Santa Monica, Calif.-based The Plexus Group and Tucson, Ariz.-based Neutral Point Technologies Inc. have created a new company--dubbed Plexus On-Line LLC--to sell online equity execution-cost analysis services to institutional money managers. The joint venture currently has plans to offer three services: predictive trade-cost analysis, post-trade cost evaluation and trade-routing strategy recommendations.
Neutral Point, a registered investment advisor, is supplying the technology platform, while Plexus, a consulting firm, is contributing its existing database of trading information and analysis. Plexus gathered its data on trade activity from the more than five years it has spent advising buy-side clients on execution costs and trading methods. Neutral Point developed the platform for the new Plexus On-Line services based on technologies it has used to support its existing mainline business--providing portfolio analytical services to institutional clients.
According to Mike Keady, a Plexus managing director, Plexus's clients have been the driving force behind the decision to put these services online. He says that the Plexus client list boasts 60 of the "largest" money management firms--including Alliance Capital Management L.P., Chancellor Capital Management Inc., Fidelity Management & Research Co. and the Vanguard Group. Other clients include pension plan sponsors such as California Public Employees' Retirement System, Washington State Investment Board, District of Columbia Retirement Board, City of Philadelphia Board of Pensions & Retirement and Shell Pension Trust, among others, he says.
'THEY'VE PUSHED US'
Says Keady: "They've pushed us to make the data pool--that they contribute to--available to them on a more real-time basis." According to Keady, while such data is already available to the customers, it is not online. Keady describes Plexus's consultants as "efficiency experts for money managers, focusing primarily on the implementation of research ideas and moving them into actual portfolios."
According to Jack Boye, Neutral Point's president and chief executive officer, Plexus On-Line does not have its services up and running yet. However, he asserts, a "preliminary" beta test is scheduled to take place within the next two months, with a full beta-test phase to follow thereafter.
The first service Plexus On-Line intends to offer will let clients analyze the cost of their trading strategies online, using a database of historical trade-execution costs. The second planned service will deliver post-trade execution-cost analysis to clients "within a matter of days, as opposed to a matter of months"--which is how long post-trade analysis typically takes, Keady asserts.
According to Keady, the third service will provide clients with "some suggested routing" strategies--"what's worked well in the past for the Plexus universe." The service would offer data on the most efficient markets, brokers and techniques for implementing a specific list of trades, Keady says.
Neutral Point is contributing a SQL database with a new Windows NT-based front-end to the Plexus On-Line venture. According to Boye, this online service--like Neutral Point's existing services--will be distributed in three ways: via the World Wide Web; via file transfer protocol (FTP) over the Internet; and via dial-up connection using Microsoft Corp.'s Remote Access Services (RAS) or point to point protocol (PPP). An interactive Web page is under development right now, he adds. Ultimately, the final product will be "very close to real-time," he says.
The Plexus On-Line goal is to "merge technology and data" to publish that data quicker and better, says Boye. This will give the buy side interactive decision-support tools, he adds. Boye asserts that most people on the buy side use technology just to execute orders. "What we're going to do is to give portfolio managers the ability to be able to really start to 'what if' with the transaction process," he says.
The transaction process is "probably the least understood of the industry," says Boye. "And if it's misunderstood on the equity side, it's totally a mystery on the bond side. So [the fixed income market] might be an area that we maybe could look at some future time."
Boye says that Neutral Point and Plexus remain independent third parties in this venture, because they present trading information without pushing a specific investment strategy, says Boye. This differs from a typical broker/dealer who usually suggests a trading strategy that benefits the broker/dealer in addition to the client, he says. "And that's a huge conflict of interest," says Boye.
The companies provide historical trade-execution information on an unattributed basis: They don't attach the names of specific investment firms to records of specific trades. "We can do analysis here, give it to people and they can trust that the information is never going to leave the shop or be used against them." In this way, Boyes asserts that Neutral Point's approach is "different" from others now available.
In the area of predictive cost analysis, expected execution costs and suggested order routing, Plexus foresees competing with Investment Technology Group Inc., which runs the Posit electronic trade matching system, as well as with Reuters' Instinet Corp. and Barra Inc.
Keady says that all three of these outfits increasingly supply services in this area. "What separates us from them is our analysis is based on all the trades of 60 of the largest money managers in the world. Whereas an ITG ... can only base their information and analysis on the trades that they see [through the Posit system]." Most money managers will not show their whole package of stocks to a broker/dealer, says Keady.
Adam Sussman joins Anthony Malakian to talk about Liquidnet's acquisition of OTAS, machine learning and AI, and what the buy side wants from analytics platforms.Subscribe to Weekly Wrap emails
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