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October 19, 2006

NYFIX Looks to Transform Itself after Big Cash Injection

By Peter Chapman

NYFIX has big plans following a large investment by private equity firm Warburg Pincus.

The financially troubled electronic trading services shop reports it will expand both geographically and into other asset classes besides equities. The Warburg Pincus deal netted the firm about $70 million.

"I don't think there is any question this is a transformational event," outgoing chief executive Bob Gasser told Traders Magazine.

Since June, NYFIX has taken in about $90 million from three deals, including the Warburg transaction. A private placement netted the firm $7.7 million while asset sales brought in another $12 million.

The three dollops of cash are significant when compared to the $106 million in equity NYFIX reported in March 2005. Warburg now owns about 30 percent of NYFIX.

March 2005 was the last time NYFIX published its complete financial picture. It had ceased full reporting after announcing plans to restate its earnings for prior years.

The restatement became necessary after NYFIX discovered irregularities in its accounting for stock option grants. The issue has also prompted an investigation by federal authorities.

Along with the $70 million, the Warburg deal also brought about a change in management. Gasser and NYFIX founder Peter Hansen will step down as CEO and chairman, respectively.

At presstime, Gasser was named as president and chief executive officer of ITG Inc. He replaces Ray Killian, who had been serving as president, CEO and chairman. Howard Edelstein, a Warburg "entrepreneur-in-residence" and longtime financial technology executive, is taking over as NYFIX CEO. Lon Gorman, a board member and the former head of Schwab Capital Markets, will become chairman.

Edelstein helped create Omgeo, the jointly owned venture between Thomson Financial's Electronic Services Group and The Depository Trust Corporation (DTC).

Warburg will place two of its own onto the board: Cary Davis, as a managing director, and William Janeway, vice chairman.

NYFIX reported revenues for the full year 2005 of $98 million. For the first half of 2006 it reported unaudited revenues of about $50 million. It expects to report losses for the 2006 period.