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March 1, 2000

Industry Watch - A Slimmer Shaw Returns to Basics

By Peter Chapman

DE. Shaw, the once high-flying trading house that slammed into a brick wall during the October 1998 market correction, has bowed out of equity market making.

The exit comes with its recent sale of trading and analytical software to Knight Securities. The sale included certain business information in its institutional trading division. Knight is the Nasdaq arm of the Knight/Trimark Group.

The deal did not involve any of Shaw's core proprietary prediction-related, or transaction-cost related trading technology developed over the past 12 years, according to Shaw spokesperson, Nick Gianakouros. No securities positions were involved in the deal either. Terms were not disclosed.

Portfolio Trading

The assets relate to the trading of whole portfolios of equities for institutional customers. The deal is similar to a transaction in December 1998 between Shaw and Trimark Securities, the third market division of Knight/Trimark Group.

At that time, Shaw divested itself of customer lists and certain intellectual property of its retail third market trading group.

Some displaced Shaw traders may find a new home at Knight. The institutional group has about a dozen employees, including traders and support staff. More posts could be created soon, in part as a result of the recent Shaw acquisition, people familiar with the matter said.

But it is up to Knight to make individual offers to displaced Shaw employees, Gianakouros said. Shaw did not disclose the number of traders displaced but it is understood to be a handful.

Returns to Roots

Gianakouros noted that the trading operation was "our last remaining business that provided conventional liquidity." That means Shaw will return to its roots as a proprietary trading shop. The firm plans to focus on electronic trading, investment management and technology venture financing activities.

Electronic trading involves the use of computers to devise trading strategies, according to Gianakouros. "It also relates to some of the new things we have been working on," he said. "We are using computers to streamline the trading and liquidity provision process."