SunGard Snaps Up Direct Access Trading Technology, Eyes Clearing Volume
Date: Jan 9, 2003
In a move designed to beef up its front-end technology so that it can offer
direct-access-trading to buy-side institutions, as well as boost the volumes
flowing through its clearing operations, SunGard last week agreed to acquire
Andover Brokerage, LLC. Founded in 1993, Andover, based in Montebello, N.Y.,
with over 30 branch offices around the country, is a sizeable day-trading
firm that provides direct-access trading, order routing, brokerage and
clearing technology to professional traders.
"One of the key assets that Andover has is their front-end technology both
in the over-the-counter and listed markets," says Mark Minister, Group CEO
of SunGard Execution Services and Financial Networks.
Calling the front-end "battle-field tested in terms of the users," Minister
says the technology handles millions of trades a day, though he declined to
give specific numbers. "It gives us entree into the buy-side trading
environment," says Minister. Although Brass (the dominant Nasdaq-trading
system owned by SunGard) has a high penetration on the sell side, he admits:
"That's an area where we didn't have penetration in the past."
Andover's front-end -- known as the HammerTrade daytrading platform -- provides
real-time market data, direct access to all ECNs, as well as to SuperMontage
and the NYSE. It also allows traders to customize the execution platform by
setting different market filters, price alerts, using hot keys to view open
orders, positions or cancel orders, see inside the book of the Island ECN,
create and trade stock baskets. "That kind of technology is attractive to
folks like Schwab, E*Trade and Ameritrade," comments Robert Hegarty, vice
president of TowerGroup's Securities and Investments group.
However, according to Hegarty: "There's been difficulty penetrating that
(institutional) market with this kind of direct-access, intelligent-
order-routing capability. It has taken hold in areas like hedge funds, (but)
it hasn't made the traction among institutions."
Acknowledging that Andover's trading platform was not developed for the
institutional marketplace and has "some shortfalls," Minister says SunGard
intends to augment the technology for institutions and integrate components
with existing trading, brokerage and back-office systems. Part of the plan
is to make some of the Andover components available on the SunGard
Transaction Network to a broad base of financial institutions -- small bank
trust departments and money management firms -- that currently use SunGard's
back-office accounting systems. "Thousands of smaller trading organizations
around the country haven't moved into the electronic order-routing
capability," contends Minister. Since the broad financial market place has
different needs than day-traders, part of (the strategy) will simply be
offering connectivity and order delivery to a broad segment of the market, "
explains Minister. Another key asset is Andover's clearing technology.
"Andover is self-clearing, as is Brut," says Minister, referring to
SunGard's ECN. "Between the two of them, we do a billion trades a day," he
adds.
Already a behemoth in processing millions of financial transactions, SunGard
owns an NYSE-floor brokerage operation (SunGard Global Execution Services),
Brut ECN, Brass -- the dominant Nasdaq trading system, and a substantial
institutional-order entry and order-routing network purchased from Bridge.
"It's not like it's a new foray for them into the brokerage arena," says
Hegarty. "The goal there is to provide end-to-end automated securities
processing and a piece of that would include the pieces they're acquiring
with Andover Brokerage -- the clearing, the front-end technology for the
semi-professional trader," says Hegarty.
According to Minister, the pending acquisition positions SunGard to create
additional economies of scale by pumping more volume through its Phase 3
back-office trade-processing system. Brut ECN uses Phase 3 as its clearing
system. Andover licensed the source code from Power Securities Systems
(acquired by ADP Brokerage Services in August) and built its own modules to
meet their needs, says Minister. That's why there's going to be a delay in
SunGard migrating the Andover clearing volume over to the Phase3 system, but
SunGard plans to do that "over time."
Noting that everybody in the securities industry is faced with increasing
cost-pressures, from order entry through the clearing cycle, Minister says:
"Just internally, we will be doing sufficient business that having a
highly-efficient self-clearing operation is highly desirable. "Our first
effort is to get our own clearing costs down to as low as possible. You need
that to be competitive," he says.
SunGard declined to disclose financial details of the transaction. However,
alluding to other purchases of direct-access brokers, Minister indicated
these are not "the $480 million CyberCorp days," purchased by Charles
Schwab, "nor the ProTrader days when Instinet bought them (for $150 million
in cash and stock)." Andover will operate as a standalone-operating unit of
SunGard's P&L. |
