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January 1, 2007

Domestic Securities Joins the Club, Finds Niche

By Nina Mehta

Domestic Securities, a fast-growing market maker of over-the-counter securities, is ramping up its capacity.

The broker-dealer, whose trading operation is based in Edison, N.J., is taking over a lease next door and expanding its 40-seat trading room to accommodate another 20 people. The firm currently has 15 market makers, 11 sales traders and four trading assistants. Two agency traders also execute customer orders.

The firm intends to grow its institutional business, but cautiously. "We're not looking for cowboys and homeruns," says Mark Shefts, Domestic's president, referring to traders who make big bets on the direction of stocks.

Domestic, formed in 1984, began making markets three years ago when it brought over an OTC group from M.H. Meyerson & Company. It's now one of the top-10 market makers in OTC Bulletin Board and Pink Sheets stocks. It makes markets in 6,600 names, including gray market stocks and many small-cap and mid-cap Nasdaq issues. The firm also has an aggressive international desk that trades Nasdaq, Pink Sheet and other ADRs.

Domestic's 75 broker-dealer clients range from the bulge brackets to regional and small firms. The trading desk handles an average of 9,000-10,000 executions per day for them, compared to 5,000-6,000 in late 2005, says sales and trading director Rick Petrone.

About a third of that goes through the foreign desk. Petrone, who joined Domestic in 2004, had worked at Mayer & Schweitzer since 1985.

Domestic competes with such OTC heavyweights as Knight Equity Markets, UBS Securities and E*Trade Capital Markets, but doesn't have the balance sheet to go toe-to-toe with these giants. Nor is that the goal, according to Shefts.

Shefts says the firm shares a market niche with Hudson Securities, Hill Thompson Magid & Co., and William V. Frankel & Co. Hudson is the #5 Pink Sheets market maker, while Domestic is #6.