Susan, here you go. Sorry about the middle part, but its a table, and it doesn't cut and paste well.
Would-Be ECN Buyers Are
Looking to Strike First
By Caroline Humer
Staff Reporter
10/4/99 1:00 PM ET
Even the wallflowers are dancing in the business of electronic
stock trading.
Strike Technologies, one of the smaller of the nine electronic
trading systems storming Wall Street, is no exception. Arthur
Pacheco, Strike's president and chief executive, says the
company has been approached about possible mergers by,
among others, competitor Brut, also known as Brass Utility.
"We are entertaining overtures from four sources," Pacheco says.
"I'm looking at all of them." But, he says, not all the overtures are
in writing and none has gone to the company's board. "As of
right now, nobody is buying us," he continues.
Strike is just one of many targets. In the past few months, ECNs
have partnered up or gotten strategic investments from major
securities firms such as Goldman Sachs (GS:NYSE) and even
trading-system rivals. ECNs are looking for backers to bring
them more order flow because, with consolidation of these
trading systems on the horizon, ECNs need that liquidity to
survive.
Who's Who in Electronic Trading
ECN
Partners
Archipelago
Merrill Lynch - 12.4%
Goldman Sachs - 12.4%
J.P. Morgan/American Century Investment
- 12.4%
E*Trade - 12.4%
Southwest Securities - 1%
Gerald Putnam (GDP Inc.) - 12.4%
Townsend Analytics (Virago) -12.4%
Instinet - 12.4%
CNBC - 12.4%
Island
Datek Online Holdings
(TD Waterhouse 12.5% stake pending)
Instinet
Reuters
Tradebook
Bloomberg
REDIbook
Spear, Leeds & Kellogg - 25%
DLJ - 25%
Fidelity - 25%
Charles Schwab - 25%
BRUT
Morgan Stanley Dean Witter - 10%
Merrill Lynch - 10%
Goldman Sachs - 10%
Knight/Trimark - 14%
Automated Securities Clearance, a unit of
Sungard Data Systems
Strike Technologies
Consortium of about 25 shareholders
including Bear Stearns, J.P. Morgan,
Susquehanna, Cantor Fitzgerald.
Attain
All-Tech Investment Group
NexTrade
Privately-owned
Other Trading Systems
Posit
ITG
Optimark
Dow Jones, Softbank, Goldman Sachs,
Merrill Lynch, American Century
Primex
Morgan Stanley, Salomon Smith Barney,
Merrill Lynch, Goldman Sachs, Bernard L.
Madoff Securities
MarketXT
Morgan Stanley, Salomon Smith Barney,
Herzog Heine Geduld, Polaris Venture
Partners
In addition, Arthur Levitt, the Securities and Exchange
Commission chairman, has laid out some changes he'd like to
see in market structure that would benefit ECNs by allowing
them to trade New York Stock Exchange-listed stocks but
also could hurt them by pressuring commissions.
As for an imminent Brut-Strike deal, Pacheco says he hasn't
even seen a term sheet from Brut, although he has seen two
from other bidders. (Pacheco declined to identify the three other
suitors. In the past, people in the industry have said that the
NYSE has approached Strike.) Pacheco says Brut first
approached Strike a year and a half ago.
Brut and the NYSE declined to comment.
Talk in the small ECN world about Brut and Strike linking up has
certainly accelerated. According to one person familiar with the
offer, Brut would buy Strike, with money changing hands.
What's holding up the deal, another person close to the deal
speculates, is that Strike has more than 25 shareholders and
partners, while Brut has its own opinionated backers. As a result,
a deal between the two isn't likely to be easily nailed down.
Brut is majority owned by Automated Securities Clearance, a
unit of SunGard Data Systems (SDS:NYSE), and began
operating in April 1998. Merrill Lynch (MER:NYSE), Morgan
Stanley Dean Witter (MWD:NYSE), Goldman Sachs and
Knight/Trimark (NITE:Nasdaq) hold minority stakes in the
company. Nasdaq data from August put Brut as the
sixth-largest ECN by volume and Strike at seventh.
Strike was launched by Bear Stearns (BSC:NYSE) in November
1998 and now includes shareholders like Nasdaq market maker
Herzog Heine Geduld, Bridge Trading and Salomon Smith
Barney, a Citigroup (C:NYSE) unit.
One person familiar with Strike says its board members have
discussed the Brut merger in concept and that Strike has gotten
more attractive to suitors as word leaked out, prompting
proposals from other ECNs as well. The NYSE isn't quite ready
to leave the party alone, either, he says.
But while Brut may be lobbying for a deal and some shareholders
appear to favor it, this person says, it's not a sure bet: Strike
could go it alone or with a different trading system. "If Strike
does something, it'll be for a strategic fit," he says.
Dan Burke, an analyst with Gomez Advisors, says a Strike-Brut
combination makes sense. Strike has invested heavily in
front-end technology, while Brut would bring more liquidity
because of its links to Brass trading software.
"Brut on the surface has a lot of institutional power," Burke
explains. But, he continues, "they just have the relationships. The
volume number at Brut doesn't suggest that they're making a lot
of headway." (Gomez Advisors declines to disclose its clients.)
While volume numbers for the ECNs are difficult to nail down
because of different reporting methods, Putnam Lovell de
Guardiola & Thornton estimates in its September electronic
brokerage report that Strike trades about 5 million shares a day
and Brut does about 8 million.
ECNs have grown rapidly in the past few years to nine from just
Instinet, owned by Reuters (RTRSY:Nasdaq ADR), due to a
change in Nasdaq Stock Market order-handling rules that
requires broker dealers to seek so-called "best execution" for
their customers. They now account for nearly 30% of Nasdaq
stock trading, but less than 5% of listed stock trading.
These trading systems also have been at the front of the nascent
after-hours trading market, jumping in with pre- and postmarket
trading as the established stock exchanges struggle with
regulatory bodies. Because none of these systems is an exchange
yet -- Island, Archipelago and NexTrade are applying for
exchange status -- they are more lithe.
Brut, Strike and six other electronic trading systems announced
recently that they had agreed to create links among their trading
systems in order to improve the transparency and liquidity of
that after-hours trading market. On Friday, NexTrade joined the
consortium. |
