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December 18, 2007

TradeWeb Eyes Equities Expansion in 2008

By Nina Mehta

Thomson TradeWeb, the dominant fixed-income electronic trading platform, plans to broaden its reach to cash equities in the second half of 2008.

Thomson Financial, which bought the over-the-counter trading platform three years ago, will spin out TradeWeb into a joint venture co-owned by a consortium of nine big banks. The banks bought a 15 percent stake in the new entity for $180 million. Seven of the banks were part of the eight-dealer consortium that sold TradeWeb to Thomson in 2004.

Included in the current package are Thomson's AutEx and the Thomson Order Routing Network. The deal with the banks, which include Goldman Sachs and Lehman Brothers, will be completed in the first quarter of next year.

"We want to offer hedge funds a trading platform that allows them to handle trading strategies across asset classes on one screen," said Jim Toffey, TradeWeb's CEO. Those asset classes could include bonds, convertibles, credit default swaps, equities and listed options. According to Toffey, TradeWeb will expand into new asset classes, including equities, through a combination of "organic building and acquisitions."

The nine banks also committed another $100 million to help grow TradeWeb's business in these additional asset classes. The dealers will own 80 percent of TradeWeb's new markets.

A cash-equities trading platform is anticipated for the latter half of next year, with equity options after that. Toffey said TradeWeb could build an upstairs equities block trading platform. An electronic communications network is less likely, he added, although he didn't rule it out.

"Bringing the equities business under the TradeWeb organization gives us focus and expertise to build out the transaction side," Toffey said, referring to the trading of equities, compared with routing and the current AutEx indications product. "It's ultimately about having liquidity. We'll work with dealers and the buyside to help put the [fragmented] market back together."

TradeWeb will also make AutEx, its indications-of-interest and trade-advertisements product, more electronic and executable. This overhauled product, as well as any other TradeWeb trading platforms, could use the firm's FIX-based routing network. The network, which has 7,000 connections and handles more than 15 percent of U.S. volume in traded equities, will be renamed TradeWeb Order Routing Network.

The nine banks that will have a stake in TradeWeb are Credit Suisse, Deutsche Bank, Goldman, JPMorgan, Lehman, Merrill Lynch, Morgan Stanley, Royal Bank of Scotland and UBS. The new company will retain the TradeWeb name and the 400 current employees, half of whom are developers.