Saturday, May 19, 2007

Giving Bonds an Electronic Upgrade

TO ENABLE ITS LISTED COMPANIES TO OFFER UP more of their balance sheets to efficient trading and to enhance fixed-income market liquidity generally, the New York Stock Exchange is relaunching its bond platform this quarter. The upgraded electronic bourse should end at least some of the fragmentation in corporate bond trading, an enormous marketplace that’s still mostly off-exchange—which means retail investors typically buy from and sell to a brokerage’s internal inventory.

Finding out whether you’re getting the best available price for a stock trade is easy these days, thanks to the wide availability of real-time quotes. If you want to get the latest quote for, say, General Electric (ticker: GE), you just type the ticker into a quote box. Bond-price quotes, particularly for the many thinly traded names, are considerably more difficult to locate than stocks’. The market’s complexity is partly to blame. There is one class of GE stock available in the U.S., but many, many more GE bond issues, all at varying interest rates and maturity dates.

During June, the NYSE will launch a bond-information site at http://www.nyse.com/bonds that will provide 20-minute delayed bond-price quotes as well as a look at the market for individual bonds. The site will contain listings of all available bonds and give users the ability to search the inventory, based on criteria such as maturity date, coupon, and industry sector.

What will this mean to individual investors? The NYSE’s goal, according to John Holman, vice president and head of fixed income for the exchange, is to open up the bond market, increasing the visibility of pricing and adding liquidity. Holman says that the NYSE is making it simpler for liquidity providers, such as brokerage houses, to link into the platform.

“Having centralized information always drives the cost of execution down, which is an advantage to the retail investor,” adds Holman.

The new platform started with 1,000 bonds and is adding about 500 new issues every few days with the eventual goal of 5,000 to 6,000. Government bonds will eventually be available.

Currently, brokers that allow their customers to trade using Townsend Analytic’s RealTick platform, including Terra Nova Trading and MasterTrader, can view data and place trades on the NYSE bond platform. Holman says several online brokers, including Fidelity, are currently working on giving their customers access. “We hope the online discount brokers hook up to us,” says Holman.

Why We Prefer Barron’s

Consumer Reports magazine’s newly released ranking of online brokerages is strikingly different than the one Barron’s compiled back in March. CR’s top-ranked firm, Firstrade, for instance, came in tenth in our comparable category and its runner-up, E*Trade, was sixth in Barron’s.

Some readers have inquired about the differences. Actually, the results aren’t so shocking in light of the criteria the two publications use. We’re definitely biased, but we happen to like ours better.

The differences mostly stem from the target audiences. Barron’s seeks to address a more sophisticated investor with a more comprehensive array of broker tests. Our online-brokerage client profile is a relatively wealthy individual with at least $100,000 in his or her account who is a moderately active trader and technologically savvy. Consumer Reports’ Money Lab’s target reader is a “typical small” investor who, the service says, “makes two or three stock trades a month at most” and “adds steadily to...core mutual-fund holdings.”

CR rates only Web-based systems (Barron’s also assesses software-based brokers) on trading cost and scope, minimum trade fees, mutual-fund programs, the number of mutual funds available without a transaction fee, banking and asset-management services, the amount of free research and education tools, and customer support.

Barron’s evaluates the trade experience, technology, usability, product selection (with partial credit for items available only via a live broker), research amenities, portfolio analysis and reporting (with an emphasis on tax reporting), the quality of help and means of access, and costs of the Website or software program.

For Barron’s, high-quality trade execution, smart-order routing technology (which finds the best bid or offer), and the absence of internalized orders and reliance on payment for order flow were necessary to earn a high rating. CR’s rankings don’t consider any of these criteria.

Another key difference: Our emphasis is on hands-on testing. We get a trading account with each broker, and run the sites and software offerings through a comprehensive script. I’ll leave it at that.

Posted by twcarey on 05/19 at 02:11 PM
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Saturday, May 05, 2007

Brokers Spruce Up Their Systems

NEW GOODIES FOR ONLINE INVESTORS are popping up this spring, promising their own version of a green summer.

TRADEKING (http://www.tradeking.com) is just one of several firms branching out from existing product offerings. It is enhancing its social-networking capabilities to promote collaborative learning and community sharing. Think of them as the financial equivalent of Websites like MySpace and FaceBook—allowing members to post a profile and blog about trading. Participants can also interact online via live chat rooms and instant messaging.

“People socially network about investments in the real world. It’s a natural extension to have these conversations amplified through technology,” says Donato Montanaro Jr., CEO of TradeKing.

One new wrinkle known as Certified Trades allows members who are also clients to publish their verified trade history. That way, when you’re reading a blog on the site, you can tell who’s actually making the trades that they’re talking about—helping you avoid possible touters and pump-and-dump schemes.

OPTIONSXPRESS (http://www.optionsxpress.com), meanwhile, continues to sprout enhancements to its display of options-chain information. New features permit you to view all the calls or puts that can be traded for a particular underlying stock. When you roll your mouse pointer over a symbol, you can look at quotes across exchanges for that item, or check out the “Greeks” (risk variables). Hovering the pointer over a strike price displays the option’s intrinsic value versus time value.

Also available with the new chain display is the ability to populate a spread-order ticket quickly. By clicking once in an order box next to a quote for a particular option, you can select it as a Buy. A double-click selects it for a Sell. When you’re filling out a trade ticket from a display, you get a visual image of your order—helpful when setting up a diagonal spread or a calendar spread.

“Our education division likes this, because it visually shows what is going on with a spread,” says Alejandro Ozerkovsky, optionsXpress’ product manager.

Another expanded feature at optionsXpress is Chart Patterns, which now lets you find stocks that fit certain technical criteria. By clicking the Advanced Chart Patterns screen, you can choose market direction (bullish, bearish, undefined), a trade horizon (short-, intermediate-, long-term) and a particular technical-chart layout to see up to 20 stocks that fit your specs.

When you hover your mouse over a chart layout, a description of how it works appears. This feature would be even more useful if market-cap and price range for the resulting stocks were available.

OptionsXpress has added functionality to the Positions screen as well. If you click on the Trade box next to items that are in your portfolio, you can create an order-entry ticket that allows you to close all those positions from the same screen.

INTERACTIVE BROKERS (http://www.interactivebrokers.com) got a jump on the season in early April, becoming one of the first brokers to offer updated rules for the calculation of securities-margin requirements. Utilizing the Securities and Exchange Commission’s new portfolio-margin rules and the firm’s real-time margin technology, IB’s customers in certain cases are able to increase their leverage.

IB also completed its second Collegiate Trading Olympiad. This year’s winner, Brian Eckerley of Ohio State, generated a profit of $294,190 over eight weeks of competition, starting with $100,000 in phantom money. He was one of 204 participating students who designed program-trading applications in C++, Java, Visual Basic and Excel and VBA for Excel and had to complete at least 25 trades during the competition.

Unhappy with the trading interface provided by existing online brokers? Just2Trade and its affiliate SuccessTrade recently launched an applications-program interface that can be used to link into their trading engines. The API does not include a quote server, but a knowledgeable programmer could use it with other tools to quickly execute trades. More information is available at http://www.just2trade.com/html/program_trading.php.

Several other brokers allow programmers access to their API, including Interactive Brokers and optionsXpress. Here’s to a successful spring growing season.

Posted by twcarey on 05/05 at 01:26 PM
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