Track Data and the price of a split second

A million shares sounds like a lot. At one of Track ECN’s historical prices, it produced a fee spread of just $200. That was before the costs of running the network. A business could be very busy and still have remarkably little room to breathe.

Track Data’s story begins with a more comfortable proposition: give investors information they can use. Founded in 1981 by Barry Hertz, the company supplied financial market data to institutions, then brought data and trading tools to individual investors. Along the way, it ventured into the business of matching stock orders. That move exposed a different kind of dependency.

The quote was only the beginning

Hertz built Track Data around its own ticker plant, the machinery that processes market information for delivery to customers. The early audience was institutional. In 1998, Internet distribution opened another audience: individuals who wanted some of the information available on professional desks.

Consider what that customer actually needed. A price without context was incomplete. A chart without fresh prices quickly became history. A promising idea still required somewhere to place an order. Track Data connected those jobs through myTrack, combining information with online trading through its brokerage subsidiary.

In a 2001 review, TheStreet’s Mark Ingebretsen wrote, “The nice thing about myTrack is the way everything’s packaged.” A watch list served as the central screen. News, charts and trading functions opened from it. The review also supplied the competitive catch: other brokers offered real-time quotes free or close to cost.

The distinction was practical. Customers were buying a way to work, while competitors were steadily making the ingredients cheaper. Track Data’s opportunity lay in arranging those ingredients well enough that people would pay to keep using them.

One subscription, fewer loose ends

Track Data acquired AIQ Systems in 1994. AIQ made technical-analysis software, including expert systems designed to screen securities. By 1998, its software was bundled with myTrack’s real-time data in a monthly subscription. AIQ’s later history describes the change plainly: software and data no longer needed separate purchases, and upgrades came with the subscription.

There was an ecosystem around the feed, too. Linn Software’s Investor/RT added myTrack support for real-time or delayed quotes, news headlines and historical downloads. That mattered because a data service becomes more useful when it works inside software a customer already knows.

For professional traders, proTrack arrived in 2002. It offered direct access to trading destinations, alongside integrated market information. Other broker-dealers could also use it under a service-bureau arrangement. Track Data could sell the workstation, the information and access to the trading workflow.

The headline you needed, minus the rest

NewsWatch addressed another desk-level irritation: too much news. Its 2006 version filtered incoming stories by ticker, keyword, industry, topic and source. Users could request alerts rather than patrol every headline. A chart could sit beside the relevant day’s stories, tying price movement to events.

The customer list makes the product concrete. A hedge fund watched portfolio companies. An arbitrage desk searched for events. Analysts followed industries; compliance departments monitored activity. Alerts reached BlackBerry and Palm Treo phones. The hardware dates the announcement, but the problem remains familiar to anyone with an overflowing notification tray.

A 2003 agreement with Computershare Analytics added access to buy-side intelligence through NewsWatch. The logic was consistent: put another useful piece of information within reach of the task already underway.

Two ten-thousandths of a dollar

Track ECN applied a different business model. An electronic communications network displays and matches orders. To encourage participation, it can pay people who add liquidity and charge those who take it. The difference must help support the operation.

In the 2005 annual report, one direct-routing arrangement charged $0.0025 per share and paid a $0.0023 rebate. Track ECN began limited self-clearing that August to reduce outside processing costs. At that spread, saving a small amount on each transaction mattered.

Meanwhile, the original information business was already feeling pressure. Professional market-data revenue had been declining since 2001. Management pointed to fewer securities-industry staff, internally developed alternatives and cheaper services. Winning network activity could not automatically replace the margins lost elsewhere.

Then the route moved

The next difficulty came from outside the interface. In October 2006, Nasdaq became an exchange, and Track ECN could no longer operate on its platform as before. Track moved its displayed orders to the National Stock Exchange. Its November 2007 results attributed much of the revenue decline to the ECN.

Then, in November 2008, NSX stopped paying rebates for adding liquidity to its order-delivery book. Track could pay its subscribers for adding liquidity only when orders matched internally. Management began exploring other venues. The network’s revenue fell from about $13.38 million in 2006 to $2.53 million in 2008.

Traders Magazine reported that Track ECN suspended operations effective June 1, 2011. Its account described daily volume falling from occasional 20-million-share days in 2007 to roughly 230,000 shares on May 31, 2011. The arithmetic had become harder to escape.

The ECN was one part of a wider software and information business. AIQ’s history records a separate employee buyout in 2015, a reminder that individual products followed different paths.

A useful workflow can win a customer. A trading network also needs a dependable route to other orders.THE BUSINESS LESSON

There is something worth copying here: sell the connection between information and action. Bundle the pieces that make a customer’s work easier. But test the economics separately. Thin spreads need sustained volume; a borrowed distribution channel can change its terms. Track Data’s experience gives those familiar cautions a price, a mechanism and a date.

For a software builder, the useful question is which part of the customer’s day the product removes. MyTrack reduced the distance between watching a security and acting on it. NewsWatch reduced the distance between a flood of headlines and a relevant alert. Those are concrete benefits a customer can recognize without understanding the underlying infrastructure.

The network demanded another test: how much activity would remain if its connection to an outside venue changed? That question belongs beside the pricing spreadsheet. A rebate can attract orders, but the resulting activity must leave enough money to run the service.