Knight Trimark (K-T), a leading market-making firm in both listed and OTC stocks-which receives the lion's share of its order flow from Internet broker--is plotting its next move into overseas markets with a new clearing relationship and investments in electronic equity and options exchanges.
K-T said it would begin clearing and settling its securities transactions in mid-October through Merrill Lynch's clearing and settlement subsidiary, Broadcort Capital Corp. Knight-marketmaker of OTC stocks-previously cleared through PaineWebber.
The new link with Merrill Lynch is expected to accelerate its European expansion, according to Tim Butler, an analyst with Pacific Crest Securities, Portland, Ore.
"The announced deal with Merrill will begin as a clearing relationship, but we believe that it could lead to a deeper relationship with Merrill and allow K-T to leverage Merrill's extensive empire," according to Butler.
"When Merrill begins moving its customers to online trading in December, we look for K-T to pick up additional order flow from this relationship. In an effort to diversify its revenue stream, K-T's two key priorities have been to develop additional capabilities in the options and international securities markets. The Merrill deal should also add momentum to these diversification efforts," Butler said.
In July, K-T established a London-based subsidiary, Knight Securities International Ltd., will arrange U.S. securities transactions between European institutions and Knight Securities.
The new office, which received regulatory approval from the United Kingdom's Securities and Futures Authority, will arrange U.S. securities transactions between European institutions and Knight Securities, a U.S.-based subsidiary of Knight-Trimark. The market maker said the new operation "will serve as Knight-Trimark's foundation for a broader pan-European strategy."
Meanwhile, Butler also said he expects K-T to make another European acquisition "in the next few months."
In late-July, K-T bought a 19% stake in the Brussels-based Easdaq stock exchange, making K-T the biggest shareholder in that exchange for European growth and technology companies (Goldman Sachs and Morgan Stanley also have small stakes in Easdaq).
Meanwhile, in June, K-T named John G. Hewitt, formerly vice president of Electronic Trading at Goldman Sachs, president of its Knight Securities subsidiary, to diversify the firm's revenue stream by expanding into options and international equities market making arenas. Hewitt is also spearheading the development of a next-generation trading platform.
K-T is also an investor in the International Securities Exchange (ISE), the first completely electronic options market in the U.S., slated to start trading in the second quarter of 2000. In anticipation of that opening, Butler also said that before year-end, he expects K-T to make a new acquisition to gain entry in the options market.