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September 10, 2007

Van der Moolen Expands With Agency Brokerage

By James Ramage

Beleagured Dutch trading house Van der Moolen Holding is branching out.

The owner of Van der Moolen Specialists USA, a New York Stock Exchange specialist firm struggling to cope in the hybrid environment, bought a small NYSE floor brokerage called Robbins & Henderson in July for $2 million with an earn-out provision. "VDM has built a brokerage platform in Europe, and we are now committing resources to grow the U.S. business to integrate into the global strategy," Paul Vroling, chief finance officer of Van der Moolen USA, says via e-mail. "R&H represents a building block that will enable us to achieve our objective to offer brokerage services at a global level."

VDM has chosen to establish a NYSE brokerage presence at a time when the NYSE hybrid system is hurting its specialist business. With the advent of electronic trading, specialist participation rates have fallen across the industry, and VDM reports its own business is no different with the NYSE average of four percent through the first half of 2007. VDM's U.S. division revenues are down 68 percent for the first half of 2007. The drivers are Reg NMS, which has hurt NYSE market share, and the exchange's own hybrid market, which has cut into specialists' participation.

VDM says adapting to hybrid is a technology issue. The process "represents an enormous change in the way the specialist is able to inject liquidity into the market," says Glen Surnamer, chief operating officer at Van der Moolen Specialists USA. "As our traders acclimate, and as our algorithms evolve, we anticipate this will translate into increased participation."

To right the ship, VDM has pledged to restructure its U.S. activities to better fit hybrid, and to expand its three sources of income generation: brokerage, liquidity provision and exchange partnerships across Europe, the U.S. and Asia. The Robbins & Henderson-now renamed R&H Securities-purchase helps them achieve the U.S. segment of the brokerage pillar.

Due to hybrid, by year's end, VDM Specialists USA will have dropped its overall staff count from 207 to 100, Surnamer says. The number of specialists has dropped from a high in 2006 of 70 to around 40 now, he adds. As technology eliminates most administrative burdens, specialists are now doing many of the tasks VDM trading assistants used to perform.

Simultaneously, R&H plans to increase its staff from 10 sales traders to more than 20, according to Tom Hearden, the former chief executive officer of Robbins & Henderson and now executive managing director of R&H. The merger also lets R&H move many of them upstairs. "[R&H has] a great existing platform that is much more scalable in an upstairs model," Hearden says.