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February 1, 2004

Liquidnet Takes Stock Of a Surprise Suitor

By John A. Byrne

Will history repeat itself at Liquidnet? If Seth Merrin's business past is a guide, then Liquidnet might soon be on the block.

Back in 1987, just two years after its release, Merrin sold his famous Merrin Financial order management system to Automatic Data Processing. Liquidnet, Merrin's buyside-to-buyside anonymous, negotiated trading system, which lately has demonstrated signs of renewed vitality, is not for sale right now, according to one Liquidnet executive.

However, Alfred Eskandar said Liquidnet is open-minded about a sale. "We don't rule it out," he said. Impossible as it might seem, one potential suitor is the New York Stock Exchange.

One analyst dismissed this notion as far-fetched. Still, Eskandar, Liquidnet's marketing director, has an interesting theory about why the Big Board's interest makes sense: The exchange's legendary fear of competition. Its purchase of Liquidnet, which still only handles some one percent of Big Board trading volume, might be a sort of preemptive strike. That's even though the purchase might be at odds with the Big Board's mission of centralizing listed order flow.

Liquidnet said it is profitable and its revenues have been doubling each year since it was launched in 2001. That's when, according to Eskandar, the system "broke even" on revenue of $12 million. Last year, he said Liquidnet had revenues of about $50 million. It has some 220 subscribing institutions and charges 2 cents a share.

With the stars somewhat favorably aligned, might Merrin, Liquidnet's CEO, put his system in play with the NYSE? Liquidnet investors, such as Michael Price, might be persuaded. "There has been no formal approach and it is not part of our game plan," said Eskandar. The NYSE declined to comment.