By Jonathan Spicer
* CEO expects up to 80 percent jump in DARTS in 12 months
* Says in “active discussions” to make acquisitions
* Sees benefit from thinkorswim deal
Lightspeed Trading, a platform which caters to day traders, expects fee-generating volume to jump up to 80 percent over the next 12 months as its clients get busy in volatile markets, its chief executive said.
U.S.-based Lightspeed, whose trading platform serves financial institutions as well, is also in “active discussions” with three or four parties about making an acquisition, CEO Stephen Ehrlich told Reuters on Tuesday.
“This whole market is a trading market, it’s not an investing market,” he said in an interview on the sidelines of a New York trading conference.
While many expect discount brokers to suffer as the financial crisis brings a decline in overall trading volume, Ehrlich expects the emergence of high-frequency day traders to extend Lightspeed’s three-year growth spurt.
“The volume is still there because the professional traders are still trying to find the ins and the outs that work for them in the market. They’re not going away, but the average mom and pop are probably sitting on the sidelines,” Ehrlich said.
Lightspeed recorded just more than 1 million daily average revenue trades, or DARTS, last year — more than double its 2007 volume and well above large discount brokers such as TD Ameritrade Charles Schwab Corp , which focus on the deeper pool of less-active individual traders.
Ehrlich said “volumes might dip a little” in 2009, but he still expects a 50 percent to 80 percent jump in DARTS in the next 12 months.
Industry DARTS soared to a record in October, during the steepest portion of the recent credit market-inspired sell-off. Volumes then dropped through December before bouncing slightly last month.
Lightspeed’s sales were about $110 million last year, with profit margins between 10 percent and 15 percent, Ehrlich said.
Under its basic service, the New York-based company charges $3.95 to trade 1,000 shares. Its clients are individual traders, proprietary traders and small- and mid-sized hedge funds trading equities, futures and options.
SHIFTING CLIENTS?
The CEO said Lightspeed has attracted more interest from clients of options specialist thinkorswim since the rival online brokerage agreed last month to be acquired by TD Ameritrade.
“We’ve definitely seen an uptick in requests for demos from thinkorswim customers,” Ehrlich said, adding it was too early to quantify how many new accounts that might lead to.
Tom Sosnoff, founder and president of thinkorswim, disputed this claim, telling Reuters the Ameritrade deal “has actually introduced thinkorswim to a whole new audience of institutional firms.
“We’re seeing the fastest growth of new customers in the history of this firm on the institutional side,” Sosnoff said when asked about losing customers. He added that January was thinkorswim’s busiest month ever, and Friday was the busiest day ever, for its institutional business.
The $606 million stock-and-cash deal for thinkorswim would give TD Ameritrade, the No. 2 U.S. online broker, a solid foothold in the fast-growing options business. [ID:nN08522872]
“From a customer perspective, there appears to be two different corporate cultures,” Ehrlich said of the takeover.
He added that Lightspeed and public peers such as TradeStation — seen as alternatives to the larger players — are “upsetting the apple cart of the more traditional online brokers.”
Ehrlich repeated that Lightspeed is always open to acquirers, but is now in talks to make an acquisition ranging from $5 million to $40 million. “We’re looking for broker-dealers that don’t have their own technology and that don’t own their clearing.”
The company may eventually offer its clients the services of registered investment advisors, or RIAs, but has not immediate plans to do so, Ehrlich said.
Lightspeed was purchased in 2006 from online broker E*Trade Financial Corp , Ehrlich’s former employer. Brokerages Schonfeld Group and Trillium Group Holdings are its major investors.
