Cantor Shops Its Non- U.S. Treasury Data, Talking With Reuters, Telerate

Cantor Fitzgerald L.P., the newly restructured Cantor Fitzgerald Inc., has held talks with both Reuters and Telerate to redistribute its non-U.S. Treasury data, according to sources. At what sources say would yield Cantor between $7 and $15 million annually for exclusive rights, discussions have revolved around the broker's foreign exchange, interest rate swaps and options and foreign government bond data.

Telerate, of course, is the exclusive distributor of Cantor's U.S. Treasury data and will remain so until the year 2001. In the complicated web woven by its agreement with Market Data Corp. -- the exclusive disseminator of Cantor Treasury prices -- Telerate has sole rights to distribute Cantor's U.S. Treasury information. Cantor's non-U.S. Treasury data, however, is up for grabs -- and rising in value as the broker makes inroads into other markets.

Cantor has been increasingly aggressive in expanding beyond its core Treasury and agency brokerage businesses. Perhaps most visibly, Cantor is building a foreign exchange brokerage arm, opening a Japanese yen desk last August, a London desk to broker currency options in all denominations and now hiring brokers for a Deutsche mark desk in New York.

Further, Cantor has boosted its own information delivery capacity through the acquisition of most of the assets and staff of PI Systems Ltd. (IMD, Sept. 28), the data distribution system vendor once sued by Telerate (Micro Ticker Report, July 1988).

Among the tasks Cantor has set for the staff inherited from PI is to develop a consolidated feed of foreign exchange and U.S. Treasury data, according to sources. The feed -- at least initially -- will be carried on Cantor's private network, to display Treasury prices on the same Cantor screen as forex rates. The combination of data is aimed in part at building Cantor's currency forward business. Interest rate and Treasury data is used in addition to spot rates to price forward trades.

While the consolidated feed of forex rates and Treasury prices will at first be available only to Cantor's customers, sources say that broader dissemination could come either through Reuters or Telerate.

Telerate executive vice president Julian Childs confirms that Telerate has had discussions with Cantor regarding the broker's foreign exchange data, but declines further comment. A Reuters spokesperson declines comment, citing a company policy not to discuss such talks.

"We're solicited regularly by vendors regarding our data," says a spokesperson for Cantor. "However, we are not currently committed to any particular vendor to re-distribute our forex prices." The spokesperson declines comment on any other of the broker's activities or plans.

To boost the value of the non-Treasury data that Cantor would distribute over a market data vendor's network, sources say Cantor has gone so far as to approach rival brokers about contributing their Treasury prices to the feed. As markets become more interdependent, Treasury data is increasingly a benchmark traders in other markets need to have.

Along with proposing a venture with Garban Ltd., now the third- largest interdealer broker -- and lately one of the more active in seeking re-distributors for its data -- sources say Cantor eyed a stake in Fundamental Brokerage Inc. (FBI), which has since closed its doors (IMD, Sept. 14).

The Cantor/MDC/Telerate deals make Telerate the exclusive distributor for Treasury data generated by any broker more than 49 percent owned by Cantor. But sources say that Cantor was seeking to structure a deal wherein the Bank of New York would provide capital and hold a 48 percent stake in FBI, with Cantor also holding 48 percent. The remainder was to have been held by FBI officials. But the deal fell through earlier this year.

Since the demise of FBI, Cantor has increased its position among brokers of the secondary market for U.S. government securities, now dominating with more than 40 percent market share, according to the estimates of industry sources. Garban now brokers some 24 percent of the market, just behind Liberty Brokerage Inc., with 27 percent, sources say.

To support its data delivery strategies, Cantor has acquired the source code to the product line of PI Systems -- formerly Programit Inc. -- and has hired five of PI's support and development staff, including PI founder and former chairman Marshall Caro. Terms of the deal weren't disclosed.

As part of the deal, Cantor has assumed responsibility for the support of all but two of PI's 15 existing customers. The two former PI clients that Cantor doesn't support are fellow interdealer brokers Tullett & Tokyo Forex International Inc. (IMD, May 26) and Bierbaum Martin. Both are brokers in the foreign exchange market that Cantor is pursuing, and both already use PI software to deliver prices to their brokers and to Telerate.

Sources say Cantor's deal with PI left to the discretion of the broker which clients it would continue to support and which it would attempt to dispose of otherwise. Unsurprisingly, Cantor opted not to support Tullett and Bierbaum. Instead, Cantor and PI sold them the source code for the products they use. At the same time, both Bierbaum and Tullett have hired ex-PI support staff.

Former PI chief Caro has assumed the title of director of information technology at Cantor. He and other officials at Cantor decline to comment on the terms of the deal. But other sources say that PI will no longer undertake to seek new customers. PI dismissed its four-person sales and marketing staff when its new arrangement with Cantor was initiated.

In name, PI Systems now exists only as a much-diminished entity of which Caro's wife is the last remaining officer, sources say. Its former premises in downtown Manhattan have been vacated.

PI's core product is known as NetI, for Network Interoperability (Trading System Technology, Aug. 15, 1988). NetI uses terminal emulation to make market data accessible over local area networks from workstations running disparate operating systems.

Sources at all three brokers say there are two principal benefits to the PI software -- both of which address the brokers' increasing desire to gain independence from the vendors that redistribute their prices, such as Reuters and Telerate.

First, because NetI allows a firm to distribute its own prices in a dynamic format, it can enable that firm, and its branch offices, to decrease its reliance on Reuters and Telerate to deliver its data to end users.

Second, NetI enables data-contributing firms, such as brokers, to deliver fully configured pages of data to vendors for redistribution.

Because the pages are configured by the broker, rather than by a third party, the broker is in a better position to turn around and market the pages to other vendors, should it wish to do so. Because MDC now provides just such product development for Cantor currently, it's unclear how this benefit will be used by Cantor.

That PI should play a role in Cantor's relationship with the likes of Telerate is ironic. Back when it was Programit, the vendor was hauled into court by Telerate, the core of whose fixed-income market data is provided by Cantor.

Telerate had charged that Programit's Excel-A-Rate page caching and redistribution system violated copyright law. The system allowed users to replace their Telerate terminals by installing a microcomputer-based gateway capable of delivering Telerate data to customer terminals without additional payment to Telerate.

A U.S. District Court judge subsequently issued an injunction barring Programit from selling, manufacturing or distributing the Excel-A-Rate software.