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May 16, 2007

New Cash Gives JonesTrading Opportunities to Expand

By Nina Mehta

JonesTrading Institutional Services, a 32-year-old block trading shop known for its high-touch services for institutional investors, is splurging on technology.

The firm is taking the proceeds of a $50 million investment from private equity firm Friedman Fleischer & Lowe and spending some of it on trading tools to support the desk's 76 sales traders.

The tech binge doesn't mean that JonesTrading, which manually crosses more than 40 percent of its orders, is giving up on its traditional modus operandi. The firm's mission is still to get blocks on the tape for its 500 asset manager and 500 hedge fund clients through relationships and trust.

"Sales traders are the best way to facilitate difficult and complex trades," said William "Packy" Jones, the agency broker's chairman and chief executive. "We'll just make that model stronger."

Part of the money will be spent on tools to help traders organize their research and make data more uniformly available among sales traders and across branch offices. The firm will also get a non-voice, Web-based system to supplement its hoot and holler. The overhead hoot-essentially a networked multi-party intercom system used by brokerages to connect trading rooms-enables traders in the broker's 10 offices to communicate with each other as they put together blocks.

Since 60 percent of the firm's order flow must be executed through algorithms and other methods, the broker will also dip into its newfound cash to build up its market-access options.

JonesTrading contrasts its "human crossing platform" with the electronic versions that have mushroomed on Wall Street in recent months. The firm has no immediate plans to invest in an electronic crossing platform, Jones told Traders Magazine. The exec said the recent growth and popularity of crossing platforms and internalization engines hasn't hurt his firm since many pools remain proprietary and the market's fragmentation frustrates clients.

JonesTrading may also consider expanding its trading operation through an acquisition or by moving into other asset classes. The firm has seen its options and Canadian business increase over the last year. "We have a good distribution network, so we could expand into other equity products," Jones said.

In the first quarter of this year, JonesTrading executed 23 million shares per day in Nasdaq, New York Stock Exchange and American Stock Exchange listed stocks, according to the company.