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April 1, 2000

Quieter Days for Market Makers: But That's the Way They Planned it

By Peter Chapman

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  • Quieter Days for Market Makers: But That's the Way They Planned it

The telephones ring less frequently at some of the Street's top market makers. And believe it or not, that's just fine with them.

A product introduced by a little-known New York software firm enables market makers to take orders over the Internet instead of by telephone.

Knight Securities, Herzog Heine Geduld, Bernard L. Madoff Investment Securities and M.H. Meyerson have signed agreements with the firm, Internet Trading Technologies (ITTI), for its order-routing service.

The product, Universal Trader, though not exactly new, is getting more attention. Two years ago, it was developed to allow Knight Securities to take orders over the Web from its smaller broker dealer customers. Knight dubbed the product eKnight.

More recently, the product has attracted interest from other trading firms.

"It makes it easier for a small broker dealer, with a routing mechanism, that doesn't have a full-blown trading system in place to gain access to our system," said Andrew Madoff, a partner at Madoff.

Madoff says that by cutting down on telephone calls his firm saves time, money and manpower, in addition to reducing handling errors.

Knight Securities executive Simon Spencer agrees. At the official launch of eKnight last April, he noted that a vast amount of business comes over the telephones. "It is very hard to manage a business if you have to manage the telephones," he said.

Soaring Volume

Universal Trader debuts against a backdrop of soaring volume and declining per-trade profitability for many market makers. NDB Capital Markets, formerly Sherwood Securities, a major wholesaler, reported its average trading profit per ticket dropped to $16.27 for the six month period ended November 30, 1999 from $21 in the same period in 1998.

Piggybacking on these trends, the four-year-old ITTI seems poised for expansion. CEO Craig Goldberg, a former Morgan Stanley investment banker, recently installed Russ Lewis as chief operating officer. Lewis is the former chief information officer at Jefferies & Co. and before that was an IT executive at Salomon Smith Barney.

A well-known figure in Wall Street IT circles, Lewis joined after his position was eliminated in a reorganization at Jefferies.

Lewis came aboard as a partner as did Rob Blum, a former attorney with CIBC Oppenheimer. Blum is executive vice president of business development at ITTI. Like Lewis, he is a refugee of corporate turmoil.

Accustomed to exercising broad authority over investment banking and private equity deals at Oppenheimer & Co., his role narrowed to a legal-centric' one after the takeover by the large commercial bank two years ago. He left as soon as his retention agreement ended.

"Market makers don't want to keep hiring more and more OTC traders," Lewis claimed. "For the small and medium-sized orders and customers, they just give them our application. They tell their clients, I'm not going to take these orders over the phone any longer. If there's a problem we'll talk to you, but we'd like you to put it through the box.'"

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