Texan Investors to Buy 40% Stake in TradeCast

Wealthy Texas oil investors Sid and Lee Bass said Wednesday that they’re shelling out $40 million to buy a 40% stake in day-trading software firm TradeCast Ltd., marking the second big deal between a prominent investment concern and a firm with roots in the day-trading industry.

Houston-based TradeCast, which supplies trading software to about 100 broker-dealers, started in January 1996 to develop software for day traders. As electronic communications networks, or ECNs, have emerged in the last year to provide new ways for professional investors to execute stock trades, institutions have become interested in the advanced software created for day traders.

In June, Japan’s Softbank Corp. and a U.S. private-equity firm paid a total of $40 million for minority stakes in day-trading software firm Tradescape.com. A number of large Wall Street investment firms, including Lehman Bros. Holdings and Reuters Group’s Instinet, have held discussions about buying into day-trading software firms.

TradeCast said it would use the cash infusion to expand its online brokerage operation, TradeCast Securities. Its goal is to lure high-volume online investors from rivals such as E-Trade Group and Charles Schwab Corp. Among other features, its software lets investors complete trades directly over so-called ECNs rather than going through a “market maker,” as online trades have been done historically.

“We pick up where E-Trade leaves off,” said Jim Howell, TradeCast chief executive.

There is a large group of individual investors who don’t want to be day traders, but who trade frequently enough that they would be drawn to TradeCast’s software tools, Howell said.

However, E-Trade and other firms have unveiled special services and commission rates recently in bids of their own to lure active traders.