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MSDW, OM Group Remove Borders to Pan-European Online Exchange

Calling its new online exchange the first fully integrated stock exchange, Sweden's OM Group and Morgan Stanley Dean Witter (MSDW) Tuesday outlined plans for a pan-European trading venture valued at 100 million euros ($99 million).

The London-based Jiway venture will offer smaller investors access to and processing for more than 6,000 U.S. and European shares, and operations are expected to begin in September. Costs for pan-European trading will be cut by at least 50 percent in most markets, according to Jiway. The two companies expect 50 percent of all Europe-based online trades to be executed through Jiway within the next two years.

MSDW (MWD) will hold a 40 percent stake in the company, while OM Group will control the majority 60 percent holding. The service will initially be available in the U.K., Sweden and Germany, with rollout to brokers in France, Switzerland, Italy and Holland by 2001. The company is currently pursuing Recognised Investment Exchange status in the UK.

"OM and Morgan Stanley Dean Witter both see a huge demand for cross border and online trading as well as increased trading by private investors," Per E. Larsson, board director of Jiway and chief executive officer of OM Group. "Jiway will be designed to meet these demands perfectly by offering dramatically reduced trading and settlement costs, a single access point to the markets, liquidity from day one, handling of different currencies, custody and corporate action services, extended opening hours and anonymous trading."

Jiway has created a central settlement and execution facility to combat the cross-border currency problems that have plagued previous efforts to trade throughout Europe. However, brokers are not required to use the company for both settlement and execution. The company has also established a Market Makers system which will guarantee liquidity for orders under 50,000 euros ($49,315).

At early stages, only trade equities will be offered, though its system will be designed for the option of including new products in the future. Jiway traders says it will also allow local brokers to sever multiple exchange memberships. The system would also be able to respond to market suspensions.

Jiway also claims because its main function is to add liquidity to the market, it will achieve success regardless of whether it evolves into a major exchange or if it develops as "part of a mix" of exchange services.

The move gained support from E*Trade Europe Managing Director Johan Brenner, who said that any effort to counteract the currently "difficult, bureaucratic and expensive" process of cross border trading "must be goods news." E*Trade is looking to create cross-border trading on a global level, and in October invested in the The European Association of Securities Dealers Automated Quotation (EASDAQ) to further this goal. Nasd is also looking to create a European exchange, while Tradepoint also shares global trading ambitions.

This won't be the first time that the Swedish group forms an exchange. The company created the OM Stockholm Exchange in 1985, and claims the market to be the first commercially operated exchange. An OM London Exchange and OM Fixed Income Exchange followed.

The company said that it had initiated similar online venture discussions with other European exchanges as early as September 1998, but felt that projects with these candidates would not be able to substantially lower the cost of trading.