Block busters

As a trend, algorithmic trading is practically passé: That's how pervasively this once-fringe activity has swept Wall Street. Almost every major brokerage house has adopted the algorithmic formula by building or buying computer systems that split up big orders into manageable pieces and execute them over time. About 11 percent of trades are processed via algorithms, according to Tabb Group; the Westborough, Massachusetts, research firm predicts that the proportion will rise to 17 percent by 2007.

这些新的平台可以大大降低交易成本 - 仅限佣金大约五分之一，即传统交易和面纱交易商的意图。但他们还在可以将机构投资者交易增加一层复杂性。亚博赞助欧冠实际上，算法已经变得如此擅长，转变为数百或甚至数千次 - 甚至数千次，即系统可能会延伸它应该解决的问题之一：缺乏足够的大订单以方便块交​​易。矛盾的是，Wall Street公司聘请的数学家和计算机科学家正在开发这些先进系统，现在发现自己必须不断改进现有算法，并开发新的算法，以跟上持续的切片和切割订单。

"It's like The Terminator," explains Adam Sussman, a senior consultant with Tabb. "You have algorithms fighting against each other, figuring out what each is doing. Because [investors] are the ones using these tools that break large orders up into smaller and smaller pieces, they are in part responsible for the fragmentation of liquidity."

For buy-side traders, knowing which algorithms to employ under what circumstances -- or whether to use algorithms at all -- is becoming ever more challenging. Consequently, brokerage firms not only must offer an array of options for executing trades, but they also must be able to make sense of the choices for clients.

Many firms provide tools that let customers estimate how sundry alternatives would affect their transaction costs. Sales-traders who mostly offer market color are shrinking in number or reinventing themselves as consultants who guide clients through the maze of algorithmic options.

越来越多的机构客户对新安排感到不舒服的是要求经纪公司在单一交易中填补块命令，从而使客户的包裹责任进入市场。

"It's important for the brokers to offer a whole suite of services, everything from the algorithmic model to the full-service block-trading desk," notes Mary McDermott-Holland, a senior vice president of trading at Boston-based Franklin Portfolio Associates, a quantitative manager with $34 billion in U.S. equity assets.

Which Wall Street firms are doing the best job of steering clients through this daunting environment?

To find out, Institutional Investor surveyed hundreds of head traders at money management firms, asking which brokerages deliver the best execution for New York Stock Exchange and Nasdaq Stock Market stocks. We also had these top traders rank the best exchanges and alternative-trading systems (see table, page 50). In addition, our survey sought their opinions of various equity-trading attributes, such as the quality of algorithmic platforms and sales-trading. In all, more than 300 traders responded to our second annual survey, conducted during the summer and early fall. (For more complete results please visit our Web site, www.huaqiangtimber.com).

Lehman Brothers dominates the rankings, repeating as tops in NYSE trading and leaping from fourth to first on the Nasdaq list. Buy siders say Lehman does the best job of combining traditional "high touch" services with technologically advanced "low touch" execution tools. Specifically, the firm's clients laud its transaction-cost-analysis system, delivered through its LehmanLive online research portal, which provides pretrade estimates and posttrade reports.

“这是一个产品的一个例子，即买方通常必须出去购买，”波士顿有限公司的高级股票交易员劳伦斯·普鲁佐说。“他们做得很好。”

Lehman complements its technological prowess with attentive service. For instance, the firm has added coverage of 500 companies to its Nasdaq roster in the past year, bringing the total to 1,750 stocks.

The firm stands out, too, say buy siders, for being willing to commit capital to concluding clients' block trades in one fell swoop. Most brokerages have shrunk from using their capital in this way as equity-trading commissions have declined; they reason that they can earn higher returns on other activities, such as proprietary trading or lending to hedge funds. Lehman, however, believes that as technology makes trading intimidatingly complicated, clients will increasingly value the ease of a single-counterparty trade.

"Our goal is to provide liquidity to our clients, through capital or through access to liquidity across multiple destinations," says Gerald Donini, head of U.S. equity trading at Lehman.

Merrill Lynch & Co. holds on to its No. 2 ranking in Nasdaq trading and jumps one spot to second in Big Board stocks. Viewed in recent years as a laggard in electronic trading, Merrill last year hired Rohit D'Souza, who played a critical role in developing Morgan Stanley's acclaimed Passport algorithmic platform while trading chief there, as head of global trading. At Merrill, D'Souza, who worked for cutting-edge brokerage Investment Technology Group before joining Morgan Stanley, has been bulking up technology, chiefly by enhancing the ML X-Act electronic platform.

"We've had an intense focus on direct-access and program trading capabilities and built out significant product over the first half of the year," says D'Souza. "These efforts are coming to fruition."

第三,落后于Lehman and Merrill in NYSE trading is Citigroup, followed by Bear, Stearns & Co. -- which leaps four places from last year's survey -- and Morgan Stanley. The same trio rounds out the top five Nasdaq traders, but in a slightly different order: Morgan Stanley takes third, followed by Citi and Bear Stearns.

我们的首脑交易员对顶级执行场地的选择，包括常规交流和替代交易系统，并不令人意外：液体。纽约的电子网络具有60,438个股票的平均执行大小 - 与典型的纽约证券交易所交易相比，与典型的纽约证券交易所交易相比少于400股。

"As the institutions are finding it increasingly difficult to execute the size they require, and the Wall Street desks are becoming less effective at executing blocks, we are one of the only venues out there where they can go and find size," says Seth Merrin, Liquidnet's chief executive officer.

Clearly, block liquidity -- whose virtual disappearance from the conventional market concerns brokerages and clients alike -- is the single most important factor affecting the ratings of stock exchanges and electronic networks in our survey.

Here Liquidnet shines. The firm operates a private crossing network, launched in April 2001, that is for institutional traders only. Members let Liquidnet scan their order books, enabling it to identify matching block orders. Prospective counterparties pair off in a chat room to hammer out a price.

Liquidnet, a broker-dealer, also cracks the survey's top ten NYSE and Nasdaq brokers, finishing ninth and tenth, respectively. And it is burgeoning. The firm's average daily trading volume has doubled in the past year, to 40 million shares. Every day, Liquidnet's network has more than 1.5 billion shares eligible for execution, according to Merrin. That makes it the third-biggest liquidity pool in the U.S., behind only the NYSE and Nasdaq. Another metric of success: Members take advantage of potential matches 50 percent of the time, up from 17 percent three years ago, according to Merrin.

其他另类交易系统还我n our rankings. Bloomberg Tradebook, an electronic communications network launched by the financial news and data giant in 1996, finishes second behind Liquidnet among execution venues, falling from first place last year. The Inet ATS, an ECN currently being sold by Instinet Group to the Nasdaq Stock Market, is third. Nasdaq itself ranks seventh and the NYSE tenth, behind Investment Technology Group (which operates the Posit crossing network and finishes fourth) and fifth-place Rediplus (the algorithmic system operated by Goldman Sachs Group's Spear, Leeds & Kellogg unit). The Archipelago Exchange, now being acquired by the NYSE, finishes higher than its parent-to-be, in sixth place.

Algorithms may be making matters more complicated, but they didn't create the problem of fragmented stock market liquidity. In 1997 the Securities and Exchange Commission responded to a price-fixing scandal involving Nasdaq market makers by enacting new order-handling rules that inadvertently gave a huge boost to ECNs. They mushroomed: Trading interest migrated from a few centralized exchanges to dozens of upstart venues, like Instinet.

然后，在2000年，国会要求，2001年的价格以小数价引用，而不是分数，将最低价格变化从6.25美分（1亿美元）减少到一分钱。这个看似的技术变化实际上使地板交易者和其他人在竞标或提供了更好的一分钱之前更容易跳过街区订单。警惕机构开始修剪他们的订单规模，害怕在市场上揭示他们的意图。

今天的电子执行选项都是专门用于这个新制度的。相互和对冲基金已植入系统，允许他们在没有经纪人的不得不进行干预的情况下访问电子交换。直接访问平台，更高级的系统添加专有算法。这些最受欢迎的尝试之一，击败股票的批量加权平均价格，或vwap。其他帮助贸易商的帮助方式或多或少地积极地表现，具体取决于其订单的性质，以尽量减少交易成本。

Algorithms are hardly the last innovation, either. Starting next year, controversial new SEC rules, known as Regulation NMS, for national market system, are supposed to more efficiently link the country's various execution venues. The theory is that traders will always be able to access and execute against the best available prices.

有一个例外：纳斯达克等全自动市场获得忽略手动市场的优越价格，如纽约证券交易所的地板，可以更长时间更新报价。在回应中，大董事会和美国证券交易所正在推出自己的混合市场，将与电子匹配混合的地板拍卖。

所有这些发酵的可能结果可能是现在奄奄一息的区域交易所的更大作用：如果他们拥有展示最优惠价格的自动化系统，他们可以在全国范围内拿起批量。讲述，一群华尔街公司和巨大的对冲基金城堡投资集团在费城证券交易所购买了股份。

“我们不知道从reg nms的辐射是什么，但市场工作的方式可能看起来很逊色于现在，富兰克林的McDermott-Holland建议。

Human traders may be the biggest loser, as institutions' demand for lower and lower execution costs pushes Wall Street toward greater automation.

Still, the march toward more-efficient trading doesn't necessarily trouble Wall Street trading officials. Many argue that a blend of human and automated execution services will hold sway for quite some time -- especially as technology adds still more complexity to the buy-side trader's job, even as it purports to solve his or her problems.

"Everyone talks about commissions and margin pressure," says Lehman's Donini. "But when you cut through all the noise, there is the opportunity to continue to grow your market share, provide superior value to your clients and continue to get rewarded for that."