As more institutional trading shifts to electronic communications networks or ECNs, traditional brokerage firms have given up some trading commissions to the alternative trading systems.
Now officials at BRUT ECN LLC, New York, believe they have found a way to provide institutional investors the best of both worlds - the efficiencies and low cost of ECN trading while maintaining a relationship with brokers for research and "repatriating" a portion of the commission to them.
"Our business model provides a solution to one of Wall Street's more sensitive, emerging problems: the conflict that electronic communications networks have created between institutional investors and traditional brokers," said Richard Schenkman, BRUT chief executive officer. "ECNs have used the promise of electronic execution to pit their clients against the broker."
A growing number of institutional investors that make use of alternative trading systems find they need the benefit of research and other value-added services provided by their brokers in addition to the efficiencies provided by ECNs, said Mr. Schenkman.
BRUT's Sponsorship Model allows institutional customers to "repatriate" a majority of each trade's commission to a broker-dealer of their choice. Institutional investors negotiate the amount with their broker. Once the trade is executed through BRUT, a percentage of the commission is rebated to the broker without jeopardizing the anonymity of the fund manager, said Mr. Schenkman.
BRUT had planned to roll out its front-end application to money managers Sept. 15, but the launch was delayed four to six weeks because of the attacks on the World Trade Center. Until then, according to BRUT officials, the program may be accessed through institutional trade order management connections.
BRUT, which handles about 4.5% of Nasdaq volume, is owned and supported by 26 Wall Street firms including Bear, Stearns & Co; Goldman Sachs Inc.; Merrill Lynch Inc.; Morgan Stanley Dean Witter & Co.; and Salomon Smith Barney Inc.