Magazine article American Banker

Top Wall Street Firms Investing in Electronic Trading Companies

Magazine article American Banker

Top Wall Street Firms Investing in Electronic Trading Companies

Article excerpt

In order to offer their customers the latest in equity trading services, some of Wall Street's biggest investment and commercial banks are taking stakes in several companies that run electronic transaction systems.

Merrill Lynch & Co., J.P. Morgan & Co., and Citigroup's Salomon Smith Barney unit have recently made private investments in alternative trading systems that promise to reduce execution costs and cut prices for investors.

Analysts estimate the investments at $15 million to $25 million.

On Thursday, Donaldson, Lufkin & Jenrette, Fidelity Investments, Charles Schwab Corp., and options specialist Spear, Leeds & Kellogg jumped into the fray, saying they would form a new company to operate their own electronic communications network.

These networks match up buy and bid orders. They often operate after the close of the trading day, an attractive feature for brokerages that target retail investors who like to trade at all hours.

"All the Wall Street firms want to make sure they have exposure, either from investments or partnerships," said Daniel Burke, a senior analyst at the e-commerce research firm Gomez Advisors in Lincoln, Mass. "You could almost call it a hedge against what future trading will look like."

J.P. Morgan held off on any major investments until May of this year, when it became one of five investors in Tradepoint Financial Networks, the electronic stock trading network in the United Kingdom. But then in June it took a 20% stake in Archipelago, a network in the United States. "We have a strategy of investing at the later stage, with a larger investment," said Robert Gasser, Morgan's managing director and head of equity trading.

Meanwhile, Goldman Sachs Group Inc. has taken smaller stakes in a number of networks and alternative market systems as it waits to see which model will be the market leader. …

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