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September 9, 2009

StockCross Makes Markets in U.S.

By James Ramage

StockCross Financial Services has jumped headfirst into the U.S. market-making business, with the addition of seven traders who specialize in over-the-counter securities.

Nick DeMaria, StockCross

To start strong, the retail and institutional broker brought onboard a team with expertise in OTC and verbally quoted stocks from Hill, Thompson, Magid & Co.'s recently defunct market-making group.

The group joined StockCross in April. But it only began trading and reaching out to customers over the last month.

The seven former Hill, Thompson traders are based in Jersey City, N.J. There, they concentrate on making markets in Bulletin Board, Pink Sheets and small-cap names for institutional and retail customers, said Nicholas DeMaria, managing director of equities trading at StockCross.

"StockCross really wanted to expand, to trade everything in the OTC market," DeMaria said. "The firm said: We have the capital. We're looking to put it somewhere to make our mark where we haven't done it before. The firm wanted to risk capital, wanted to make markets in several thousand securities."

Beverly Hills-based StockCross opened more than 35 years ago. It's been predominantly an online retail broker until about 18 months ago, when it launched its institutional business in Florida.

Up until now, market making at StockCross meant international securities-American depository receipts and foreign ordinaries. The new group also makes markets in preferred and convertible securities; distressed equities; distressed/bankruptcies; rare bank stocks; rare and inactive securities; and special purpose acquisition companies. It plans to do roughly equal business in each of these, DeMaria said.

DeMaria's group makes markets in 2,500 names. It plans to expand to about 4,000 names by the end of the year. While at Hill, Thompson, the group made markets in about 8,500 names, he said.

The staff is growing. The Jersey City office teams with a global market-making operation-six traders, based in Orlando, Fla., making markets in international securities. StockCross is also building an institutional sales trading office in San Francisco that will open soon, DeMaria said.

The firm is hiring. It wants to increase the number of traders in its New Jersey and Florida offices from 12 to around 20. In addition, DeMaria projected the firm's volume would double over a 12-month period.

One source at a medium-size wholesaler said he thought StockCross' growth projections are reasonable. But that is only if the StockCross market-making group sticks to the names in which it specialized while at Hill, Thompson.

"There seems to be a need for the micro-cap and verbally quoted market segments, from what I hear from clients," he said. "If they focus on what they know well-that micro-cap/verbally quoted market segment-they have a good chance of succeeding, provided that the firm has the capital to risk."

Although StockCross accommodates agency orders, making markets will remain its focus, DeMaria said. StockCross doesn't offer research for trading purposes. Nor are there plans to launch an ATS or offer a suite of algorithms.

DeMaria also wouldn't break down the firm's number of institutional and retail customers. Nor would he divulge StockCross' projections for customer growth. Still, his goal is straightforward: StockCross should be in the top-10 in dollar volume traded in OTC securities.


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