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May 16, 2007

Upstart Broker Thinks Big And Expands in New York

By Peter Chapman

A small firm is opening a huge trading floor. BTIG, the product of a merger two years ago between New York's Bass Trading and San Francisco's Baypoint Trading, is opening a 20,000-square-foot trading floor in midtown Manhattan this month.

The institutional broker-dealer employs only 100 or so staffers in six offices, but is moving onto a floor almost half the size of the floor at giant trading house Bear Stearns.

BTIG will house 88 trading professionals on its new floor and expects to add more as volumes grow.

"We have doubled our head count in the past 14 months," said Steve Starker, BTIG cofounder and head of the Bass Trading institutional effort, "and we plan to expand both our cash and derivatives businesses. We've had unbelievable growth in a very short time."

Starker is a former Goldman Sachs partner who ran the Nasdaq desk at Spear, Leeds & Kellogg. He spent three and a half years with Goldman after the firm's acquisition of Spear.

Starker runs BTIG with Scott Kovalik, a cofounder of Baypoint and the former head of trading at San Francisco's Montgomery Securities.

Starker said BTIG's high-touch, low-impact trading strategy is attractive to clients. The firm trades between 30 million and 40 million shares per day.

The firm provides agency executions-at about 3 cents per share for high-touch-to traditional money managers, hedge funds, program trading houses and statistical arbitrage houses. It crosses about 20 percent of its merchandise between naturals, minimizing market impact and information leakage.

The firm's goal, Starker explained, is to be considered a part of the group of specialty third-market firms that includes JonesTrading, Jefferies and Cantor Fitzgerald.

Those three firms operate sprawling networks of sales traders that tap into hundreds of accounts and cross much of their flow. JonesTrading, for instance, crosses about 40 percent of its order flow between naturals.

In a business that is going increasingly electronic and low-touch, according to Starker, there is still demand for human intermediation. "We're a natural crossing network," the exec said.

Originally geared to hedge funds, BTIG now gets 60 percent of its business from traditional money managers. That shift, over the past 18 months, accounts for much of the firm's growth.

As for the future, Starker predicted BTIG's volume will reach 50 million shares by year's end and its staff will continue to grow. Also by year's end, the firm will add offices in Chicago and Los Angeles.