@Harborside Is Not An ECN

NEW YORK--@Harborside is not an ECN, nor is it an ATS, for that matter. In fact, there's no matching engine under @Harborside's covers at all. No, @Harborside is an anonymous FIX-compliant Web-based block order IOI system that allows institutions to find each other. But that's where the technology ends. All negotiations and executions are done off-line.

The goal, Jefferies officials say, is to use technology to bring more trades to the desk, but not replace the desk or the traders. "We didn't try to do too much," says James Nikolai, vice president, business technology group. In fact, Jefferies made every effort to "keep things simple," says Mike Alex, senior vice president of trading technology.

Which is just what they did. Jefferies officials say institutions can access @Harborside without bothering their IT department and without having to spend hours and hours learning the system. The entire process of signing up and receiving a password to use @Harborside takes under ten minutes. And @Harborside was developed in HTML, which allows it to reach clients using any version of Netscape or Internet Explorer.

Clients can also connect via a personal Web page or via trade order management systems like McGregor's Predator and Longview's Landmark.

Here's how it works: once a buy-side trader logs onto @Harborside, they enter a buy or sell indication into a simple blotter. That information is then sent to the @Harborside server, which is located off-site at Exodus, a telecommunications firm on retainer, ensuring security and anonymity. The servers are secured by firewall and access monitoring and all data transmissions are protected by an encryption-capable secure socket layer.

Nothing happens unless another client enters an indication for the other side of the trade. Then the system generates an alert which is sent to both of the clients and their Jefferies AEs. From there on out, the block transaction is negotiated from Jefferies trading desk.

Jeffries began developing @Harborside over a year ago, but largely kept it under wraps until its soft launch last week. The product is scheduled to go live at 200 institutions May 25. The aim, like that of Optimark, is to facilitate block trading without leakage and front-running and without price impact.

Jefferies also insists on maintaining the integrity of the indications posted on @Harborside. "The key is liquidity and integrity of the IOI's within Harborside," says Alex. This is why they will not allow any "fishing," if a client is not trading and continues to drop out, Jefferies will ask them to leave the site.

To ensure that @Harborside remains a pool specifically for block trading, Jefferies has imposed minimums. They are: 5,000 shares for micro-cap stocks, 20,000 shares for small-cap stocks, 50,000 for mid-cap shares, 100,000 shares for large-cap shares and 500,000 shares for ultra-caps.