Goldman Sachs to Buy Stake In DirectEdge ECN

Goldman Sachs Group agreed to purchase a minority equity stake in DirectEdge ECN, its parent Knight Capital Group announced today. Goldman will join Citadel Derivatives Group LLC, an affiliate of Citadel Investment Group, LLC, which purchased a minority equity interest in DirectEdge ECN in a transaction that closed on July 23, 2007."Direct Edge has quickly become a major market center for U.S. equities by virtue of its innovative market model and competitive pricing schedule," stated Greg Tusar, managing director at Goldman Sachs in the release.

At the same time, Citadel Derivatives Group intends to increase its ownership interest in DirectEdge, though the amount was not disclosed. Both transactions will pay the way for Direct Edge to become independent of its market making parent. After the closing of the Goldman Sachs transaction and the increased investment by Citadel Derivatives, Knight's ownership in Direct Edge will be reduced to below 50 percent. As a result, DirectEdge will no longer be a consolidated subsidiary in Knight's financial results, said the release.

"Upon closing, DirectEdge will become an independent entity which we believe will increase the ECN's value as a trading destination for all market participations," wrote William O'Brien, CEO of DirectEdge in an email to subscribers today.

In July when Knight Capital announced the Citadel Investment, John Howard, CFO of Knight Capital said the strategy was to attract a consortium of direct investors to grow the ECN's volume to the next level. The strategy is similar to that of BATS Trading which has taken on several strategic investors and announced plans to become an exchange.

In recent weeks, with the volatility in the stock market increasing, trading volume on DirectEdge reached more than 443 million shares on July 26, 2007 and averaged 380 million shares per day in August to date, noted the release. That's up from July when trading averaged more than 200 million shares a day, and had a high of 299 million shares on June 26, 2007.

In his email, O' Brien said "DirectEdge will continue its development as a major market center by focusing on providing liquidity, anonymity and greater trading and flexibility to all market participants."Goldman Sachs Group agreed to purchase a minority equity stake in DirectEdge ECN, its parent Knight Capital Group announced today. Goldman will join Citadel Derivatives Group LLC, an affiliate of Citadel Investment Group, LLC, which purchased a minority equity interest in DirectEdge ECN in a transaction that closed on July 23, 2007. 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