Citigroup Is in Talks to Purchase Automated Trading Desk

Citigroup Inc. is in advanced talks to buy Automated Trading Desk, an electronic trading firm, for about $700 million, according to people familiar with the matter. The purchase of the Mount Pleasant, S.C., firm could be announced this week, though details of the deal could still change. 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 deal would be the latest in a string of acquisitions for the world's largest financial-services firm by market value. Citigroup recently acquired the majority of Nikko Cordial Corp., Japan's third-largest brokerage, for more than $7.5 billion. The bank also recently bought hedge fund Old Lane Partners LP for nearly $800 million and late last year led a consortium that bought an 85.6% stake in China's Guangdong Development Bank for $3.1 billion.

Even as it pursues such deals, Citigroup is under intense shareholder pressure to show that it can grow from within. Faced with expenses that have been rising faster than revenue, the bank in April unveiled a cost-reducing plan that cut 17,000 jobs, or about 5% of its 327,000 world-wide head count.

Citigroup is trying to increase its market share in trading U.S. stocks while bringing under its roof computer programs that could improve its efforts to trade stocks overseas. Lawmakers and regulators are trying to encourage more electronic trading and competition among trading venues and exchanges, a move that can benefit investors by lowering commissions and improving execution speed.

Automated Trading Desk was founded in 1988 by two computer programmers and Rutgers University finance professor David Whitcomb. Using computer algorithms instead of traders, the company, led by Chief Executive Steve Swanson, makes razor-thin profit by buying and selling rapidly for itself and on behalf of clients. Employing only about 100 people, it handled about 6% of the trading volume in major U.S. stock markets last year, sometimes accounting for 200 million of shares traded per day.

Firms like ATD have become increasingly important, often executing orders anonymously for customers of online brokerage firms. Trading in less than a second, the firm often collects a tiny price, or spread, between where it buys and sells shares.