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Trading Technology

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Andrew Rafalaf
Andrew Rafalaf
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Happening Upon a Wireless World

Brokerages push to wireless trading despite the varying devices and network protocols.

Wireless anything, no less wireless trading, seemed pretty far-fetched to the average individual not too long ago when wide-eyed kids watched Captain James T. Kirk command that Scotty "Beam him up" over his "personal communicator." Now that half of the U.S. totes around a certain cellular flip-phone that appears remarkably like Kirk's communicator, and now that a growing percentage of the World is coming together over this nascent thing called the Internet, wireless trading might just be "the final frontier." Well, not exactly.

Unlike the futuristic world of Captain Kirk, ours is comprised of many different types of communication devices, from the Palm 7 to Windows CE devices with wireless modems attached to two-way pagers, not to mention all those different "smart-phone" brands, competing wireless protocols and the various networks over which they operate. This, in fact, has been one of the greatest dilemmas for the various brokerages who have gone or are going wireless: what devices to offer to your clients and over what networks.

Fidelity Goes At It Alone

Fidelity Investments, the first major brokerage to offer wireless trading, elected to begin offering its wireless services earlier this year on the RIM (Research In Motion) 950 two-way pager operating over the Bell South Network. Unlike many of its competitors-namely Dicover Brokerage, Charles Schwab and Dreyfus-that have come to the fore with their own wireless trading services, Fidelity has opted not to partner with one of the few wireless application and protocol developers out there. Instead, the online broker uses a host of proprietary technology to link the pager via the BellSouth network to its in-house trade processing systems.

As Edward Kountz, a TowerGroup retail technology analyst, puts it, "Fidelity ... chose to utilize its enviable budget and vast internal R&D resources to develop the majority of its wireless trading systems in-house." In his report, "Wireless Internet Trading-Cutting the Ties that Bind," Kountz points out that "Fidelity has traditionally chosen proprietary development over outsourcing."

Joe Ferra, senior vice president and head of Fidelity's wireless project explains, "the benefits to being proprietary are that we can move in the directions that the clients want to go. At the time we started looking at this, there weren't a whole lot of people doing things with the RIM 950 device, but we felt it was most appropriate for our clients."

Ferra admits that the firm sacrificed screen space for transmission speed, network coverage and cost. Given the real-time nature of trading and financial data, network speed, really more than anything else is what Ferra and his team focused on.

"If you look around at the networks out there and which ones were available then, you start looking at the Reflex networks and the Motorola networks. A lot of those organizations ... measure their service in minutes, not seconds. With trading and real-time quotes, we were really concerned with data speed. If you look at the BellSouth network, response time is in the four to eight second range."

Fidelity is now looking to a future that will incorporate other wireless devices, such as Windows CE-based personal digital assistants (PDAs) and smart-phones, but Ferra declined to specify which would be released and in what time frame. The firm will most immediately offer 3Com's Palm 7 to its clients because it operates over the BellSouth network and can utilize the same encryption technology, Certicom, as the RIM pager.

Having decided not to partner with a wireless vendor, the firm has developed its own APIs and graphical user interfaces (GUIs) for each device. The GUI is probably the easiest component because Fidelity can make use of the Software Development Kit (SDK) that comes with each device, but writing APIs, which allow Fidelity's back-office trade processing systems to understand the protocol of each device, is a more heady task. Ferra says he is not concerned because his team has developed APIs before, first when the firm connected a Web front-end to its trade processing systems and then the RIM pager.

Some of Fidelity's competitors, like Discover Brokerage, Charles Schwab and Dreyfus, have taken a slightly different route, partnering with a third party vendor that already has pre-packaged APIs for each wireless device and has relationships with a host of networks.

Aether Vs. w-Trade

Discover, and more recently Schwab, have partnered with Owings Mills, Md.-based Aether Technologies. Aether offers its brokerage partners the Aether Intelligent Messaging (AIM) system which includes a suite of APIs to connect each wireless device to the appropriate back-end system, whether it be NT, Unix or a mainframe. AIM also provides a protocol gateway, which sits in between the client application and the network, that employs a data compression technique which speeds up the transmission process.

"Aether handles the encapsulation of wireless protocols," explains John MacIlwaine, Discover Brokerage's CTO. "We decided not to staff up on people who understand wireless protocols like CDPD(cellular digital packet data). If they understand that and can develop the front-end for us, the MarketClip interface, then I thought it would be best for us to focus on what it is we do, trading."

Aether's MarketClip application has been private-labeled TradeRunner and will reside on either a Palm Pilot or, eventually, a Windows CE device. Currently, Discover offers TradeRunner on the Palm 3 and 3x, and will offer the service on the Palm 5 come September. MacIlwaine says he is a little wary of the Palm 7 because it is based on a totally different architecture as its predecessors and would require the brokerage to route the trades first through 3Com's Palm.net network. He adds that he doesn't foresee any problems for the roll-out of Windows CE devices and smart-phones which will become available in the second phase of the wireless roll-out, scheduled for next year. He quipped, though, that "we're all big Palm-heads out here."

Discover has opted to roll-out its services first on CDPD technology rather than Mobitex (that which is used by BellSouth) because the firm felt it was much more cost effective, which translates into cost savings for its clients. As Fidelity and others would be quick to point out, CDPD has some large "coverage holes" in areas like Atlanta and Los Angeles.

Aether is a firm that tries to be as flexible as possible, explains George Davis, COO. "We are requirements-based driven. We didn't go into Discover with preconceived conclusions as to how they would set up their system. It has been a very mutual relationship based on our understanding of the technology, and Discover's understanding of their customer," Davis says.

In keeping with Aether's commitment to flexibility, the Schwab service, scheduled for release by the end of the year, plans to avail wireless trading on a number of devices and over a number of networks. Schwab is using Aether specifically for its interfaces with the various wireless service providers, from GTE to AT&T.

Bob Taylor, head of Schwab's wireless trading initiative, declined to specify which devices and networks Schwab will employ come the end of the year because they haven't yet "announced their offering", but he did say that "you would probably expect Schwab to introduce the service over a number of generic devices like pagers, Windows CE and handsets."

"We will be on multiple devices because we want to give our customers a choice for how they want to communicate with Schwab," Taylor says. "We don't want to exclude any of our clients that have a certain device that is easy to support. There is no reason not to support them."

Looking to offer as many options to its clients, Dreyfus Brokerage Services has partnered with w-Trade, which broke out into the wireless trading scene in 1997, according to Kountz. Despite the fact that it lead the pack, w-Trade's clients tend to be smaller, more niche players like R.J. Forbes and FirsTrade, so adding Dreyfus to its client roster was definitely a boon for the company.

According to one industry insider, w-Trade's technology appears to be less flexible and robust than the Aether offering. "I believe that w-Trade takes a more out-of-the-box approach, while Aether does more customization for each of its clients."

Kountz didn't entirely agree with this assessment. "w-Trade has traditionally been more of an off-the-shelf type solution, and that's the perception out there, but whether its justified or not is questionable," he said. "I think the two Aether and w-Trade are comparable. What Aether has in terms of names, w-Trade has in terms of implementations and numbers. It may be an imperfect comparison ... Aether has good technology and good clients, but that doesn't mean there isn't room for w-Trade to grow."

The folks over at w-Trade, understandably, disagree with the industry perception that their technology is weaker. Karin Herrmann, w-Trade's chief operating officer, says that its wireless trading system is an open platform that works with any device and any network.

Elusive Standards

The question really boils down to why there are so many differing device and network protocols, and how the industry can alleviate the problems inherent with varying technologies. For now, the answer is APIs, but APIs will only go so far. Long-term, the brokerage industry, as does the entire telecommunications industry, needs to settle on some standards. Kountz contends that there will not be widespread adoption of wireless trading until protocol standards are widely accepted.

In his report, Kountz speaks of 3G, a vision of the next generation of wireless networking protocol that is currently being thrown around by the hi-tech set. "3G isn't really an 'it,' it's a concept. The point is that 3G is something that really is only now coming to the fore, as it becomes obvious that there needs to be a network protocol that is open and available and provides true anyway/anytime/anywhere access, and that's the goal of 3G."

Europe, which is considered to be light-years ahead of the U.S. in terms of wireless communications, largely relies on GSM (Global System for Mobile Communications) as its network protocol of choice which allows for far more interoperability between differing systems than presently experienced in the U.S. Whether a European standard like GSM will become the U.S.'s G3 is not a given, says Kountz, despite its widespread acceptance around the globe. Noting the proprietary atmosphere of technology in America, he adds that America, with its significant weight and power, may choose to promote its own standard.

Then there is the application protocol. Schwab recently joined the Wireless Application Protocol (WAP) Forum, the first brokerage to do so, to assist the development of a single, industry-accepted application protocol that will easily allow varying devices to communicate with one another. Work on WAP is only just beginning, but Schwab's Taylor expects to see it rolled out in cellular phones come next year.

Wireless trading is off to a slow-start, largely because of the lack of standards, but also due to bandwidth restrictions inherent in all the wireless networks out there. As bandwidth increases and network and device prices come down, the brokerages are gambling that investors, both active and not, will not ask themselves, "why would I trade over a PDA instead of a desktop," but, rather, will ask, "why wouldn't I?"

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