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Jared Dillian
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Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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February 1, 2002

The Bridge Back to Profitability: About 12 months after its ownerswent into bankruptcy, and with re

By Gregory Bresiger

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  • The Bridge Back to Profitability: About 12 months after its ownerswent into bankruptcy, and with re

Look out, Goldman Sachs, Bloomberg, ITG and other big Nasdaq players. Someone wants to eat your lunch.

Once an insignificant part of its business, the Nasdaq market is expected to become a huge part of the re-born Bridge Trading Company, which was bought last year by Reuters from Bridge's bankrupt parent.

Bridge, which did not have the problems of its former parent, has only recently emerged from the limbo of its former parent's bankruptcy. The firm's executives need to win big. It has passed through a year or so of problems, including red ink through the end of last year.

"We look forward to Reuters bringing us a much stronger, reliable high-end product that our institutional client will embrace," said Scott Marsh, managing director of global institutional trading at Bridge in St. Louis.

Bridge, an agency brokerage and vendor, also expects it is going to benefit from the movement of Nasdaq toward agency business. And Bridge will continue its own re-invention that had been taking place for several years prior to the problems of its former parent.

"In the history of Bridge, listed business was 90 percent of the way the client was able to fulfill its obligation to us. I would say over the past few years we have been starting to get a better mix," according to John Sintzel, executive vice president of Bridge. "Today I would say we're on the way to 75 percent to 25 percent listed to OTC. And we expect a continued dramatic change in that direction."

Nasdaq Volume

In sum, Bridge handles about one percent of the average daily volume on the New York Stock Exchange, 15 million to 20 million shares. Bridge's Nasdaq business, still some some way from 25 percent of the overall equity volume, approximately accounts for another 1.8 million shares monthly, based on December volume reported by Nasdaq.

The transformation at Bridge is fueled in part by the changes at Nasdaq and by many market players moving to agency-style relationships because of shrinking commission margins.

Bridge officials, noting that their firm is not a market maker, believe that the economics of the non-listed business are going to give them an advantage.

One buyside trader, who declined to be named, said Bridge will probably survive if it is smart enough to use OTC order flow to generate revenue. On the other hand, he said, if Reuters "screws up the Bridge system and more users drop off, I don't think the firm makes it."

"To be agency only going forward," he added, "a brokerage firm is going to need a hook."

Soft-dollars, pure and simple, is the hook for Bridge. "We anticipate some of our increase in Nasdaq business because of the overall shift towards an agency market," Sintzel said. "This shift allows financial institutions to use OTC trades to soft more research products."

Other institutional firms, those that are making markets, are now forced by declining margins to charge commissions on trades once looked upon as principal transactions. That step, calculating so-called riskless principal trades in the formulation of soft-dollar arrangements, could help Bridge take away business, industry pros say, because of a more efficient system.