Brut ECN To Cut Rates In Battle for Volume

SunGard Brokerage Services is planning to enact a 10 percent price cut for customers of Brut ECN, as of Sept. 1. The price reduction will offer high-volume customers a take-out rate (for removing liquidity from the Brut book) of 27 cents per 100 shares executed. This also represents a 30 percent reduction off the fee-rebate spread (which is the difference between posting liquidity and removing liquidity from the Brut book).

Considering the effects of such a price reduction on Brut's business, a source at a direct-access firm, who asked not to be named, says, "If you're going to reduce your gross profit margin by 30 percent, you've got to pick up an awful lot of volume to offset that."

Bryan Hyndman, president of Brut, contends the ECN can still operate profitably at these rates due to its low cost structure and operating efficiency. But given the 10 percent rate cut, he adds, "We will need to see volume increase in order to remain at our current level of profitability." Since SunGard's acquisition of Brut LLC in August 2002, Brut doubled its market share from 4 to 8 percent and increased capacity from 2 million daily orders to 12 million.

The price reduction will put pressure on rival ECNs such as Instinet and Nasdaq's SuperMontage. "I think you know what the recent financial reporting of those two companies has been. It's hard to predict how they will react," though customer behavior may change, he says.

Brut defines a high-volume customer as one that trades 50,000 shares a day of takeout volume, measured on a month-to-month basis. "For every 1 million shares a day traded with Brut instead of other ECNs or SuperMontage, the lower Brut rates would mean approximately $75,000 a year in savings," says Hyndman. "That's pretty a powerful economic incentive," he says.

Hyndman says Brut's continued growth and lower operating costs are the result of its association with SunGard. Brut has also reaped efficiencies from using SunGard-owned systems, such as the Brass order-management system and Phase 3 securities-processing system. 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