Banks form trade idea distribution hub

New players are coming to the business of trade idea distribution, the platforms that transmit, track and analyze the buy, sell and hold recommendations that securities firms provide to the buy side.

In late October four major brokerages -- Citigroup, Credit Suisse First Boston, Dresdner Kleinwort Wasserstein and Merrill Lynch & Co. -- formed Trade Ideas, a not-for-profit operator of a U.K. hub designed to simplify trade idea distribution. The consortium's open-architecture setup, the Repository & Distribution Centre, enables asset managers, alternative-investment firms and proprietary trading desks at investment banks to access and track trading ideas from participating brokerage firms with which they have a relationship. Reuters will start offering a trade idea service on the RDC in January.

"The aim is not to compete with anyone, but to get them to join in," says Colin Berthoud, sales director at YouDevise, which developed and operates the RDC.

Currently, FactSet Research Systems, a Norwalk, Connecticutbased provider of online database services, is the top vendor in the trade idea distribution space. In July it paid £13 million ($22.7 million) for London-based industry leader StreamVPN, whose AlphaNetworks is used by money managers around the world, says John Wiseman, FactSet's vice president of brokerage relations and execution strategies.

"The buy side wants to better quantify, measure, rank and analyze the quality and performance of the ideas they get from their brokers," says Stuart Berwick, head of e-sales at Dresdner. "It is in everyone's interest to make the logistics as simple as possible."

The consortium's efforts come at a time of increasing demand for transparency in trading, one sign of which is the new disclosure regime by the U.K.'s Financial Services Authority that takes effect in January. It requires the buy side to disclose how much of its commission expense is directed toward research and how much toward trading.

"We definitely see RDC as a preemptive strike," says Kate Bohn, head of e-products and services for pan-European equities at Citigroup.

"We want to make sure that we are meeting what may be required of us in the future."