The Chicago Stock Exchange has installed a trading system to allow financial institutions and other big traders to handle large transactions more easily.
The Chicago Match, as the system is called, allows money managers to trade in bulk, contacting each other through a computer bulletin board and bypassing the broker-dealers.
The system was developed in. response to a common fear among high-volume traders that rumors of their orders leak on the floor, causing enough "market impact" to drive the price of the stock up or down. Instead, potential trading partners can connect directly by inputting their orders into the system and checking for other offers that match well with their own.
The groupware-style application allows its users to communicate anonymously, so as not to attract attention that might tip off competitors or affect stock values. The system was based on client-server architecture and open systems, operating with Windows and OS/2.
Officials at the Chicago Exchange said they view this as a valuable way to raise their trading volume. The exchange handles about 11 to 12 million traded shares per day.
"The regional exchange business is an exchange in transition," said Homer J. Livingston Jr., the president and chief executive of the Chicago Stock Exchange. "This will bring us a substantial amount of new business, put us in the forefront of automated trading, and set us up for the next stage."
Financial Institutions Targeted
According to Mr. Livingston, formerly an executive at First Chicago Corp. and LaSalle National Bank, the service targets the mutual fund holders and the money managing divisions of financial institutions. It is one of a handful of more sophisticated systems that the exchange has spent several million dollars developing and installing over the past two years.
The regional exchange already has 60 customers using the first version of the software, which is composed of a personal computer and an exchange-based component, said Roger Hendrick, vice president of institutional marketing for the exchange. So far, he added, about half of those using the system are professional money managers, while about a third are mutual fund groups. The remainder are planned sponsors: large companies managing their own assets and investments.
Role for Brokers Retained
Since the Chicago exchange is owned by a board of brokers, executives there were concerned about enlisting broker support and made sure not to cut them out of the process entirely. If a buyer and seller are trying to match up a trade and cannot come to an agreement, the system defaults to a trader for negotiation.
Because of legal issues, the exchange had to file its plans to hunch this service with the Federal Communications Commission and the Securities and Exchange. Commission after having proposed the system to the board 15 months ago.
The idea for this service came from Chris Keith, the president of Global Trade Inc., a software and consulting firm for the financial industry. Keith, a former chief information officer for the New York Stock Exchange, has focused on technological advances for trading floors. He said the system was the product of a "historic compromise" between the institutions that want to trade stock directly and the broker-dealers who want to get involved.
"There is a whole very subtle and important information game that takes place when you're trading in size," Mr. Keith said.
Panel of Advisers
To aid in this aspect, the exchange also appointed a committee of advisers, made up of institutional traders who use the service. Chris Hynes, the managing director of State Street Global Advisers, the investment management division of State Street Bank and Trust, is a member of that committee. He said his managers were impressed by the exchange's attempt to integrate a crossing network with the exchange market, adding that there was more work to be done.
"The market of the past couple of years has been a treacherous one," he said. "The Chicago Match has a big hill to climb."