The Sell Side Searches for Reg NMS Solutions at SIA

Looking to move from concept to execution, sell-side institutions are searching the SIA show floor for technology and strategies to support compliance with the SEC's Regulation National Market Structure (Reg NMS). Though the deadline for Reg NMS compliance has been pushed back, with phased deadlines beginning in October 2006 and final compliance now scheduled for October 2007, firms still are looking to move into production with their Reg NMS strategies, even while some of the final details of the legislation are hammered out.

Among the technologies being shopped are smart order routers, advanced order management platforms and trade reporting systems. "I expect that this SIA Conference will go a long way toward increasing our knowledge of what vendors are coming out with - what products seem to be best suited to meet the needs of Reg NMS," says Michael Mollemans, VP and head of electronic execution sales, Daiwa Securities America (New York), in a pre-show interview with Wall Street & Technology. But being at the SIA show this year isn't the same as visiting the local grocer. Business needs aren't well defined and many broker-dealers still are determining what they'll need to build or purchase as many Reg NMS details remain undefined and self-regulating organizations conjure their individual requirements.

"What's shocking is that there is a lot that's still really unknown, or not 100 percent clear," notes Mollemans. Among the unknowns that remain part of Reg NMS are the specifications required for smart order routers and data storage specifications. And Mollemans points specifically to the need to be able to "take snapshots" of a firm's order book. "Now what kind of technology does that?" he ponders. "I myself don't know."

Further clouding technology purchasing decisions is the fact that individual business lines within an enterprise may have vastly different needs and may be working on different timelines to comply with Reg NMS, notes Thomas Jordan, president and CEO of consultancy Jordan & Jordan (New York). Both Mollemans and Jordan will be participating in the "Building for Reg NMS" workshop today in the Mercury Suite on the third floor.

"There's no cookie-cutter approach to doing this," Jordan says. "It's really going through it department by department and making some decisions about what you want to do. ... In most of the firms we've seen the departments develop their solutions at different times, so it's not all the same technology," he adds. "If there were a checklist that people could give out, we'd probably have it at our booth at the show."

But checklist or no checklist, the sell side is expected to be on top of the issues surrounding Reg NMS - defined, undefined or as of yet unspoken, according to Daiwa's Mollemans. The buy side is expecting that its counterparties will have a strong plan for tackling the technological implementation of Reg NMS, and if a broker-dealer should flounder or fail to maintain, if not exceed, current service levels, institutional investors will swiftly move order flow elsewhere, he asserts.