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July 5, 2006

News Alert: Broker-Dealer Consortium To Launch Crossing Network

By Peter Chapman

A group of large broker-dealers is working with a Canadian consultancy to establish an anonymous block-trading network.

The network, called BIDS Trading, is expected to link sellside trading desks much the way crossing systems such as LiquidNet and Posit link buyside desks.

BIDS Trading will provide a means for the participants to trade large blocks anonymously amongst themselves away from any registered stock exchange.

Set to launch in September, the initiative is the brainchild of an Alberta-based trading technology consultancy called Alberta Market Solutions (AMS).

The firm was set up a few years ago by a group of managers formerly with the now-defunct EFA, a vendor that built about 30 stock trading platforms around the world.

Paul Hanson, a partner at AMS, will be the chief executive of BIDS.

The new network, sources say, will operate as a utility for and be owned 100 percent by the group of brokers. They will reportedly pay BIDS a flat management fee, rather than a per-share duty.

The set-up is attractive to broker-dealers seeking to keep down trading costs, sources say.

Hanson would not disclose the names of any of the participating broker-dealers. However, other sources indicate they are among Wall Street's largest firms.

The six largest U.S. broker-dealers, by volume, are Goldman Sachs, Morgan Stanley, Merrill Lynch, UBS, Citigroup and Lehman Brothers.

Those in the next rung-Credit Suisse, Bear Stearns, JP Morgan, Banc of America Securities, and Deutsche Bank are not believed to be BIDS participants, according to sources.

BIDS is expected to try and recruit a second round of broker-dealers, sources say. Hanson adds he has held discussions with about a dozen buyside execs as well.

BIDS will debut at a time of exponential growth in crossing networks, or so-called "dark pools." All the major brokers are building internal crossing systems, as are many regional stock exchanges such as the Boston Equities Exchange.

Given the proliferation, some trading execs are skeptical about the need for BIDS. "There are so many options," said one exec. "This is just another one."

The exec believes the crossing systems established by the regional marts have a better shot at success than BIDS partly because they also garner market data revenues.

BIDS would not be the first electronic trading utility set up by and for brokers. In 1998, the Brass Utility, or Brut, an ECN, was established by a consortium of brokers and the vendor of the BRASS order management system, Automated Securities Clearance.