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March 1, 2001

Big Discount Brokers Plan Joint U.K. Shop

By Tom De Martini

A joint market making venture in the U.K. may provide two U.S. discount brokers a new stream of revenue while the rocky U.S. markets remain mired in uncertainty.

Charles Schwab Corp. and TD Waterhouse are paying approximately $132 million (U.S.) to purchase Aitken Campbell & Co. from British mortgage bank Abbey National.

Aitken Campbell, a trading firm based in Scotland, will be the linchpin of the venture's U.K. market making operation. The operation will handle 250 large-cap stocks.

Schwab and TD Waterhouse, which took stakes months ago in the fledgling Epoch Partners, an investment firm in San Francisco, already have a strong presence in the U.K.

TD Waterhouse runs the largest execution only broker while Schwab is the leading online broker there.

Steve McDonald, chief executive at TD Waterhouse, said the venture would help diversify the company's revenue stream. Schwab, which imposed several mandatory Friday closings for staff at its San Francisco offices, as a cost saving measure, would similarly benefit, analysts say.

The deal, announced earlier this year, is expected to close and become operational this summer.

Forty Aitken Campbell traders will handle transactions to buy and sell U.K. listed stocks. New York Stock Exchange and Nasdaq stocks will not be traded by the desk.

"The traders at Aitken Campbell have the expertise in these 250 selected equities," said Schwab spokesperson Marta Von Lowenfeldt. "At the same time, we continue to have relationships with other market makers in the U.K. and we will get the best execution for our customers."

Some analysts said dealing in U.K. listed stocks is more profitable compared with trading in U.S. stocks. But other experts said that does not apply across the full range of U.K. stocks. In fact, said one U.S. based sellside trader, most of the spreads in U.K. stocks are "incredibly tight."