Liquidnet Decides to Acquire Miletus Trading

By Ivy Schmerken, Wall Street & Technology

Today Liquidnet, the leading electronic marketplace for block trading, revealed plans to acquire Miletus Trading, an agency-only broker that supplies quantitative execution strategies and analytics to institutional investors.

Liquidnet signed a definitive agreement to purchase Miletus Trading, according to the release, though financial details were not disclosed. The transaction is expected to close by the end of March, subject to regulatory approvals.In an interview with Wall Street & Technology, Seth Merrin, CEO of Liquidnet, says, "As a company we have never looked toward acquisitions. This is sort of a surprise for us as well." But in looking at Liquidnet's product plans going forward, Merrin concluded, "Based on where we want to go in the marketplace, combining with the brains of the Miletus folks would allow us to get there a lot faster and a lot better with Miletus."

Merrin notes that Miletus Trading has ranked in the top 10 as an algorithmic trading provider. "Our goal was to become the premier quantitative trading firm," says Richard Johnson, senior managing director of Miletus Trading, during the interview. The agency-only broker had been exploring ways to do that either organically, through partnership or acquisitions, says Johnson. "When we talked to Liquidnet about combining our market leading quantitative algorithms with the largest institutional liquidity pool, and the fastest growing liquidity network, which is H20," Johnson realized that "one plus one is greater than two.

Executives also emphasized the cultural fit between both organizations and that they shared the same philosophies on innovation and technology. "Both firms believe in not creating a me-too product and in being innovative," says Mike Capelli, managing director and co-founder, in the interview.

The combination will bring together the algorithmic trading product development skills of Miletus with the power of Liquidnet's institutional liquidity pool totaling 3.5 billion shares. This figure includes the natural liquidity of the buy-side crossing network combined with Liquidnet H20, a streaming liquidity service that brings in smaller-size order flow from third parties to cross against the institutional block size orders.

Miletus Trading is also one of Liquidnet's third-party streaming liquidity providers into Liquidnet H20. "We've been getting more and more familiar with them for the past year or two," says Merrin. Other liquidity providers include Bloomberg TRADEBOOK, BNY Brokerage, EdgeTrade, FutureTrade UNX, Piper Jaffray and Goldman Sachs Execution & Clearing.

While Merrin declined to provide specifics on what types of products Miletus and Liquidnet would develop for the institutional community, he said that Miletus would channel the brains behind building algorithms into creating intelligence for the institutional community to operate more efficiently.

"The whole marketplace today and algorithmic trading is focused on really slicing and dicing orders to mask institutional orders and make them look like retail orders. It's not really a solution to the problem," says Merrin. "The solution is more what we're doing, creating an institutional marketplace."

Miletus will add 28 employees to Liquidnet's global workforce of 210. "We're building joint product offerings as we speak and it's going to take some time, noting that regulatory approval could take up to 90 days. But over time we will join forces as one organization," says Merrin. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio