First Boston Buys Lattice, Plans Crossing Network


First Boston Corp. has acquired Boston-based Lattice Investment Inc.'s order-routing system for the buy side. Lattice will continue to operate the system, offering it to First Boston's institutional clients.

Meanwhile, Lattice has applied to the Securities and Exchange Commission for a no-action letter regarding a planned continuous crossing facility.

Lattice, which specializes in equities, will offer First Boston customers automated order-routing to exchanges around the country. For First Boston, the planned continuous crossing facility could provide a new source of liquidity for its trading operations. A First Boston spokesman points out that, for legal reasons, the firm actually acquired Lattice's technology rather than the entire company.

Lattice programmers have built a UNIX-based graphical user interface (GUI) that will serve as the front end for both the order-routing system and Lattice's planned crossing network.

First Boston will help market Lattice's order-routing system and the graphical user interface. Lattice had originally intended to run its system via dumb terminals connected to a mainframe computer at its data center in Boston.

Lattice's founder, Evan Schulman, who pioneered computerized trading techniques at Batterymarch Financial Management during the 1970s, will remain at the helm under the new arrangement. Schulman will operate Lattice out of its Boston offices.

"We're delighted with First Boston's support," Schulman says. "We look forward to implementing our system and to rapid growth." Schulman declines to comment on details of the buyout and future moves, including the planned continuous crossing network. First Boston executives also decline comment.


To help Lattice market its order-routing system, First Boston recently hired Mony Rueven, formerly second-in-command of Jefferies & Co.'s Investment Technology Group. Rueven reports to First Boston managing director William Cook, equity financial strategies. Schulman will report to Cook, and also to Jim Gantsoudes, managing director, equity capital markets.

Industry sources say that Lattice is testing the system--with its new UNIX-based graphical user interface--at a Boston-based institution before offering it commercially.

The routing system, which uses Lattice-developed software running on a Digital Equipment Corp. computer, searches out the best price--in terms of market price and commission cost--available from the exchanges and execution systems connected to it. Customers, linked to the system via leased line, can place conditional orders that are executed according to fluctuations in the market.

Sources say that Lattice is hoping to take the system a step further by matching orders itself, rather than routing them to exchanges and trading systems. Since this kind of order-matching would mimic an exchange function, Lattice has applied to the SEC for a no-action letter that would let it commence with the service without having to fulfill all the requirements of a physical-style exchange, including regulating its membership.

Because First Boston is a member of the New York Stock Exchange, any NYSE-listed stock traded via Lattice and First Boston will have to be formally "crossed" on the floor of the NYSE. Additionally, any over-the-counter issues traded would have to be reported to the National Association of Securities Dealers' Nasdaq system within 90 seconds of the trade.


Lattice's new UNIX-based front-end software will allow the routing system to perform much like Morgan Stanley & Co.'s MatchPlus continuous cross-ing network. Users would be able to place anonymous orders in the system that would be matched whenever possible. Users would be free to cancel orders at any time.

Lattice users could enter batches of orders priced at the mid-point of the spread. Such batch-order crossing is useful for institutions tracking indexes. These orders are executed when their trigger price matches the mid-point between the best bid and offer on the Intermarket Trading System (ITS). Users can also enter trades as market orders.

Users may also be able to switch orders on or off. This becomes important when too many shares of a portfolio have been bought or sold--so the portfolio ceases to track the index it is meant to follow.

Users of Lattice will also be able to place portfolio contingency orders--floating limit orders--that move with the market and take advantage of market fluctuations. Such flexibility is appreciated by quantitative traders who often need to buy or sell large quantities of stock to keep their portfolios from straying from the baseline index.

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