Privately held Tradescape said it plans to merge MarketXT, which allows individuals to trade stocks past the close of regular trading at 1 p.m. PST, with its own systems for stock processing. Tradescape said it signed up a string of Wall Street firms, including Morgan Stanley Dean Witter, to back the combined company.
"This acquisition represents another step in our long-term strategy to provide next-generation trading," Omar Amanat, Tradescape's 27-year-old founder, said in a statement.
MarketXT, formerly known as Eclipse trading, operates an electronic communication network (ECN), which matches buy and sell orders from investors. The company, founded by former Instinet and Reuters Group executive Michael Sanderson, started extended trading sessions for individual investors last summer.
Tradescape, which caters to the heavy traders online, likely acquired MarketXT for the company's ECN, analysts said.
New York-based Tradescape had been farming out much of the trading duties to outside ECN's, said Jupiter Communications analyst Robert Sterling. In the highly competitive active trading market, Tradescape needed to cut costs, and operating its own network was a way to do that, he said.
"The statistics show that the number of heavy traders is falling," Sterling said. "Jupiter believes by the end of the year 2000, only 8 percent of traders will be classified as heavy. This niche is growing much more slowly than the average online trader."
Competitors in the active trading market include CyberCorp, which was acquired by Charles Schwab last week, and Datek Online.
However, Dan Burke, a senior analyst at research firm Gomez Advisors, calls Tradescape the segment leader, overseeing about 150,000 transactions a day. Acquiring New York-based MarketXT will let it funnel its active trading business directly into MarketXT's network, he said.
"This will allow them to get to critical mass more quickly than using someone else's (ECN)," Burke said.
Tradescape also designs software to help investors trade online.
Reuters contributed to this report.