Citigroup is gearing up to launch its own electronic communications network (ECN) to compete with the New York Stock Exchange and Nasdaq following its acquisition of e-trading network OnTrade from NexTrade Holdings.
The announcement follows reports that the bank was launching its own ECN that could steal some trading volume from the New York Stock Exchange and Nasdaq.
In a statement, Citigroup Corporate and Investment Banking (CIB) says it acquired OnTrade in an all cash transaction, but terms of the deal were not disclosed. However according to a Wall Street Journal report, which cites people familiar with the transaction, the US bank paid around $8m for the ECN.
Citigroup says the OnTrade ECN will operate in its current state while it performs certain technology enhancements, which are expected to be complete in the second quarter of 2006.
The bank says the launch of the enhanced ECN will provide market participants' with immediate access to the liquidity in all available markets.
Jim O'Donnell, head of US Equities, Citigroup, says: "In a time of significant changes in market structure, our goal is to create an ECN that provides execution flexibility for ourselves, other broker/dealers, and our respective clients."
The move follows Citigroup's recent investments in regional exchanges. Last year the bank, along with Morgan Stanley, UBS and Credit Suisse First Boston, invested in the Philadelphia Stock Exchange. Citi also invested in an all-electronic equities trading venture run by the Boston Stock Exchange.
Forthcoming regulations on fulfilling equity orders have sparked a wave of consolidation among established floor-based and electronic markets in the US. Nyse is acquiring the all-electronic Archipelago as part of a plan to introduce a 'hybrid' trading environment combining traditional floor-based trading with screen dealing, while Nasdaq acquired the Instinet ECN from Reuters.
James Forese, head of global equities, Citigroup, says: "We expect the new ECN will increase market efficiencies, deliver best execution, and reduce transaction costs to the industry as we move closer to the implementation of Regulation NMS and the Nyse Hybrid market."
The WSJ report says that the acquisition also could provide more revenue for Citigroup from distribution of market data, as under current rules ECNs can share the fees that exchanges collect for the supply of pricing information. If more trades happen on Citigroup's ECN, the bank can collect more of that revenue.