advantage of having a floor broker in a [stock exchange] crowd might not be as great as it was before," said Kern Capital's Ms. Stark.
Still, counting out the NYSE would be premature, given that the exchange has outdone other competitors. And one of the largest firms trading stocks on the Big Board's floor doesn't see itself threatened by Millennium. "It appears that Millennium is going after sell-side [brokerage] business," said Michael LaBranche, chairman and CEO of LaBranche & Co.,
Nyfix, for its part, said the buy side -- institutional investors such as the firm Ms. Stark works for -- will be able to access Millennium through sell-side brokers. And as far as the NYSE goes, Mr. Hansen said Millennium will complement the Big Board. "Our goal," he said, "is not to put the exchange out of business." |
