Instant Algorithms

Pivot Solutions, a Boston-based instant messaging and electronic trading network that was spun off from Eze Castle Integration, a sister company of Eze Castle Software, recently added algorithmic trading capabilities to its AOL IM front end. "Brokers have had a high-touch model using the phone and a low-touch model using FIX," says Furquan Nazeeri, president and CEO of Pivot Solutions, which makes IMTrader. "What happened over time is that instant messaging - AOL IM in particular - has evolved as a third way: a medium touch."

A buy-side firm using IMTrader enters the specifics of an order into an IM screen with the code for the particular algorithm the firm wants to use. After the message is sent to the buy-side firm's broker, it is converted into the FIX format. Based on the algorithm used, it is passed instantaneously from the sell-side firm to the final destination (e.g., an exchange, ECN, etc.) for execution. Post-execution, a confirmation report is converted back into an IM format and fired off to the buy-side shop.

The IMTrader software can be hosted by the sell-side firm or by IMTrader itself; no technology needs to reside with the buy-side client, according to Nazeeri. Pivot Solutions rolled out the new algorithm functionality in the third quarter. "We would say that most of the buy-side customers are, in fact, $100 million hedge funds and pension funds that don't run a formal OMS [order management system], or, if they do, they don't have FIX connectivity to the total market of brokers with which they trade," Nazeeri says.

Tapping into AOL, Nazeeri adds, provides access to the existing community of equity traders using the network. "It's ubiquitous," he says. "You can access everyone."