| 24 September 2009

TradeStation Securities Group (TRAD) announced today it will launch a new division called "TradeStation Prime Services" catering to small- to medium-sized hedge funds. The company expects first accounts to be up and running in a month.

The move is not surprising given TradeStation's position in the marketplace. They have long-served the hyper-active "pro-sumer" market consisting mostly of active investors trying to make a living off their trading activities. The TradeStation platform allows users to create end-to-end automated or semi-automated trading strategies for equities, options, futures and forex markets. The service appeals to both current and former professional traders who are highly active and require sophisticated and rapid order handling.

But TradeStation's traditional pro-sumer market has com under pressure lately as more niche brokerages are introduced and they continue to roll out more sophisticated tools. optionsXpress Holdings (OXPS) recently announced a desktop application, as did rivals OptionsHouse and tradeMONSTER. TD Ameritrade's (AMTD) newly acquired thinkorswim group has offered a powerful desktop application for years.

As a result, TradeStation has seen its core business decline. We recently reported that trading volume, a key metric for the company, has dipped to levels not seen in two years. Both operating income and net income for the company have been flat for the last several years.

The new Prime Services unit will be co-headed by Lance Baraker and William Katts, as senior managing directors. The firm hopes to take advantage of the recent tumult among traditional firms. “The downfall of many financial firms in 2008 has created a rare opportunity for another custodian to enter and succeed in the prime brokerage market," said Baraker.