CNBC "Business Center" News Story on Knight/Trimark 10/29/99

Sue: Investors who use computers to make their trades have a large and growing variety of firms to choose from. But those firms rely on a company called Knight Trimark, that's become on-line's, main line. Knight Trimark handles nearly half of all on-line trades making it the largest trading company in America in share volume. More now from Jim Paymar.

Announcer: From the sleek glass skyscraper on Wall Street west in Jersey City, Ken Pasternak, the CEO of Knight Trimark Securities, views Wall Street east in New York, and ponders the fact his company is making a run at the heart of the world's financial marketplace.

Kenny Pasternak: We started to see already in the early 90's the dramatic effect of PC-based trading.

Announcer: Knight saw that high volume, electronic, on-line trading was the future. Ameritrade, E-Trade and Waterhouse became backers in the venture.

Kenny Pasternak: We knew from our experiences with PC-based investors that they valued three things: immediacy, lowering cost dramatically and providing this guaranteed liquidity at their unit of trading.

Announcer: Knight averages 350,000 stock trades and about 300 million shares traded a day. But this computer mega-room can handle 1.25 million trades, and a billion shares a day.

Jim: What kind of investment are we talking about in here?

Kenny Pasternak: We spent, by year end we'll have spent about $50 million dollars just on hardware in this room alone.

Announcer: Here's how Knight works. You sit at your computer put in a buy order with your on-line broker, the trade order is routed to Knight. Knight matches that buyer via computer to a seller if a seller can't be found Knight provides the shares themselves to consummate the trade. The buyer at home gets an execution confirmation from their on-line broker and it all happens in under 3 seconds.

Kenny Pasternak: We're passing probably in excess of $10 billion worth of securities through the Knight Trimark exchange every day.

Jim: Knight-Trimark's growth has been nothing short of phenomenal. Today Knight trades more shares than the Chicago and American stock exchanges combined and trails only the NYSE and the NASDAQ in share volume.

Greg Smith (Hambrecht & Quist): I think they can continue to gain some market share, especially considering that the full-service brokers are going to move into the on-line trading world.

Announcer: Knight's share value rocketed this year from $3 to $81 but imploded back into the 20's.

Greg Smith: The first quarter and the second quarter were so good, I think investors tended to extrapolate that and I think many of the analysts did as well in their earnings estimates and it just truly wasn't a sustainable environment. So, third quarter came crashing back to earth.

Kenny Pasternak: We saw those rates moderate to again historic growth rates that we have always enjoyed which were 100%. So I think both the analysts and the management here again are quite pleased that we still are maintaining 100% year-over-year growth rates on volume.

Announcer: And volume is what Knight is all about. The company traded 55 billion shares so far this year. Double the volume last year. And now executes 40% of all on-line trades.

Kenny Pasternak: The average revenue cash for today was about 6 mills.

Announcer: 6 mills is 6/10th's of a penny. That seems minuscule. But multiplied by Knight's incredible volume, you get $544 million in revenues in the first 9 months of the year and net income of $109 million.

John Hewitt (President): We've been able to do our business on a scale that no one else has been able to achieve. We do more transactions than anyone else by a lot.

Announcer: And the scale, according to Knight, is tipping their way.

John Hewitt: In the world of US securities we could achieve a 20 percent-plus market share. We would hope we could get there within 3 to 5 years.

Announcer: The explosion in on-line investing world-wide is driving future growth.

Kenny Pasternak: Most experts think we could go to 25 to 30 million on-line investors by the year 2002. In addition to that, the foreign component, nobody's even started to measure that. It you look at the Far East and Europe it certainly could create an on-line population that potentially would be way in excess of 50 million investors. So we're starting to think about transactions in the millions, per day.

Jim: And Knight has big plans to expand their electronic trading operations around the globe; first to Europe, then to Asia. The company already owns a 19% stake in EASDAQ, which hopes to become Europe's NASDAQ. Knight also intends to acquire an options market-maker which could generate anywhere between $250 and $500 million to top-line growth, making Knight a billion dollar company after only four years in business.

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