Two Day-Trading Firms to Merge Ops

NEW YORK (AFX) - Two brokerage companies that cater to active traders are joining forces to create a company that will be a large player in the day-trading business.

In the deal announced Thursday, Schonfeld & Co., the retail-trading unit of closely held Schonfeld Group Holdings, will merge with Lightspeed Professional Trading, a unit of Lightspeed Holdings. The transaction will create a company that will operate under the Lightspeed name, with about 680 active trading accounts, $250 million in customer assets and generating about 100,000 trades a day.

Terms of the deal weren't disclosed, but New York-based Schonfeld Group will be a major shareholder in Lightspeed Holdings. Also headquartered in New York, Lightspeed Holdings acquired the professional-trading business of E-Trade Financial Corp. in July.

The customers of Schonfeld and Lightspeed include many highly active individual traders, who often move in and out of positions in stocks in search of quick trading profits. Day trading gained notoriety during the market boom of the late 1990s, as the lure of stock-market riches led many individuals to try buying and selling shares full time.

But many of these traders had scant experience and were ill-prepared for the swings of the market, especially after stock prices began to retreat. Many novices lost money and were washed out of the business and day trading's appeal faded. Regulators also took notice and brought actions against the day-trading business.

Despite their lower profile, there are day traders who survived and are still working, whether as employees of brokerage firms or, as in the case of the clients of Schonfeld and Lightspeed, by trading their own money. 'The people that are left are the people that know how to make money in the up markets and down markets,' said Lightspeed Holdings Chief Executive Stephen Ehrlich.

After the Lightspeed deal is completed, which is expected to happen later this year, Schonfeld Group will concentrate on its other businesses, which include proprietary trading and asset management. Andrew Actman, chief executive of Schonfeld & Co., will join the management team at Lightspeed.

Ehrlich and Actman said they continue to see potential in servicing individual traders and also see an opportunity in small- to mid-size hedge funds, which they argued are overlooked by the big Wall Street firms. Schonfeld Group has had scrapes with regulators in the past, including fines related to day-trading activity. Ehrlich and Actman said Lightspeed is committed to compliance with regulations.

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