As a senior Nasdaq Stock Market executive, Al Berkeley helped promote a think tank called Exchange Advantage to build technology that would help Nasdaq compete in the rapidly changing business of executing stock trades. Now, a little more than one year after ending his seven-year tenure at Nasdaq, Berkeley and a group of investors have taken independent control of the organization and are positioning it to compete with Nasdaq.
The firm, which has been renamed Pipeline Trading Systems, offers an electronic platform that lets users trade blocks of 25,000 or 100,000 shares at a time. Participants enter a stock symbol, price and the number of shares, and indicate whether they want to buy or sell. Pipeline’s technology, which was designed by two nuclear physicists, automatically detects and matches complementary orders.
The system is similar to others that have popped up to address frustration among institutions that can’t efficiently buy and sell blocks because liquidity has become increasingly fragmented and volatile. Liquidnet, the most successful of these systems, launched in April 2001 and executes about 25 million shares a day. It restricts membership to institutional investors, whereas Pipeline allows brokers to participate. Pipeline, which launched in mid-September, currently handles about 2 million shares daily and hit a high of 4 million on September 28.
“We are really trying to solve the problem you have read about on the traditional exchanges,” says former Nasdaq vice chairman Berkeley, referring to the controversy over floor traders at the New York Stock Exchange who were accused of trading for their own accounts instead of letting customer orders meet. “This eliminates front-running, penny jumping, backing away -- all of those things that are frustrating institutional investors.”
Nasdaq and Instinet, which operates a popular electronic trade-matching system, once owned a majority of Exchange Advantage and still retain a nominal interest in Pipeline. The think tank developed two electronic trading tools for Nasdaq -- Liquidity Tracker and Block Link-- that didn’t pan out. Now that Berkeley’s out on his own, he may finally have gotten it right. “This is our third incarnation,” he says, “and it sure feels good.”
