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Among the technologies available are smart order routers, advanced order management platforms and trade reporting systems. But shopping for Reg NMS solutions 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.
"What's shocking is that there is a lot that's still really unknown, or not 100 percent clear," notes Michael Mollemans, VP and head of electronic execution sales, Daiwa Securities America. Among the unknowns surrounding 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 time lines to comply with Reg NMS, notes Thomas Jordan, president and CEO of consultancy Jordan & Jordan. "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."
Sell Side Takes the Lead
Still, 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.
"Because there's still a lot of learning that needs to be done for the buy side as well as the sell side, at this stage it's really just going to be the sell side talking with the buy side and explaining what it knows. ... If the buy side feels that such and such a broker is really in the know, they'll have much more confidence in that firm."
The buy side isn't completely off the hook, however. "They have a responsibility, too - to show that they're making their best efforts," reports Gideon Low, senior technical architect for data infrastructure provider GemStone. Low explains that pre-trade analytics and best execution research now are being incorporated in the trade stack and processed prior to execution.
The majority of technologies needed to comply with Reg NMS exist already, but the trouble is scaling that infrastructure to handle the anticipated surge in volume and storage requirements, according to Richard Purdy, head of global financial services marketing and solutions development for EMC Corp. Firms want scalability, he says, but they're not ready to buy just yet and are applying stopgap solutions.
"They want to see the impact [of Reg NMS]," Purdy continues. "They want to see if the vendor community will provide anything different and special, and I think the answer is going to be, 'No.'"
But Jordan & Jordan's Jordan notes that despite the uncertainty from regulators and exchanges, now is the time for firms to be decisive. "They should be doing business reviews of every trading application now. All the excuses for not having those discussions are gone now," he says. "You can't affect the technology until you come to some decisions about this."
