U.S. Investors May Soon Be Able To Buy Foreign Stocks Via the Net
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
July 19, 1999
interactive.wsj.com
E*Trade Group Inc. envisions a day in the not-so-distant future when U.S. investors will be able to sit down at their computers and trade stocks in financial markets around the world.
The No. 2 online broker is working on an ambitious plan to turn the world into one big exchange in three to five years, allowing investors from the U.S. and abroad to make trades in international markets over the Internet.
Currently, U.S. investors can't buy stocks in foreign markets with the click of a computer mouse. Operational and regulatory obstacles have deterred online brokerage firms from offering such access.
A U.S. investor wanting to invest in stock that trades on a foreign exchange either does so through mutual funds or by going through a full-service broker.
But analysts say E*Trade's purchase last week of TIR Holdings, a Cayman Islands trade-processing company which operates in 35 countries, should go a long way in helping the firm offer foreign trading online to U.S. clients.
Indeed, E*Trade views the purchase of TIR as part of its grand scheme to create a global trading network that would allow investors -- including those in the U.S. -- to buy stocks in any financial market over the Internet.
"A U.S. investor will be able to make a trade in Japan, and it would be just as if he were trading on a U.S. exchange," says Greg Xenakis, an E*Trade spokesman. "And we're not just talking about Japan. You can trade anywhere."
Analysts say TIR, which has seats on multiple exchanges, will give E*Trade the expertise and infrastructure to process trades in foreign markets. TIR also is familiar with regulatory requirements in the various countries and could help E*Trade sort through that maze.
Moreover, the TIR purchase should help the firm address major U.S. regulatory barriers.
Currently, because most stocks that trade on foreign exchanges aren't registered with the U.S. Securities and Exchange Commission, U.S. brokers are prohibited from offering them directly to their clients. Firms that offer them usually do so through a foreign intermediary.
"A U.S. firm would need to use an affiliate in another country to actually execute the trade," says Duncan King, a spokesman for the SEC. "It sounds like now after this E*Trade purchase they are not only a member of U.S. exchanges but also have memberships on other exchanges. It gives them an instant affiliate."
E*Trade points out that the TIR purchase is only the beginning of its broad plan to develop international trading.
Nevertheless, Dan Burke, a senior brokerage analyst at Gomez Advisors in Concord, Mass., says E*Trade will still face a tough road with regulations and in integrating various markets into a seamless trading system.
"There are several thorny issues here," Mr. Burke says. "Still, I think this is a very smart move for E*Trade. They've got time to work these things out."
E*Trade's $122 million purchase of closely held TIR comes at a time when several brokerages are angling to allow foreign investors to trade in U.S. markets -- and, eventually, to allow U.S. firms to trade internationally.
TIR is experienced at handling complicated back-office operations, which includes clearing and settling trades from different international exchanges and in different currencies.
Mr. Burke points out that while it may take some time for U.S. investors to warm to the idea of trading on global markets, there's no question that substantial demand exists for trading between foreign investors and the U.S.
"The TIR deal doesn't exactly give them carte blanche to set up alliances across Europe and the rest of the world, but it could give them an edge over the competition," says Mr. Burke.
Mr. Burke says there's no question that investors are beginning to become interested in trading in global markets, and says that interest could explode if U.S. markets take a turn for the worse.
"Right now we are in what has roughly been an eight-year bull market. What if that were to change?" he says. "E*Trade would be in a position where its clients who did not want to trade here could trade in a market where things are performing better."
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Write to Jason Anders at jason.anders@news.wsj.com |
