Liquidnet Cuts About 12% of Staff Amid Slowdown

Liquidnet Holdings Inc., the trading platform used by institutions such as mutual funds to buy and sell large blocks of shares, eliminated 45 employees this week because of a slowdown in business.

The cuts were confirmed by Rich Myers, a spokesman for the New York-based company. Liquidnet had about 375 employees before the 12 percent reduction. The cuts were companywide, affecting trading, technology and transaction processing, he said.

“Liquidnet has taken some selective steps to reduce headcount, which reflects the overall slowdown in global equities trading,” the company said in an e-mailed statement. “Our continued focus is on our core trading business, while adding additional global trading markets and services that deliver competitive advantage to our buy-side community.”

Fewer than 5.8 billion shares changed on U.S. stock exchanges today, the lowest total of the year, according to data compiled by Bloomberg. Volume amounted to 8.7 billion shares a day in August, down 9.5 percent from a year earlier, and business in six out of eight months in 2010 was lower than the year before, the data show.

Liquidnet also eliminated jobs in January, dismissing 22 out of 408 employees. It began trading shares in 2001 and filed to sell up to $500 million in an initial public offering of stock in July 2008. The IPO was delayed by the financial crisis.

600 Funds

The firm has more than 600 funds using its platform, which allows customers to trade blocks of shares in two dark pools, or venues that don’t display orders publicly. It says it executed a daily average of 43 million shares in July, compared with 57 million a year earlier. The company counts each side of a transaction separately, unlike how exchanges track volume.

The firm also executes customer orders on exchanges through algorithms, or trading strategies that break larger buy and sell requests into smaller pieces. Liquidnet runs trading platforms in 36 markets including in Europe, South America and Asia.

Securities firms around the world will cut as many as 80,000 jobs in the next 18 months as revenue growth begins to slow, said Meredith Whitney, the former Oppenheimer & Co. analyst who now runs her own firm. The reductions will represent about 10 percent of current staff levels, she said in a report dated Aug. 31. She started Meredith Whitney Advisory Group LLC last year.

“If the current low volume levels persist, it certainly will raise the pressure on certain firms to cut costs,” Justin Schack, director of market structure analysis at Rosenblatt Securities Inc., said about brokers whose main business comes from their non-displayed venues. He added that he doesn’t see this as a harbinger for consolidation among all dark pools.

‘Strategic Value’

“A lot of dark pools are run by big brokers who derive strategic value from them and don’t operate them as entities that must financially stand on their own legs,” he said. The largest U.S. dark pools are Credit Suisse Group AG’s Crossfinder and Goldman Sachs Group Inc.’s Sigma X, according to Rosenblatt.

TH Lee Putnam Ventures, a venture capital and buyout firm created by Thomas H. Lee Partners and Putnam Investments, own 12 percent of Liquidnet, according to a November 2008 filing with the Securities and Exchange Commission. Chief Executive Officer Seth Merrin and his wife Anne Heyman had 30 percent. Michael Price of MFP Investors LLC, who ran some of the best-performing mutual funds in the U.S. during the 1980s, had a 4.4 percent stake. Price is on Liquidnet’s board of directors, according to Liquidnet’s website.

Rosenblatt Securities, which publishes a report about trading in dark pools, said Liquidnet executed 0.24 percent of total U.S. equities volume in its dark pools in July, down from 0.3 percent in March. Non-displayed venues accounted for 10.9 percent of equities volume in July, up from 10.5 percent a month earlier, the New York-based broker said.

“Moving forward Liquidnet’s strategic imperatives, which are improving our core trading business while adding additional services that benefit our buy-side members, remains unchanged,” Myers said. Liquidnet began trading securities in Mexico, New Zealand and Poland this year.

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