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May 31, 2004

Trading Tough Guys for Hire

By Peter Chapman & Gregory Bresiger

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Jones' low-cost argument is based on the Elkins/McSherry market analysis data. It evaluated Jones for the quarter ending December 8, 2003. The evaluation was based on a total of 3.4 billion equity shares traded. This comprised 2.2 billion listed shares and 1.2 billion Nasdaq shares.

Generally, in executing difficult transactions, it was able to keep up with the Volume Weighted Average Price, or VWAP. It was one cent behind the VWAP on listed business, according to Elkins/McSherry.

On Nasdaq business, it was a cent better than the VWAP. Elkins/McSherry said these numbers put JonesTrading ahead of most other institutions. On Nasdaq trading, Jones was better than the average in the large-cap, mid-cap, small-cap and micro-cap categories. In the giant-cap, it lagged by three cents, according to Elkins/McSherry.

A more efficient execution model leads to a lower market impact and cheaper costs, Jones contends. Jones says this is because it is an agency firm with a difference - it has a strong upstairs crossing network. That leads to some other rather bold claims.

"We are the easiest way to move a difficult position," the firm contends in the internal publication. "We dig out the real buyers and sellers in ways you can't with machines. We find natural buyers and sellers with a higher cross ratio than ECNs with the same level of transparency. Our crossing rate is 45 percent, among the highest in the business."

In 1975, George Jones, Jr. founded it as Jones & Associates. Previously, he had been working as an institutional equity broker for Mitchum, Jones & Templeton (MJT). It was a Los Angles-based broker dealer founded by Jones' father, George Jones, Sr., in the 1930s.

This family-run business, MJT, grew to become a powerhouse firm in the 1970s, with some 1,400 employees. Upon the death of his father in 1975, George Jones, Jr. founded his own firm, which three years ago established a subsidiary, Jones International, to conduct trading operations in Europe. Mike Hornbuckle is president of JonesTrading. He joined Jones in 1989. Before that, he had been in the industry for six years.

Jones officials like to describe their business as a mix of the big firms and the ECNs. "A crossing network that does size," says one Jones official. Yet Jones is a self-described "enigma." It is a trading powerhouse that generally has kept a low profile. It is a family business in a universe of big corporate entities.