NEW YORK (CNNfn) - Direct-access brokerage Tradescape.com will buy MarketXT, an electronic trading platform that made a name for itself in after-hours stock trading, in a stock deal that values MarketXT at $100 million.|
The companies, both of which are private, announced the deal Thursday. They expect to close the transaction in about a month.
At the same time, Tradescape also announced Thursday that one of its backers, Softbank Finance, will raise $100 million in new capital through a round of financing for the new company. That capital is not connected with the MarketXT acquisition.
Tradescape.com founder and CEO Omar Amanat will continue as CEO of the new company, which will keep the Tradescape name. MarketXT will continue as a wholly owned subsidiary. Michael Sanderson will serve as chairman of the new Tradescape holding company; he had served as MarketXT chairman and CEO, and also wasthe former president and CEO of electronic communications network Instinet.
New York-based Tradescape, which specializes in serving day traders, has developed intelligent-order-routing software that sends trades to the cheapest exchange or ECN. The company has grown rapidly since its founding in 1997. Last year it bought Houston-based Momentum Securities, a day-trading brokerage with offices around the country. It had $75 million in revenue in 1999. It has 115 employees.
MarketXT became the 10th electronic communications network, or ECN, when it got approval from the Securities and Exchange Commission in January. Two former SEC lawyers, Michael Satow and Eugene Choe, founded the company. It has some heavy-hitting Wall Street backers, such as the brokerages Salomon Smith Barney, Morgan Stanley Dean Witter Online and Dreyfus Brokerage Services, and also prominent market makers Bernard L. Madoff Investment Securities and Herzog Heine Geduld.
Tradescape, which generates volume of around 40 million shares a day, will bring vital order flow to MarketXT. Though it was an after-hours trading pioneer, MarketXT has had disappointing volumes, averaging around 100,000 shares a day at the moment. But it only operates after-hours at the moment, from 4 p.m. to 8 p.m. ET.
Now that it has ECN approval, it plans to expand its hours "as soon as possible" to 6 a.m. to 8 p.m. ET, Satow said. Before it became an ECN, MarketXT could not trade during regular market hours.
"When Tradescape and MarketXT took a look at this and started to talk about merging, it was very obvious that one plus one equals 10," Satow said. MarketXT will count on increased trading volume and will get the use of Tradescape's proprietary software, which routes trades to the cheapest source, whether that's an ECN or a market like the NYSE or Nasdaq.
That means the trades won't always go to MarketXT. But customers using MarketXT will benefit from Tradescape's technology, Satow said. Tradescape's technology also takes into account factors such as the latency or lag time in getting trades executed at different market makers.
"It's really very, very advanced and highly intelligent software," Satow said. Thanks to that and a big backer like Japan-based Softbank, a bank that invests heavily in technology, Tradescape is poised to have a large impact on Wall Street, Satow said. "This sector is the hottest thing on Wall Street right now. There's no doubt about it. It's what comes next."
Major Wall Street investment banks have shown interest in buying Tradescape.com and its software expertise in the past. Now Salomon and Morgan Stanley, which see their MarketXT shares converted into shares in Tradescape, will have stakes in it.
Intelligent order routing software is one of the hottest trends on Wall Street. Exactly a week ago, Charles Schwab announced it is buying CyberCorp, a day-trading brokerage that, like Tradescape, has also developed software that "hunts and seeks" for the best prices on different trading platforms.
The day-trading customers that Tradescape.com and CyberCorp serve are also the most profitable for online brokerages, since they generate hundreds or even thousands of dollars in commission a day. Even large mainstream brokerages such as Fidelity and Schwab still focus heavily on attracting active customers.
Tradescape's software allows its customers "direct access" to the stock markets, meaning they trade for very low commissions of $1.50 per 100 shares. The company also allows its customers to day trade remotely without having to visit an office.