PORTFOLIO management has taken on a new look at Shawmut Investment Advisors.
The subsidiary of Shawmut National Corp. has taken the routine, mundane tasks out of traders' hands by implementing an automated trading service.
Instead of using the conventional telephone method for ordering trades, the firm now simply enters the data into the system and the trade is executed automatically.
The automated trading system has freed up the traders for "rational thinking and developing strategy," said Nancy Elizabeth Shaw, a vice president at Shawmut.
Since the late fall of 1993, Shawmut Investment Advisors, with dual headquarters in Boston and Hartford, Conn., has been rolling out the service, which was developed by ESI Securities Co., New York.
"We are just starting to reap the rewards of the system," said Ms. Shaw. "Seventy-five percent of the order flow is small-market executions and can now be handled electronically. Traders can spend their time working off orders and adding value to the operation."
The service allows Shawmut to increase the trade volume without increasing the size of its operation, because it can handle more trades electronically.
Shamut's trade volume has increased to 13,200 trades executed in the first quarter of 1994 compared to approximately 12,000 in the same quarter last year.
The service is called Team Link and provides an interactive link between Shawmut's trading operation and ESI's trade desk.
The investment company uses ESI's technology to electronically execute orders from its trading floor in Hartford, Conn., to the floor of the New York Stock Exchange through ESI's traders.
Once the information is entered into the system, it is sent to ESI and the trade is executed. ESI then sends back the execution data so that a portfolio manager has a record to verify that the trade was posted.
"The management of small-order flow was a major technique for us to be able to leverage our trading desk," said Ms. Shaw. "We are trying to make sure that the desk does not just perform a clerical function. It is more important to have traders focusing their attention on other aspects of trading."
Ms. Shaw said the use of ESI is a "strategic solution" for the bank.
"There are some organizations that still use paper tickets for small-order flow, but the wave of the future is a paperless operation," said Ms. Shaw. "Within the next five years, everyone will be operating in a paperless environment for both large and small orders."
Blair Kanter, a manager at Price Waterhouse in New York, said many firms are moving to electronic trading systems in an effort to maintain their competitive positions.
"Automation of the trading desk can provide many benefits, including increased productivity, fewer trade errors, and better order and information flow," he said. "Movement into these systems and integrating them with the back office and other systems will facilitate paperless trading.
"Implementing an electronic trading system is the firs step in achieving paperless trading," he continued. "Once all the pieces are linked, there will be a complete automated trading environment."
One of the features of the ESI service is the ability to set parameters as to which traders can and can not be executed electronically.
"The system will hold the information and once a sizable position is gathered, it will execute the trade," said Ms. Shaw.
The system also can be programmed to spit out trades that the firm feels are too large to be executed electronically or for strategic reasons should be executed by the desk.
"It has the ability to set parameters around the elecronic order flow to use the desk more intelligently," said Ms. Shaw. "The system provides seamless trading so once it [a trade] is entered, it is executed and shipped to the back office all at once."
Shawmut serves two types of clients in the equity trading operation: institutional and retail.
The institutional business handles large blocks of equities trades of institutional portfolios, while the retail business handles smaller trades -- often for individual portfolios.
Many of the trades for retail customers do not need broker intervention, since they will almost always be executed at market price. For that reason, almost all of the retail trades can be handled by the Team Link service.
Shawmut's next step will be to continue to improve the sophistication of its controls of the trading operation.
"The More we learn of the effect of electronic trading on our portfolio performance, the more we will be able to say 'it would be good if we could do this, it would be good if we could do that,'" said Ms. Shaw. "Maybe we can become more sophisticated with our desktop environment to make better use of the information."
The Team Link service operates in conjunction with AM-Trust, the bank's trust accounting system, provided by Broadway & Seymour Inc., Charlotte, N.C., which has a portfolio management functionality.
The software runs on the bank's International Business Machines Corp. mainframe. The information is moved through an interactive link to ESI's fault-tolerant midrange computer from Stratus Computer Inc. The execution information is sent directly through the interactive link to the trading desk.
"I see us becoming very smart on how we use the data, because once you capture something electronically the possibilities are endless," said Ms. Shaw. "Technology will allow our business to grow, and ESI is going to be an integral part of the operation. It will allow us to increase our transaction volume and redirect our capability to do more interesting things for our portfolios."