SAN DIEGO -- Nicholas-Applegate Capital Management may be close to completing total electronic processing for domestic equity trades, part of a major revamping of the firm's technology.
George C. Kenney, Nicholas-Applegate's chief information officer, said that firm is 95% finished installing a system for straight-through processing -- total electronic trading where no paper is touched by traders. He said the last step, which involves electronic links to brokers, should be completed by year-end.
"I don't know of anyone who has (straight-through processing)," said Joseph Rosen, a managing director with Enterprise Technology Corp., a New York financial consulting firm. Mr. Rosen said eliminating paper entirely is a difficult but not impossible task.
"I think we are significant ahead of the (money management) industry. Straight-through processing is a very hot topic," said Mr. Kenney.
But Nicholas-Applegate is not spending more to get ahead. The technology budget for Nicholas-Applegate is $13 million a year, in line with money management industry averages based on firm revenue, said Mr. Kenney.
Straight-through processing is one of the most difficult goals of money managers.
But straight-through processing is only one of more than a half-dozen major technological changes at Nicholas-Applegate. As a result of those changes, many that other money managers are still thinking about, Mr. Kenney describes his firm as technologically "equal to the best (sell-side) firms on Wall Street."
Other major technological changes at Nicholas-Applegate include:
* Changing its computer operating software from little-used NEXT to widely used Microsoft NT -- a change that affects virtually every aspect of the firm's technology;
* Installing a software system that checks investments for compliance with restrictions before --rather than after -- securities trades are made;
* Ending the firm's virtual reliance on proprietary software;
* Focusing the programming staff on modifications and improvements in vendor-generated software;
* Installing high-speed portfolio rebalancing software;
* Reorganizing the technology department to make it a hybrid between a decentralized and centralized operation;
* Stopping the roll-out of Netscape as its software for global electronic mail in favor of Microsoft Exchange;
* Considering the sale -- in cooperation a software vendor Longview Co. -- of Nicholas-Applegate modifications to software;
* Establishing a mutual beneficial consulting relationship with the technological elite of Wall Street sell-side operations, such as Goldman Sachs & Co. and Morgan Stanley Inc.; and
* Helping to cut to a minimum the administrative work of portfolio managers, traders and others.
Mr. Kenney said Nicholas-Applegate is ahead of many other firms in the areas of getting pricing feeds in real time, automatic rebalancing and pre-trade commpliance.
His current target to keep the edge for Nicholas-Applegate is the complete electronic trading process that saves time and reduces keypunch errors for money managers.
The last step in completing straight through processing -- called Golden Spike, a reference to the first joining of the U.S. transcontinental railroads -- involves using Financial Information Exchange, a computer protocol to link the firm with domestic equity brokerages.
Getting the traders to adopt FIX might be the hard part. After years of using paper to write orders, traders tend to prefer paper. Some traders, computer experts say, also resent total electronic trading, believing it makes them less necessary.
But the point is to give traders more time for thinking, talking with brokers and to reduce confusion and keypunch errors when trading gets harried, said Mr. Kenney.
GETTING LESS PROPRIETARY
One of Mr. Kenney's key changes at Nicholas-Applegate was dropping the NEXT operating system, the technological child of Steven Jobs, now acting head of Apple Inc.
With the change to NT, Nicholas-Applegate could rely more heavily on software from outside vendors and end its virtual total reliance on proprietary software.
Buying software rather than completely writing it was a major shift in strategy. Many large money managers still rely mainly on proprietary software.
The change to NT wasn't easy. Most of the firm's software used in its investment process had been written in the NEXT language, a derivative of UNIX. Some programmers at the firm objected to dropping NEXT; some eventually left Nicholas-Applegate. Their leaving was significant because they were involved in the writing and upkeep of Nicholas-Applegate's proprietary programs.
But proprietary software requires upgrades and development that eat up staff time. Mr. Kenney wanted to better leverage the time of Nicholas-Applegate's technology staff of 74, including 30 programmers.
The staff now focuses on improving and modifying vendor software for Nicholas-Applegate's needs.
"I want to use resources to add value on top of commodity products," said Mr. Kenney.
Using outside software has had unexpected benefits for Nicholas-Applegate. When Mr. Kenney directed the installation of the securities rebalancing program a proprietary front end or software user interface in Microsoft Visual Basic and Landmark, a trading system from Longview, Cambridge, Mass. Landmark has the capability to deal with multiple currencies. Nicholas-Applegate didn't need that function a few years ago, but now investment in international stocks has grown sharply.
KEEPING STAFF HAPPY
Mr. Kenney also reorganized the structure of the technology department. Teams of five to 10 members of the technology staff work with a specific group, such as the portfolio managers, operation, marketing or traders. One of the team's jobs is to keep specific "customers" at Nicholas-Applegate happy, said Mr. Kenney.
An international securities trader at Nicholas-Applegate, Rob Jafek, said he was made happy when the technology department installed real-time access to the floor of a major Asian securities exchange. Mr. Jafek declined to identify the exchange.
By having access, Mr. Jafek can see the "depth and breadth" of the exchange's market. He knows, for example, when there are six sellers of a stock and only one buyer, an important advantage over other traders.
Portfolio manager John Kane at Nicholas-Applegate said the software team for portfolio managers has reduced the time it takes to evaluate a potential investment strategy from eight hours to nine minutes.
"If it takes eight hours to get an answer to a question, you don't ask a lot of questions," said Mr. Kane.
Kary Clements, a vice president at Nicholas-Applegate, said a portfolio manager's ability to "drill down" through software applications is an important feature. The software identifies portfolio problems, and the portfolio manager can repeatedly hit a key on keyboard to get more and more information.
Portfolio managers also get news from 12 different feeds, and each feed gets news from multiple sources.
Portfolio manager Andy Gallagher said the ability of the software to monitor his portfolios lets him spend most of his time talking to brokers and other sources for ideas.
"We price our portfolios in real time. We are one of the only ones doing that," said Mr. Kenney.
All of the software teams report to Mr. Kenney, so technology for every department is integrated and works with technology from every other department.