Betting that direct-access-trading technology will become a requirement for hedge funds and other customers, Thomson Financial has invested in TradePortal.com Inc. -- a financial-software company that claims it has built a better mousetrap for serving the institutional market.
The company has also obtained a 10-year software-licensing agreement for the product called Matrix Suite.
Though the deal has been kept under wraps for the past three years, Thomson's Banking & Brokerage unit plans to market the system to hedge funds by the end of the first quarter, according to David Smithey, chairman and chief executive officer of TradePortal.com, which is the parent company of TradePortal Securities, a retail broker/dealer.
Thomson also views Matrix Suite as a product that can integrate with or replace Thomson's BetaConnect product, which routes orders to liquidity providers.
In 2000, Primark Corporation -- acquired by Thomson in September of 2000 -- invested $6 million in an A-1 round of financing for a 20 percent stake in TradePortal, according to David Smithey, chief executive officer of the broker/dealer. In return, Thomson negotiated the right to license the software for five years and share in 10 percent of Tradeportal's gross-adjusted revenues, says Smithey. That figure was extended to 10 years and revenue sharing was decreased to 5 percent.
California-based TradePortal.com was founded by a group of traders in 1998 that used direct-access products such as CyberCorp and Real Tick, which were LAN-based products. Frustrated by performance problems, they built their own network infrastructure. In 1999, they opened TradePortal Securities, a retail brokerage by licensing a third-party direct-access platform. They undertook a proprietary development effort in 2000 to design a direct-access platform for institutions that would run over the Internet.
Designed by a Microsoft software architect, but coded by an in-house development team, MatrixSuite runs on SQL Server 2000. It consists of Trade Matrix, a thin-client and Web-based front end which takes in the Nasdaq Level 1 and Level II quotes, plus two back-office components: Matrix Manager, a Windows 32 thick client geared toward managing the risk of a firm's trading customers, and Office Matrix, a Web-based platform where brokers can enter static customer information for setting up new accounts.
The software has been in limited release for the past six months with 750 retail-brokerage customers. In addition to the Thomson partnership, TradePortal.com plans to "white label" the Trade Matrix front end to retail-brokerage firms that want to customize a trading platform for their customers under their own brand.
Smithey contends that Matrix Suite is more industrial strength than other direct-access-trading systems because it incorporates Thomson's Speed Feed (which the former ILX division acquired from the former AT Financial). It also uses Smart Sockets messaging middleware from TIBCO to guarantee delivery of the data packets related to executions and updates of their buy power and over night positions. "Not all the direct-access brokers have the middleware," contends Smithey, who adds: "That's why they are limited in their ability to handle these higher-demanding institutions because they don't have this message middleware to take the load."
Seeking a strategic partner that would contribute capital and help it break into the institutional space, TradePortal hooked up with Thomson. "Thomson is our strategic partner for acquiring inroads into the institutional business," says TradePortal's CEO, who maintains two offices in California and India for software engineering, debugging and support on a 24-hour basis.
MatrixSuite originally had the blessing of Joseph Kasputys, the CEO of Primark, who had knowledge of the direct-access space because many traders used AT Financial's Speed Feed and Atlas Charts. Christopher Perry, who was then head of sales for AT Financial under Primark, researched over two-dozen direct-access-technology contenders and picked TradePortal, says Smithey. Once Primark was acquired by Thomson and merged with the ILX/Beta Systems division, Norm Epstein, CEO of Beta Systems, became a "champion of the product," says Smithey, until last March when he left the company.
"He understood the significance of positioning direct access in their technology portfolio." Epstein continued to fund the software with another $1 million and extended the software-licensing deal by another five years for a total of 10 years, while Thomson reduced its share of revenues from 10 to 5 percent. TradePortal's revenues grew more than 6 percent in 2001 and totaled 17.5 percent in 2002, according to Smithey.
Despite the spate of reorganizations at Thomson Financial where the ILX/Beta Systems division was merged into the trading division and subsequently merged with investment banking to create "Banking and Brokerage," the deal has survived a series of management changes.
A call was made to Chris Perry, who is now executive vice president of sales for Thomson Financial Banking & Brokerage, but was not returned by press time. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio