OptiMark

It wasn't a Merry Christmas at OptiMark Technologies. The supercomputer matching system for institutional traders said it was planning to hand out more pink slips in the New Year. The reduction follows an earlier cutback of 54 jobs, or roughly 14 percent of a 389-person workforce. The retrenchment comes as OptiMark's average daily trading volume dipped to as low as 285,000 shares, having reached a high of 1,150,000 last September. In recent months the volume has climbed back down to 716,000 shares daily.

Philip Riese, chief executive of OptiMark, said the job cuts are not directly related to the decline in trading volume. Rather, they are attributed to an "expense management" review that was begun in the fall of last year. Riese said it is important to run a "lean and mean shop."

Wild West

As New York newspaper publisher Horace Greeley intoned, "Go West, young man." Well, that's exactly what Nasdaq may be doing later this year. According to Nasdaq spokesman Scott Peterson, the exchange is studying the idea of opening a high-tech complex in Silicon Valley that would feature market updates, a public information center and conference rooms for companies to hold press briefings and shareholder meetings. The facility would be similar to Nasdaq's MarketSite that opened this month in New York's Times Square.

Nasdaq has had a sales office in Silicon Valley since 1990, while the New York Stock Exchange arrived on the West coast only about two years ago. The Big Board is getting tired of being snubbed by big technology companies that launch their IPOs on Nasdaq. The Big Board is spending millions of dollars on a state-of-the-art, virtual trading floor that will be located in Palo Alto, Calif. NY West' is scheduled to open by March 2000. The goal is to attract IPOs that meet its listing requirements as well as lure large tech companies away from Nasdaq. Nasdaq plans to counter the Big Board's Silicon Valley campaign with an effort to spread the word to NYSE firms that they now have a choice of where to list.

Defection

Rob Cofer, former head of trading at Stifel Nicolaus in St. Louis, led a mass defection of traders and support personnel to cross-town rival Huntleigh Securities. He runs the new Capital Markets Group at Huntleigh as a senior vice president and head of Nasdaq trading.

The group is staffed with three former Stifel traders, or about a third of the desk's headcount, including Bill Riley, senior vice president and manager of listed trading; Steve Menendez, Nasdaq trading; and Christine Arnold, listed trading. Greg Lemasters, previously a position trader at Stifel, was tapped to replace Cofer and head up its trading desk.

"We are going to serve what we feel is an under serviced area of investment banking: deals between $5 million and $30 million," Cofer said. The new group will focus on value investing, healthcare and regional situations. "We want to follow things that are in our backyard that people aren't really paying attention to," Cofer said.

Super Times

With the successful debut of its new MarketSite video screen on Times Square, Nasdaq faces a challenge on a decidedly different front. But chances are reasonably good that the Nasdaq super montage trading system will become a reality this year. The dealer community is generally in favor of the proposal though some traders are concerned, among other things, that the Nasdaq trading platform will not be strong enough to support the system. On the opposite side are some officials at ECNs, including Bloomberg Tradebook and NexTrade, who strongly oppose the proposal.

If approved by the Securities and Exchange Commission as currently constituted, the system would aggregate customer orders at various price levels in a "super montage." Dealer and ECN participants would have anonymity and automatic execution on a Super SOES. Some pros say the system could see Nasdaq hurting ECNs, by allowing Nasdaq to directly execute a larger proportion of limit orders on dealer-to-dealer business. The Security Traders Association urged that the full roster of Nasdaq stocks, starting with the top tier, be slowly integrated into the system.

Long hours. Unpaid over-time. No flexible schedules. No childcare. Management cronyism. Cheapskate benefits.

If you thought this is a description of a sweatshop in Hondorus, think again. According to Michael Clampitt, it's a description of working life today – at the Securities and Exchange Commission in the U.S.

"[The SEC] is absolutely a sweatshop," claimed Clampitt, an attorney for the small business office of the division of corporate finance at the SEC in Washington.

As a reaction to these alleged conditions, Clampitt helped initiate a drive earlier this year to organize a union among the hundreds of attorneys, accountants, economists, and staff at the nation's chief securities regulator. He signed up the requisite 30 percent of the 1,800 SEC employees eligible to vote on union representation in four months.

"[It was done in] record time," noted Colleen M. Kelley, national president of the 155,000-employee strong National Treasury Employees Union (NTEU), the independent labor organization which will represent SEC workers if the union election certification succeeds.

Skinflint Managers

Clampitt painted a picture of the SEC as an institution filled with dedicated public servants cheated out of taxpayer subsidized subway passes by skinflint managers. "We don't have any of the benefits that any of the other comparable agencies get," he said.

"Management controls the promotions system and the grievance process," he said. Staff turnover is soaring as more professionals find it difficult to turn aside lucrative private sector employment offers," he added.

The SEC has posted on its Internet site substantially everything the agency has to say on the subject. A spokesperson declined further comment. Earlier this year, agency spokesman Chris Ullman said SEC Chairman Arthur Levitt had publicly stated that, in principal, he supports a union at the SEC.

Levitt initially seemed to greet the union drive with magnanimity: in a July 9 letter to the Federal Labor Relations Authority (FLRA), the commission said it had no objection to the "appropriateness" of a proposed single bargaining unit to represent both headquarters and staff at 10 regional offices. A week later the SEC reiterated its affirmative commitment to the FLRA and the union.

Later the agency hired Krupin Greenbaum & O'Brien, a Washington law firm which specializes in representing management in labor disputes. The SEC said the labor law firm was hired to ensure that the SEC had covered its options before a union vote.

On Aug. 6, the SEC wrote to the FLRA asking it to decide if agency employees wouldn't be better served by having 11 separate bargaining units. Union proponents say that could split their ranks and reduce their bargaining power in negotiations with the SEC. The move at least delayed an employee vote on the union petition (which must garner a simple majority to win NTEU representation) until early this year.

SEC Reprisals

Clampitt claimed that SEC reprisals have begun. An enforcement division employee active in the union drive was transferred, allegedly for organizing during work hours, Clampitt said. Managers cautioned employees that they couldn't legally discuss the proposed union during work hours except at lunch. Clampitt said that is legally incorrect, since discussions are permissable on breaks. Clampitt said managers recently asked for his complete file of time and leave records, saying they were preparing for the labor relations testimony. "They're just trying to run an intimidation campaign," he countered.

SEC spokesman John Heine said the SEC does not have so-called "breaks." He did say that Clampitt's records were requested "for a hearing."

In a letter from the SEC to the Federal Labor Relations Authority, dated July 20, 1999, the SEC disputed a claim by the treasury employees union that Charles Tilman Snead, an SEC enforcement employee, was reassigned because of his union activities. The letter said his supervisors "were not adverse to his union activities. They simply sought to have him reassigned without any discipline, purely because his job performance and conduct proved unacceptable."

As negotiations intensify and the union election nears, won't the campaign distract already overworked employees from their crucial oversight mission? On the SEC table are regulatory proposals of interest to the trading community. NTEU's Kelley does not think the SEC employees will be distracted.

Clampitt agreed: "These people here are too professional to have it affect their work." As federal workers, NTEU members at SEC won't be able to strike, though Clampitt believes Chapter 2B(b)(1) of the Securities Exchange Act of 1934 does allow most represented employees to bargain collectively for higher wages.

Mainly, Kelley and Clampitt said, a union will provide an outlet for pent-up grievances at the SEC. Many public service employees belong to unions. Kelley said, "NTEU strongly believes that most of the questions facing agencies today have the people with the answers right there at their fingertips, which are the frontline employees of the agencies."

News bulletins breathlessly recounted the reports: the forthcoming Nasdaq restructuring, initially valued up to $1.4 billion, would take place in two stages of stock privately placed to trading firms, issuers, and market participants. Each shareholder would be limited to a 2.5 percent stake.

By the fall of 2000, "75 percent of Nasdaq would be owned by market participants and membership," John Hilley, chairman and chief executive of Nasdaq AMEX International, told November's meeting of the California Association of Independent Broker Dealers.

Earlier this month, his words seemed to hold truth. On Jan. 4, the board of the National Association of Securities Dealers unanimously approved a two-step private stock offering of up to 79 percent of Nasdaq.

About $1 billion is expected to be generated. The proceeds will benefit Nasdaq technology and other areas. (As part of the restructuring, Nasdaq will seek to register as an exchange.)

The first phase of the private placement, a stake of up to 49 percent in Nasdaq, would take place as early as April or May, pending membership approval. The second phase, targeted for mid-2000, will depend in part, on Nasdaq creating a suitable operational structure for itself as a for-profit exchange.

The Result

In the end, 25 percent of Nasdaq would be owned by NASD members; 32 percent would be owned by market makers and other major market participants while 16.5 percent would be owned by companies that trade on Nasdaq. If Nasdaq later embarks on an initial public offering, equity in Nasdaq would be allocated to NASD members.

"I don't think [an IPO] is going to happen soon," said Jay G. Strum, senior partner at the securities and corporate litigation firm of Kaye, Scholer, Fierman, Hays & Handler, in New York. "Before it can happen, Nasdaq has to think through the regulatory scheme that will make it work after it happens."

Back in July, when demutualization was just a glimmer in the exchange executives' eyes, Securities and Exchange Commission Chairman Arthur Levitt made clear he was thinking these things through. "As markets consider the potential advantages of demutualization, you must also consider the impact of such changes on the effectiveness of your self-regulatory functions," Levitt wrote in a July 9 letter to NASD Chairman Frank Zarb and New York Stock Exchange Chairman Richard Grasso. "I want you to understand that approval of these changes will depend upon investors' interests taking precedence over all others," Grasso and Zarb have stated that they share these concerns.

"My reaction is that [the exchanges] don't really have a master plan," said Strum, who served as a trial attorney in SEC's enforcement division in the mid-1960s. "It seems to me the objective is to share in this [stock] boom," he said. "Each of these entities is looking for a way to cash in."

The way Strum sees it, the NASD is now watching to see how a contemplated NYSE IPO proceeds. Electronic trading has finally begun to revolutionize investing, Strum reasoned, opening tantalizing vistas of new profit opportunities for the exchanges. The exchanges responded to these developments by proposing to go public, he continued, in a move that would infuse large sums of new capital for restructuring and expansion, while shifting the financial responsibility for exchange operations from exchange members to the stock investing public.

Close Examination

NASD visiting academic fellow, Prof. Jim Angel of Georgetown University in Washington, who is studying the exchange from the inside, said he believes the SEC will examine any proposed demutualization "with a fine toothed comb" before letting it proceed. "I certainly don't think the regulators are going to rush into anything, much less something as important as demutualization," the associate professor of finance said.

Angel emphasized that he does not speak for the NASD. Nevertheless, he observed, "This is an exciting time. Everyone knows that the equity markets are changing rapidly." Mutual exchanges worked well for centuries in an environment where the pace of change was modest, he noted. As technology and globalization speed that pace, he said, exchanges need to become more flexible. Demutualization may better serve that need, he said.

Spreading the financial risk of exchange funding and ownership is a good idea, Angel said. Shareholders are good at managing risk, he said, because it's in their own interest to do a good job of it. Further, he said, the experience of European and other exchanges that have demutualized suggests that investors with a vested interest in healthy operations – generally, large brokerages and investment banks – will end up holding the majority of exchange stock.

Finally, Angel said, the SEC opened the door to demutualization when it began allowing new for-profit automated trading systems (ATS) to become exchanges. Now, he said, the SEC must find a way to allow exchanges to become for-profit entities.

Angel and Strum's expectations fall upon the SEC. Strum said that, Levitt's apparent low-key, light-touch approach to lingering regulatory issues notwithstanding, the SEC has made its concerns and priorities clear to the exchange managers. "I never lifted a hand toward my children," Strum mused. "I never raised my voice. Levitt isn't given to threats or arm-waving. I think he's doing the functional equivalent of looking over his eyeglasses. He doesn't have to threaten. They know what he means: you better have a plan."

SEC Commissioner Laura Unger's report

on online trading does not propose new regulations for one of the hottest phenomena on Wall Street. But that suits some online pros just fine.

"Our view is positive," said Michael Hogan, general counsel at online broker DLJ direct, a unit of Donaldson, Lufkin & Jenrette. Recognizing that "one month in real time is seven months in Internet time," Hogan said, Unger and her colleagues rightly resisted the impulse to use observations made last spring as a foundation for new rules this winter. "The wrong thing to do would have been to regulate," he said.

"I'm delighted, both as a member of the public and as a participant in the markets," with Unger's report, said Stephen J. Schulte, a founding partner in the corporate and securities department at the law firm of Schulte Roth & Zabel in New York City. "It's very timely for her to have undertaken this," Schulte said. "Four or five years ago online and day trading were very small specks on the radar screen. That has changed."

Unger Speaks Out

In an interview here in Washington, Unger told Traders Magazine that the reaction to the 95-page report, released Nov. 22, was positive.

Unger conceived, conducted, and presented the report's findings with the acquiescence, but not the official sanction, of her colleagues at the SEC. "I'm waiting for the not-so-positive reactions," she half-joked, "because I haven't gotten any so far."

Unger's report summarizes observations and recommendations made during a series of industry roundtables – in California last February, in New York City last May, and in Washington in June – attended by online and offline brokers, investors, academics, regulators, and attorneys.

Unger said she wanted to assess the current state of the industry, identify major issues facing it, and provide a framework of recommendations for continued discussion among SEC commissioners and staff.

"It's unusual for a commissioner to do something like this," Unger acknowledged. SEC Chairman Arthur Levitt was "extremely supportive from the very beginning," she noted. Though the commission staff was "a little bit cautious" about her unique project, Unger took pains to assure that the work did not violate provisions of the law, such as the Administrative Procedures Act. The roundtables were closed to the public. That was to encourage participants' candor, Unger noted, though their names are listed in a block at the end of the report.

No Surprises

For Hogan, the report's best feature is that it contains no surprises, proposes no solutions. "They've identified things the industry needs to talk about, that the regulators need to talk about," said Hogan, who attended Unger's roundtable in New York City. "That's the trick with the Internet: it's moving so rapidly that anything you do is a snapshot of actions in time, and by the time you develop regulations for it, that time will have passed."

Schulte said the report did raise some tough issues. The impact of online chat room discussions on stock prices raises the question: How does one assess the integrity and validity of information conveyed in such a forum? Conservative, experienced investors understand that they can't know who is behind such information and thus often discount it, Schulte noted. Novice investors may not be so skeptical. "I think the commission's position [so far] is, you can't protect the investor from everything," he said. "On the other hand, fraud is fraud."

Schulte continued: Can an online brokerage effectively dissociate itself from fraud perpetrated in its chat room? "That's a real issue," he said. "Some things you can't disclaim away." Unger acknowledged,

"This is a very difficult area for us." Beyond broker dealers, the SEC has no jurisdiction over online chat rooms, she said. The agency can enforce some rules on brokers who host chat forums, Unger said, but "it is a limited amount of authority."

Schulte also lauded sections discussing best execution, suitability, and misleading advertising, which he believes are the most important issues facing online traders and brokers. The report could serve as a touchstone, he said, that commissioners, staff, the self-regulatory organizations of the New York Stock Exchange, Nasdaq, and other exchanges, and perhaps even Congress, can use for continued exploration of the issues, and, if necessary, for proposals to address them.

SEC Commissioner Laura Unger's report on online trading

has these recommendations and comments:

*Suggests a review of the online trading industry's data mining products

and procedures.

*Proposes examining specific guidance on participants' suitability obligations.

*Advises considering studies and demonstrations on the relative merits of speed and

certainty of execution under modern market conditions.

*Concludes the SEC should encourage the widest dissemination of real-time market data

to investors.

*Encourages the commission to repropose the broker-dealer operational capability rule,

and other systems capacity plans.

*Asks regulators to study the effect of online chat forums on equity prices, and

reevaluate factors to be used in a forthcoming SEC study on investor privacy.

While some dealers may balk at the idea, SEC Chairman Arthur Levitt's support for a unified price opening – more popularly known as a call market – is finding an enthusiastic reception among academic experts and institutional stock trading managers.

"I think it would be an excellent innovation," said Robert Schwartz, Professor of Finance for the Zicklin School of Business at Baruch College. "For natural buyers and sellers this is very efficient."

But Nasdaq seems reluctant to introduce, anytime soon, the type of call market envisaged by the Securities and Exchange Commission chairman. Some powerful market makers have reservations while Nasdaq itself has a plateful of other projects to keep it busy.

For Steve Wunsch, however, Levitt's recent calls for Nasdaq to adopt some form of single price opening "is good news." Wunsch is president of the Arizona Stock Exchange (AZX), operator of an electronic call market run out of New York.

Wunsch, who makes no secret that the AZX has considered partnering with suitable stock markets, added, "It's our understanding that during the next year it's going to be a big active topic of discussion."

Consensus Price

In a call market, trades are consolidated at a fixed point in time, at a single, "consensus" price, which presumably clears the market of all offered equities at one time. More traditional continuous markets, which have prevailed on U.S. exchanges for more than a century, match buyers and sellers more or less on the spot, throughout an agreed-upon trading day.

Call markets don't replace continuous markets, Schwartz explained. The former has to be tied into the latter in the right way. Design issues make the interaction between the two potentially more complex, he noted.

Harold Bradley, senior vice president of strategic investments at American Century Companies in Kansas City, Mo., said there are three basic types of call markets.

The Arizona Stock Exchange is perhaps the purest type, Bradley said. Wunsch added, "The theory of the single price auction is that it eliminates the `winner's curse'." The fear that a bidder may win a typical auction but pay a higher price in the process leads some people to bid less aggressively, Wunsch said. Single price auctions eliminate that problem by concluding the auction at a consensus price no matter how aggressively the participants bid, he said.

OptiMark operates a second type of call market, Bradley said, working across multiple markets to reach an effective clearing price, and allowing for more than one clearing price to emerge. W.R. Hambrecht operates a third type, Bradley said. That's a "Dutch auction call," clearing the market at the lowest bid that takes all shares off the market at one time, he said. This type of call auction leaves wholesalers in a position to most efficiently serve the customer while still making a profit, he added.

The Advantages

Wunsch, Bradley, and Schwartz believe that, in many circumstances, the call auction offers several advantages over continuous trading. "I have sitting on my desk right now multiple data runs illustrating locked and crossed markets with millions of shares traded, with the seller $2 or $3 under what the buyers are willing to pay," Bradley said.

A call auction would allow trades to meet and clear the market at satisfactory prices without being centralized by market-making wholesalers, he said.

"The broad market benefits from better price discovery" in a call auction, Schwartz said. "It's also easier to be transparent in a call market, if you like that sort of thing." Of course, better price discovery may mean lower commissions, though Schwartz believes that increased volume could more than make up the net difference. "Market makers are rightfully concerned about the profit implications," he said. But finding the price that maximizes the number of shares traded is "what markets are there for," the professor said.

Call markets are growing in popularity overseas, according to Wunsch. The German bourse has three calls a day, he observed. London plans to conduct three a day starting next spring, he said; Tokyo already makes four a day. Some of these are not "call markets" in the strict sense that Wunsch and others advocate. But they pass along reports that, as the New York Stock Exchange and Nasdaq court electronic communications networks, each plans to sell the other's stock list using a call market system.

Single-Price Opening

A call market at the Nasdaq opening seems to have popular support among dealers and buy-side institutions, according to the responses to an electronic survey conducted by the Security Traders Association at the group's annual convention in Palm Desert, Calif. (Nonetheless, there are reports of opposition to a single-price opening among some influential dealers.)

Q. Nasdaq should develop a mechanism for a single-price opening:

Strongly agree ———- 42%

Agree ———– 36%

Disagree —— 13%

Strongly Disagree — 10%

Don't Know – 0%

No. of responses: 135 (buyside=22%; sellside =63%; ECNs/ATSs=3%; other=13%)

Herzog Heine Geduld in Jersey City added two senior Nasdaq traders: Tom Quinn from Bear Stearns and Scott Rosenfeld from Pershing.

Bloomberg Tradebook in New York hired four senior sales people, including two former traders, Leslie Ambinder from Pimpco Advisors and Mary Ann Doyle from Daruma Asset Management. The other two new sales reps are Judith Broneck, previously a compliance officer at Hoenig & Co. and Byron Cartozian, formerly a vice president of institutional equity services at CS First Boston Corp. Bloomberg also expanded its senior sales staff with two in-house hires, including Ellen Winston, formerly a buy-side order management sales rep. and Jeffrey Vincent, previously a Bloomberg terminal salesman. All six report to Steven Bookbinder, director of sales and marketing.

Kevin Foley was promoted to Chief Executive Officer of Bloomberg Tradebook. Kim Bang has been promoted to president.

Michael Burke joined Bear Stearns as an OTC trader. He was previously with UBS Warburg.

The Securities and Exchange Commission named David Becker as General Counsel. He was previously the SEC's Deputy General Counsel. Becker succeeds Harvey Goldschmid who returned to his previous post at Columbia University as the Dwight Professor of Law. Goldschmid is continuing to work for the SEC on a part-time basis as a special senior advisor to Chairman Arthur Levitt.

Mary Joan Hoene, previously vice president and counsel at Equitable Life Assurance Society of the United States, joined the law firm of Carter, Ledyard & Milburn as counsel in their Financial Institutions Practice Group.

The Philadelphia Stock Exchange nominated Edward G. Rendell, mayor of Philadelphia, to serve on its Board of Governors. John L. Cantwell, Jr., senior vice president and manager of George Wiess & Co. LLC and Thomas W. Wynn, president of Wynncroft, Inc. were nominated to serve as on-floor equity governors.

Goldman Sachs Group named two of its top officials to head up its new educational foundation: the firm's former

co-chairman, John C. Whitehead, will be chairman of the Goldman Sachs Foundation, and Stephanie Bell-Rose, previously counsel and program officer at the Andrew Mellon Foundation, will be president.

Lord Nigel Lawson was elected to the board of Innovest Strategic Value Advisors, a New York-based international investment advisory firm with offices in London and Toronto. Lord Lawson was a finance minister in the Thatcher administration in London.

Christopher Preston, previously with Chartwell Investment Partners in Berwyn, Pa. joined a new buy-side firm Villanova Capital in Conshohocken, Pa. Chartwell Investment is an advisor to the Nationwide Family of Funds with $11 billion under management in fixed income and equity products.

SunGard Brokerage Systems in Bedford, Ma. named Michael Nemerowski president of the firm, a provider of real-time, straight through securities processing systems. He was formerly the company's senior vice president. David Taylor, the firm's former president, was appointed group chief executive of SunGard.

Putnam, Lovell, de Guardiola & Thorton in New York beefed up its equity department with the appointment of John (Jack) Baker Jr. as head of trading, and Francis Mullen as head of equity sales. Baker and Mullen, formerly managing directors at Furman Selz, will be managing directors at Putnam. Putnam said it plans to triple the size of its sales and trading department by the end of this year. Baker and Mullen report to the head of capital markets, William Henson, who is based in Putnam's San Francisco office.

The Philadelphia Stock Exchange named Lanny Schwartz executive vp and general counsel. He was previously a managing director and legal counsel at BT Alex. Brown in New York. The exchange also appointed Robert Ackerman, formerly head of market supervision at the Boston Stock Exchange, as chief regulatory officer and deputy general counsel. He replaces Ken Meaden, who joined the Boston Stock Exchange as vp of regulation and serveillance.

Brent M. Weisenborn, president and chief executive of the Security Investment Company in Kansas City is the new chairman of the District Committee for District 4 of NASD Regulation. He will serve a one-year term. The District Committee elected Cheryl Cook-Schneider as vice chairman. She is a general partner and compliance director at Edward Jones in St. Louis.

Investment Technology Group in New York, a provider of equity trading services and transaction research, opened a Boston office in the Seaport District at 44 Farnsworth Street.

Under pressure from smaller competitors and facing a much bigger challenge if certain ECN access fees are banned, Instinet remains undaunted as it steps up its effort to become a super-international ECN.

Most recently, Instinet inked a deal to acquire Lynch, Jones & Ryan, a New York-based provider of commission recapture programs for pension plan sponsors.

The largest ECN, as measured by share volume, Instinet is staying the course with other franchise-building acquisitions, as well as a move to thwart possible efforts by the Securities and Exchange Commission to eliminate non-customer access fees. These fees, charged by ECNs to non-subscribers, have been singled out for possible elimination by SEC Chairman Arthur Levitt.

"We will fight in court if we have to," said Doug Atkin, Instinet's president and chief executive. Exchanges are able to charge brokers and brokers are able to charge clients for their services, he said. "Call us [an exchange or a broker]. But either of them are permitted to charge for their services," Atkin added.

Young Turks

While other ECNs have been eating some of Instinet's ECN lunch, the loss of revenue from access fees could be a bigger financial blow for the Reuters Group's unit, experts note.

Instinet faces competition from young ECN turks like REDIBook, The Brass Utility, Bloomberg Tradebook and others. Instinet had pretax profit margins of 31 percent on revenues of $634 million in the first nine months of last year. But Instinet is losing market share to rival ECNs, a factor that has contributed to the bouncy stock price of its parent company, Reuters Group.

Atkin is undeterred. "I think we still have enviable margins," he said. "Any margin slippage is largely due to investment spending to get into new businesses. We are trading more shares than ever."

Instinet trades about 170 million shares a day, handling about 20 percent of Nasdaq's volume. Instinet's expansion is part of a plan to shore up its institutional business while developing an online retail arm. International execution, research and other capabilities give it a strong edge over pure breed ECNs, analysts note.

Acquisitions by Instinet

May 1999

W.R. Hambrecht & Co., an online auction firm for IPOs.

Acquires 11.4%. interest.

July 1999

Tradepoint Financial Networks, a London-based electronic stock exchange.

Leads a consortium of investors, including American Century, Goldman Sachs, J.P. Morgan,

Morgan Stanley Dean Witter and E*Trade Group, that purchases a majority interest.

Archipelago Holding, an electronic communications network. Acquires 16.4% interest.

September 1999

E*Trade Group, second largest online retail discount broker.

Teams up with E*Trade to offer after-hours online trading to retail clients.

November 1999

Lynch, Jones & Ryan, Inc.

Purchases the world's leading provider of commission recapture programs for pension plan sponsors.

Source: Instinet

One of the few remaining independent investment banks, 235-employee Volpe Brown Whelan, has been acquired by brokerage behemoth Prudential Securities.

San Francisco-based Volpe Brown, which specializes in emerging growth companies, has been reinvented as the Prudential Volpe Technology Group at Prudential Securities, a subsidiary of the Prudential Insurance Company of America. Terms of the cash deal were not disclosed.

About 15 percent, or 38 of Volpe Brown's staff, most of them institutional sales and trading pros, were fired or left voluntarily.

Volpe Brown has offices in Boston and Seattle.

The new group is managed by Thomas Volpe and Robert Whelan, Volpe Brown's founder and chief executive, respectively. Both will report to Paul Scura, executive vice president and head of investment banking at Prudential Securities.

New Entity

The newly-created entity is part of Prudential Securities' Capital Finance Group, which is run by Vincent T. Pica, II. This group houses investment banking, institutional equity trading and sales and global equity research business.

"The Volpe Brown Whelan acquisition establishes us a key player in the vital technology business," said Hardwick Simmons, president and chief executive of Prudential Securities, which is based in New York "It also greatly expands our presence in northern California, which is critical for any investment bank competing for technology."

Thomas Volpe said Volpe Brown, "will be able to maintain and expand our focus on emerging technology companies, preserve our entrepreneurial operating style and deliver superior global distribution, after-market support and expanded product opportunities to our clients."

Prudential Securities has reported average daily volume of about 19 million OTC shares and 24 million listed shares. Volpe Brown has reported average daily volume of about 3. 5 million OTC shares and 439,000 listed shares.

Philip J. McConkey was awarded $10 million in damages last month by a jury that found that Frank G. Zarb, chairman of the National Association of Securities Dealers, lied to him about the sale of an insurance company that he had chaired.

The ex-Giant, who is best known for making the winning play in the 1987 Superbowl against Denver, had sued Zarb and the Chicago-based insurance company, the Aon Corporation, for $10 million.

McConkey removed Zarb as a defendant before the trial began. McConkey is now reunited – sort of – with Zarb. He is a consultant to the investment banking group and sales trading unit at Gerard Klauer Mattison, an NASD member firm in New York.

Deception

At the two-week trial before an Essex County, N.J. jury, McConkey charged Zarb, the former chairman and chief executive of Alexander & Alexander Services, an insurance brokerage firm, with deceiving him about the merger of Alexander & Alexander with Aon. The six-member jury awarded the former pro-football player $5 million in punitive damages, $3 million for lost wages, and $2 million for emotional distress. Aon plans to appeal the verdict.

Like many retired sports superstars, McConkey traded in his uniform for a business suit and became a successful sales executive. He served as vice president of the Ross & Company Insurance in Fairfield, N.J., where he built up a substantial client base.

Alexander & Alexander recruited McConkey in 1995. According to McConkey, Zarb made misleading

statements to induce him to leave his insurance job and join Alexander & Alexander. McConkey told the jury that he had heard rumors that Alexander & Alexander would be acquired by Aon. He wanted to be assured by Zarb that the merger would not go through before he left Ross & Company. He testified that Zarb told him that the rumors were "unfounded" and that Alexander & Alexander was "the predator, not the prey."

Zarb testified that he had met several times with Aon's chairman, Patrick G. Ryan, and discussed possible "business combinations." He said that "these were musings" and "none of it did get very serious." McConkey left his insurance job in May 1996 and started working for Alexander & Alexander. Seven months later, Aon announced it was buying the insurance brokerage firm for $1.23 billion. When McConkey first heard the news, he told the jury that "I felt as if I had gotten a helmet, full speed, in the stomach." He was fired from Aon in March 1997.

A spokesman for Zarb at the NASD said, "We're disappointed. At no time was McConkey misled."