11/2/99 Dow Jones Bus. News 00:25:00
Dow Jones Business News
Copyright (c) 1999, Dow Jones & Company, Inc.
Tuesday, November 2, 1999
OptiMark Trading System Gets Lift From Knight/Trimark Group
By Greg Ip, Staff Reporter of The Wall Street Journal
Knight/Trimark Group Inc., one of the country's largest stock-trading firms,
is allying with the OptiMark trading system, a move aimed at boosting the
system's so-far-disappointing volume.
Under a deal to be announced today, Knight will place its orders continually
in OptiMark. In return it will receive warrants in stock of OptiMark
Technologies Inc., the system's developer, based on its volume traded in
OptiMark meeting cumulative thresholds over the three years of the alliance.
Both companies are based in Jersey City, N.J.
Terms of the warrants weren't disclosed, but OptiMark said if Knight
exercised them, it could eventually become OptiMark's largest shareholder.
Other shareholders currently include Goldman Sachs Group Inc., Merrill Lynch &
Co. and mutual-fund manager American Century Cos. Dow Jones & Co., publisher of
The Wall Street Journal, has a 6% stake in OptiMark Technologies. The Pacific
Exchange and the National Association of Securities Dealers, parent of the
Nasdaq Stock Market, both have warrants convertible to shares of OptiMark.
OptiMark is designed to match orders for institutional investors with more
anonymity and efficiency than human traders normally offer. However, its volume
in New York Stock Exchange-listed stocks fell well short of expectations after
its launch on the Pacific Exchange in late January, although it has recovered
from its midsummer low. Results on the Nasdaq Stock Market, where it launched
three weeks ago, haven't been released.
OptiMark's biggest handicap is lack of liquidity that has sufficient users to
assure a buyer he will likely find a seller, and vice versa. Knight's
participation is aimed at boosting liquidity. Its Knight Securities unit is the
largest dealer in Nasdaq stocks and its Trimark Securities unit is one of the
largest non-NYSE member dealers in NYSE stocks.
"Given Knight's sheer size and the way it trades, liquidity will come into OptiMark, and liquidity begets liquidity," said Phillip Riese, chief executive
officer of OptiMark. "That will cause us to work together to a virtuous cycle."
Knight is still small in institutional trading, the focus of OptiMark. The
bulk of its business is executing small orders of 1,000 shares or less for
discount and online brokers that cater primarily to individual investors.
Knight profits from the prices at which it executes those orders, and pays
brokers a rebate to receive those orders.
Kenneth Pasternak, CEO of Knight, said his firm will be able to aggregate
many small-customer orders for entry into OptiMark, as well as institutional
orders and orders for its own proprietary trading.
He said considerable work needs to be done to decide how Knight will put
orders in OptiMark. While he couldn't say how much of his firm's orders would
pass through OptiMark, he said it would be more than 20%.
In the third quarter, Knight says it averaged more than 300,000 trades and
more than 250 million shares a day.
Copyright (c) 1999 Dow Jones & Company, Inc.
All Rights Reserved.
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