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August 31, 2003

At Deadline

By Editorial Staff

Bulletin Board

*The OTC Bulletin Board is hot. The nation's second tier over-the-counter market saw both its share and dollar volume soar in July. Trading leaped 272 percent to $3.5 billion in dollar terms over July of the previous year. Shares traded jumped 35 percent to 19 billion in the same period. Share volume in the penny stock mart has recorded nearly continuous month-over-month increases since bottoming out last October. The leader generating the most trades is Knight Trading Group. Knight traded 7.4 billion OTCBB shares in July, according to the OTCBB. That was nearly triple the volume generated by each of its closest rivals, Schwab Capital Markets and GVR/E*Trade. Knight said it executed about 32,000 OTCBB and Pink Sheets trades daily in July, up from nearly 13,000 a year ago. OTC volume accounts for over half of all shares traded by Knight.


*Upward or downward volatility in the stock market results in higher options prices, which means puts and buy calls become more expensive. That's the conclusion of a new study by a professor at the University of Michigan Business School. Professor H. Nejat Seyhun says these findings emphasize that the pricing options in the markets are more involved than the economists standard option-pricing formulas indicate. "Our results suggest that recent stock returns exert an important influence on index option prices," Seyhun said. "This creates opportunity as well as potential problems for investors who trade options." In a study forthcoming in the Journal of Business, Seyhun and colleagues Kaushik Amin of Lehman Brothers and Joshua Coval of Harvard University examined the Standard & Poor's 100 index option prices from 1983 to 1995. "Investors must plan ahead if they trade options," Seyhun said.

Block House

*A veteran of the third market has launched a new institutional trading house. Steve Braverman, formerly head trader in the Knight Capital Markets division of Knight Trading Group, is president of Block Orders Execution of Westbury, N.Y. The seven-person firm is a unit of Secure Trading Group, a proprietary daytrading outfit based in Boca Raton, Fla. The new firm will solicit block limit orders from mostly retail brokerages. It will attempt to build a book of liquidity that can be marketed to the buyside. Strictly a listed shop, it plans to trade about 500 names in the Nasdaq InterMarket under the STGI moniker. Block Orders is charging two cents a share to the buyside for orders of 250,000 shares or less. Orders over 250,000 shares are free. The shop may rebate the sellside a quarter-cent for its limit orders. Braverman spent 10 years at Knight before joining a small brokerage called Alexander Wescott in 1997. At Wescott, Braverman ran a third market block desk. Wescott shut down its market making operation about 12 months ago.


*The former Deutsche Bank Global Securities Services (GSS), now a part of State Street, is moving most of its 300 staffers in the New York City metropolitan area to a new office at Two World Financial Center in Lower Manhattan. The GSS operations in the U.S. had been located at 130 Liberty Street, beside the World Trade Center. Although the Liberty Street building remained intact after the September 11 terrorist attack, the facility was said by authorities to be a health hazard. A bigger issue for State Street officials is retaining the revenues and clients of GSS. State officials claim that they are going to be able to retain about 90 percent of GSS's revenues. However, several State Street competitors dismissed that number, contending it is wishful thinking.