IM Gets Collaborative: Instant Messaging Incorporates Shared Workspaces, Filtering Tools

As instant messaging (IM) becomes more entrenched in the trading environment, vendors are recasting themselves as full-fledged Web-based collaboration providers. With keyword filtering and collaborative workspaces at their fingertips, traders can more quickly and easily find key information for making transaction decisions amid the multiple threads of conversations, streams of data and research that they must otherwise sift through themselves.

With the majority of securities firms now using instant messaging, according to an October 2006 survey by Needham, Mass. research firm TowerGroup, it's no wonder that IM vendors are developing serviceboosting enhancements.They may convert holdouts.

In the TowerGroup survey, 60 percent of broker-dealers, hedge funds, custodians and fund managers said they use IM for everyday business. Staff involved in trading and trade processing were found to send the largest number of messages and to most frequently use IM to interact with external counterparties. The survey included firms with assets under management ranging from less than $10 billion to over $100 billion.

TowerGroup senior analyst and report author Peter Delano said he expects IM to become a bigger part of all firms' everyday operations. There is certainly room for growth: 24 percent of respondents deemed IM "not very important" to everyday business. Twenty-seven percent, however, ranked it as "extremely important" operationally, and most involved in trading said they considered instant messaging "extremely important to the success of their institution."

Solving information overload has been a recent focus for Pivot Solutions, an IM trading system developer that was spun off in 2004 from Eze Castle Integration and, according to Delano, counts hedge funds as 85 percent of its customer base. On June 11, Pivot announced Pivot 360, a suite of tools it says takes its flagship IMTrader product beyond secure and compliant real-time messaging by integrating collaboration workspaces and filtering tools into a screen-based, IM-powered dashboard.

Pivot 360 links to IMTrader a proprietary tagging engine that spots keywords and filters and organizes incoming message threads. Words signifying pertinent trade-related business and activity--such as indications of interest (IOIs), specific securities and contact names--are collected and highlighted in boxes within the screen-based application. The engine can tag trading symbols and sectors for internal or external use by sell-side firms seeking to broadcast sales and distribution to counterparties, or buy-side firms working with their own portfolio managers or broker counterparties to make trading decisions.

"The tagging engine can look at real conversations, any news source, any third-party source, and any proprietary data, and bring it all to one point," says Lou Eccleston, the former Bloomberg and Thomson Financial executive who was recently named chairman and CEO of Pivot. "It doesn't matter what desktop you have or what proprietary services you use. We can actually link to all those while you're in the [IM] conversation."

Eccleston emphasizes that IMTrader is "not a trading platform; we don't have any aspirations to be a trading platform. This is about collaboration, research and idea generation that drives trades." Trade execution may occur outside of IMTrader, but processing can be aided by using instant messaging to confirm trade details.

Pivot VP of product management Edward Daciuk says the tagging engine scans all messages going across the system and differentiates between IOIs and fills by adding metadata to the conversation. "Take a [portfolio manager] conversation--like an IOI from Goldman Sachs that's about Microsoft," he says. "We can go pick off all those things coming in, aggregate them, and pull to the surface what's relevant to investment decisions and execution."

Ed McDonnell, SVP of sales at Pivot, estimates that several hundred million stock shares a month are executed with the help of instant messaging tools.

Pivot promotes its solution as a way for firms to access emerging equity venues without heavy technology investment. Pivot describes in marketing materials, for example, enabling a specialized trading and algorithmic technology provider to offer lightweight access to its "dark pool" algorithms using Pivot's collaboration tools and an AOL Instant Messenger (AIM) screen name, without requiring front-end downloads or FIX integration (though Pivot is FIX-enabled).

Privately held Pivot closed an $8 million series B funding round in April 2006, which followed a $5 million series A round in the fourth quarter of 2004. IMTrader customers--which number around 403, according to an IM vendor survey published in November by TowerGroup's Delano--include Instinet, Flagstone Securities and Pulse Trading. In January, Pivot partnered with agency brokerage UNX to help institutional clients sweep electronic liquidity pools for trading opportunities, including crossing networks and dark books.

IM solutions can serve as trading blotters or work with an order management system, translating the messages into the FIX format or financial products markup language, according to another November report authored by Delano, "Instant Messaging at Asset Management Institutions: From Personal Preference to Business Necessity."

Also accommodating the FIX protocol is ChatTrader from Belzberg Technologies of Canada, which stresses the compliance-ready nature of its instant messages. An added selling point is that the ChatTrader gateway can receive IMs from all of the popular platforms: AIM, Google, MSN and Yahoo.

In 2006, London- and New York-based Markit Group acquired Communicator and its Connex IM service, which it offers to 446 clients, according to Delano. Block Orders Execution of Westbury, N.Y. sells LiquidityBook, which launched in 2005 with 56 firms using its Web-based trading blotter with an AIMbased instant messaging service.

Bloomberg messaging is fairly ubiquitous in fixed-income trading, while Reuters, which launched Reuters Messaging in 2002, uses Microsoft's IM technology in its terminal offering and as a separate application to over 5,000 client firms, Delano says.

FaceTime Communications of Foster City, Calif. provides firms that offer IM services with anti-malware and regulatory reporting tools, to secure the channel and to log and archive message streams related to trading business.

London-based ePulse, a provider of over-the-counter collaborative trading platforms for the commodities, energy and credit derivatives markets, uses Jabber Extensible Communications Platform (XCP)--the commercial version of open-source Jabber's IM platform, ejabberd--to power IM-based trading and processing over its OTCtrader software.

In response to brokers' calls for more seamless, compliant and secure IM solutions than those offered by consumer applications, ePulse initially used ejabberd as the backbone of its IM solution. EPulse also built a customized client interface that is designed for compliant trader and broker interaction and enables group messaging and collaboration across different IM services displayed in a single window. The firm made the switch to XCP last year, due to growing adoption of the technology by customers ePulse targets, as well as the support Jabber offers for its commercial product.

"Our front end has trading plug-ins, so you actually can do deal tickets and order processing," says ePulse CEO Barry Patel, adding that the Jabber technology gives users "maximum awareness of liquidity and order flows." Tony Colbourne, product manager for ePulse's OTCtrader, adds: "All the conversations are fully audited."

One secure IM provider, Antepo--which Adobe Systems acquired in January for a reported $7 million-- sells enterprise communications convergence packages that include IM and technologies such as voiceover- Internet protocol, or VoIP. Man Financial, the futures and options brokerage subsidiary of Londonbased hedge fund giant Man Group, uses Antepo's OPN system to connect its global offices with IM and VoIP to streamline communications between all its front- and back-office operations.

Brokers like JP Morgan are also using instant messaging apps to better service their clients. In September last year, the bank launched AlgoAlert, an IM-powered service that posts charts, real-time updates of algorithmic trading performance and trading conditions, such as oversized orders and halts, to users of its electronic client solutions. In an announcement, the bank said AlgoAlert works with various email and instant messaging platforms including AIM, the Bloomberg messaging system and Google Talk IM.