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August 1, 2010

Bigger is Better

Citi Vows to be Top Player in Three Years

By By Peter Chapman

Size matters. That's the mantra over at Citigroup Global Markets these days, where Dan Keegan, the recently promoted co-head of the electronic trading division, is steering his group to become bigger.

"Owning volume-and then optimizing that liquidity to provide customized solutions for those customers that matter to us-will separate the wheat from the chaff," Keegan said.

Formerly head of sales for the electronic execution group, Keegan moved into his current position in May, following the departure of Steve Swanson. Keegan tells Traders Magazine his "personal goal" is for Citi to expand its share of the domestic market from 13 to 20 percent and rank among the top five trading firms.

Being big would give Citi two advantages, Keegan explained. First, size means Citi's brokerage division would be able to give its customers better service. Second, size would give Citi's investment banking division an advantage when it competes for a deal.

"This isn't just about aggregating liquidity on behalf of our institutional customers," he said. "It's for the broader enterprise and all the customers we are trying to service."

On the brokerage side, controlling a lot of volume means Citi could guarantee its institutional customers they would have a good chance of finding a match within Citi. It also would allow Citi to tailor solutions to clients with different needs-some may focus on price while others focus on size, for instance.

Much of Citi's inflow meets in Citi Match, the big broker's dark pool. Not coincidentally, it was Keegan who developed the crossing system from a platform he built at ATD. Keegan joined ATD, a pioneer in the use of technology and sophisticated analytics in wholesaling, in 2006 to build up the company's institutional business. He joined Citi when Citi bought ATD in 2007.

The Citi Match pitch to the buyside trader goes something like this: Imagine a product where, on average, you can be 20 percent of the volume in a stock over the life of the order without ever hitting a bid or lifting an offer. Plus, you can capture 70 percent of the spread at the same time.

Citi Match captures flow from the broker's institutional customers, various Citi trading desks, ATD as well as its Lava Trading unit. The dark pool executed 37.3 million shares, single-counted, in April, placing it among the 10 largest dark pools tracked by Rosenblatt Securities.

Market Maker

On the investment banking side, size could give Citi the upper hand when vying for an underwriting mandate. If Citi consistently trades a good chunk of the issuer's stock, it will be able to assure the company it will make a market in the stock regularly, Keegan explained.

Investment banks will often only trade their corporate customers' stocks aggressively in the immediate aftermath of a deal or before the next one.

"We think it is important that a corporate customer understands you are not only there to help them stabilize the stock on day one," Keegan said, "but that you are an active market maker on their behalf for the next six months. Oftentimes, capital dries up after the deal heat is gone and only resurfaces as you get closer to a secondary."