Citigroup to Buy Leading Black-Box Trade Shop?

Consolidation of equity trading and execution activity took another step forward this week with reports that Citigroup is close to an agreement to buy an algorithmic trading firm said to account for 6% of U.S. stock market volume.

Automated Trading Desk is based in South Carolina and employs about 100 people. The Wall Street Journal reported Wednesday that Citigroup Inc. is in "advanced talks" to buy the 19-year old company for about $700 million.

"If completed, the purchase would represent a further push by the banking giant into the trading of stocks by computerized programs rather than by people," the newspaper said.

Like many black-box firms, Automated Trading Desk was founded by computer programmers and a finance professor. It does both proprietary and client business, using computer algorithms to profit from small price increments in rapid-fire trading. The firm handled about 6% of the trading volume in major U.S. stock markets last year and traded more than 200 million of shares on some days, according to the Journal.

Algorithmic trading has made major inroads in the past five years. All the top Wall Street firms are looking to expand their capabilities in this area, either by acquisitions or internal development. Along with advancing technology, the trend reflects institutional investors' efforts to minimize trading costs and a long-running SEC campaign to forge links among stock exchanges.

Earlier in June, Bank of New York's BNY ConvergEx brokerage unit agreed to acquire LiquidPoint, a leading player in algorithmic execution of equity options.

Global banks' undisguised appetite to acquire electronic trading, order routing and execution platforms, is prompting speculation that the independent agency model of trade execution might be on its way out.