Dow Jones

NEW YORK -- Goldman Sachs Group Inc., in an effort to build the firm's market-making capabilities, is in talks to purchase Spear Leeds Kellogg LP, people close to the matter said.

Officials at Spear Leeds did not return telephone calls Friday. A spokeswoman for Goldman declined to comment, citing company policy.

In recent years, Goldman Sachs has kicked the tires of most of the major "wholesale" market makers, including Herzog Heine Geduld Inc., Knight Trading Group Inc., and Spear Leeds, people familiar with those overtures say.

While the deal is not final, people with knowledge of the talks said that the transaction could be announced as early as Monday and that Goldman could pay around $7 billion for the Spear Leeds.

Since the beginning of the year, Goldman has been looking into ways to expand its trading or market-making in Nasdaq stocks, Spear Leeds' specialty.

In June, rival Merrill Lynch & Co. snapped up Nasdaq market-maker Herzog Heine for $914 million in June.

"This is just another indication that market-making is critical to Wall Street firms," said Amy Butte, a securities-industry analyst for Bear Stearns Cos. "This is a deal Goldman needs to do to stay at the top."

In recent years, officials at Goldman have recognized that they must expand beyond their expertise in dealing with large institutional customers, and start to focus more on so-called retail clients - small investors who have become a force trading stocks, particularly those stocks traded on the Nasdaq market.

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