Could Merrill's Takeover of Herzog Be The Beginning Of a Run On Order Execution Facilities
Irvine, Calif., June 6, 2000 (PRIMEZONE) -- Merrill Lynch & Co. (NYSE:MER), the biggest U.S. brokerage, has agreed to buy privately held Herzog Heine Geduld Inc. for as much as $1 billion, a transaction that would make it the second-biggest stock market middleman, said a person familiar with the matter. Merrill's taking over the No. 3 market maker in shares traded on the Nasdaq Stock Market would be bad news for No. 1 Knight Trading Group Inc., whose shares fell 13 percent, the worst drop in 10 months. It would vault Merrill from sixth in a business it shunned three years ago. Since then, technology has cut trade-processing costs, making the business more attractive to Merrill. The firm last week said it would increase the number of companies' shares in which it makes a market to 2,000 from 550 to capture more of the trading profits from orders it now passes on.
A buyout of Herzog would be a doorway for Merrill to re-enter the market-making industry which is quickly becoming dominated by proprietary trading platforms such as ECN's and ATS'. Highlighting the importance of proprietary trading technology, day-trading firm Tradescape.com recently acquired privately held after hours exchange MarketXT for over $100 million. Tradescape.com 's proprietary electronic communications portal provides traders with direct access to liquidity pools and offers an advanced software platform with smart order routing technology (SORT) for executing trades at the best available price. MarketXT investors include Morgan Stanley Dean Witter, Salomon Smith Barney, Herzog Heine Geduld and Bernard L. Madoff Investment Securities.
Other Market Makers, ECN's, and ATS companies such as WAMEX Holdings, Inc. (OTCBB:WAMX), Instinet (Nasdaq:RTRSY), and Knight Trimark (Nasdaq:NITE) may also hold possible interesting scenarios in this sudden rush to compete for orders and execution. ATS's are the next generation of trading for on-line investors whom most would find the present method of trading obsolete. One of the most promising with cutting edge trading technology and concepts is WAMEX Holdings, Inc. The WAMEX Alternative Trading System (ATS) eliminates market makers and empowers investors to consummate transactions more efficiently and at a lower cost. WAMEX provides alternative pools of liquidity and reduces Spread Exposure by eliminating the intervention of brokers and or traders.
This dynamic creates the possibility of price enhancement that is not available to investors within the current market structure. This revolutionary trading platform provides investors round the clock access to trade all registered securities at low cost with anonymity across all continents and WAMEX 3D's ATS Platform Software allows for the trading in any major currency (when available), in different languages, and delayed open order routing (DOOR) to trade on all major exchanges. WAMEX will officially launch its new electronic Alternative Trading System for registration on July 4, 2000 "Investor Independence Day".
Merrill may not be the only brokerage targeting the business of market making for expansion. Citigroup Inc.'s (NYSE:C) Salomon Smith Barney rebuffed overtures from Herzog a few months ago and decided to build its own automated market-making system, a person with knowledge of the project said. A boom in Nasdaq trading of high-tech companies has lured companies into the business. Nasdaq trading surged to a record 2.9 billion shares on April 4, and the daily average jumped to 1.8 billion in the first quarter from 988 million a year earlier. Another draw is the growing popularity of on-line brokerage service with its focus on reduced costs. Merrill, which last year entered the on-line arena, is vying with firms like Charles Schwab Corp. (NYSE:SCH), which bought its own market-making division, in 1991, and E*Trade Group Inc. (Nasdaq:EGRP), which was among the more than two dozen firms that founded Knight. IBC may have equity positions in the company's mentioned, please visit our Disclaimer at ibchannel.com .
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