Penson, RTS Plan New Links for European Firms

LONDON--Penson Worldwide, a clearing and settlement services provider headquartered in Dallas, Texas, is rolling out an electronic trading platform for European markets that exploits exchange connectivity from independent software vendor, Frankfurt-based RTS Realtime Systems and a network of regional partner brokers.

Penson will make the service available for trading equities, derivatives, and Contracts for Difference (or CFDs, which are a type of equities future contract) on European exchanges by the end of this quarter. Equities will come first, followed by derivatives and CFDs, which will be hedged by Penson to a specialist CFD market maker. More complex derivative products will come at the start of Q2.

Penson, which already provides a similar service to clients in North America covering exchanges in the region, is now targeting brokers and buy-side firms in the U.K. and continental Europe whose core business does not include supporting their own exchange connectivity infrastructures and back-offices. Penson is pitching a low-cost combined trading, clearing and settlement solution. The expanded coverage will allow firms on both sides of the Atlantic to trade in its existing North American markets, and via European ex exchanges willing to work with Penson.

The expanded service is currently being pilot-tested with six early adopters ranging from institutional fund managers to an Internet brokerage--one in North America, another in continental Europe, and four in the U.K. and Ireland.

The service will provide two key features--direct electronic access to markets where potential users are members, and access to other exchanges using the memberships of brokers local to those markets with whom Penson has partnerships.

The target brokers, private client managers and "black box" hedge fund firms may be small and only focused on one market and thus members of one exchange, says Chris Gregory, director of execution services at Penson in London. Gregory joined the firm last year from SunGard Global Execution Services specifically to expand the business into Europe.

For these firms, Penson offers an electronic trading front-end, dubbed Nexa, as well as complete clearing and settlement services. Nexa is built on a client/server architecture, with the core routing software, exchange connectivity and order management system (OMS) hosted by Penson. The front-end is distributed to clients either via the C++ or Java languages or as a Web browser interface for Apple Macintoshes or client hardware running Microsoft Windows or Linux.

The Nexa link connects to Penson’s back-end hub via the FIX protocol over leased lines, virtual private networks (VPNs) and the Radianz service.

The back-end of the system, developed in C++, runs with Microsoft Windows 2000 and 2003 server farms and against a Microsoft SQL database. The system was developed in-house by Penson, and is the same system as used in North America, However, in Europe, the hub has integrated the exchange connectivity components of RTS’ trading software--to prevent Penson from having to develop exchange gateway software to each exchange.

The back-end uses RTS’ RTD server, which can be Solaris, Linux or Windows-based, running the exchange gateway software written in C++. Penson is also using RTS’ RTD Connect to route trades to brokers. From the same front-end, clients will also be able to access other markets via a "hosted FIX connectivity network" set up between Penson and local brokers in each country that allows clients to trade on other exchanges via the local broker’s membership. Gregory says Penson is looking at expanding the service to include the Scandinavian markets at a later date. Pricing will be threefold: a license fee for the software, commission for brokerage services, and per-ticket fees for custody.