The following article, according to the YHOO thread, was written by an analyst by the name of David Peltier on 7/22/99.
ARTICLE:
Prior to its IPO, the market maker was 40% owned by management and 60% held by a consortium of 27 small broker-dealers. The lockup on insider selling has just ended, and selling by the beneficial owners has been very small in light of the obvious chance for profit taking.
In 1998 40.6% of the orders executed by Knight came from its beneficial owners, a number that has risen sequentially in the company's four years of business. Knight formerly had an incentive program in place to help bring in business from its brokers, but this was discontinued following the IPO.
As the the brokers reduce their holdings in Knight, it begs the question: will they still continue to use Knights transaction services?
The answer is yes. Knight owns the lion's share of the Nasdaq/OTC market making business, executing 18.5% of all trades (340,000 daily). Knight is not only the largest market maker, but also arguably the best. The company offers its customers unmatched service and liquidity in over 7,000 securities.Knight already has superior technology, capable of executing 1.2 million trades daily. The Company is currently implementing a system that will allow it to process up to 5 million trades per day.
Changes in the industry landscape have reduced spreads, making the transaction business unprofitable for larger brokerages (Merrill Lynch, Goldman Sachs, Salomon Smith Barney). While the online brokers are fighting tooth and nail for commissions, Knight is taking advantage of abandoned market share. Knight's operating efficiency has allowed them to seize those businesses neglected by the traditional houses.[This is, I think, my concept of outsourcing!]
Don't look now, but institutions such as mutual funds and pension funds are starting to use Knight's services as well. The company has boosted sales from institutions by 325% since June, 1998.
Trimark Securities deals with exchange-listed stocks that are traded on the New York Stock Exchange and the American Stock Exchange. That fast-growing segment is now the third largest in terms of market share.
To boost international sales, Knight has opened a London office, which will allow the company to gain from the increased volume of American stocks in Europe. That should help pave the way for the companys broader global foray.
Knight is actively involved in the launch of the International Securities Exchange (ISE) - a newly proposed electronic options exchange. The new exchange will compete with the four major existing options markets and will have an automatic efficiency advantage over the pit traders in Chicago and Philadelphia. The market is slated to begin operations in early 2000
Southwest Securities' Darren Lewis agrees that entering the options market (refer to part 2) would help Knight in its plan to "capture a hold on the domestic market". Lewis also cites international expansion as a key growth driver.
With $2.51 per share of cash in its coffers and a high-priced stock (ok - this article was written in July), Knight may also be on the acquisition trail. And any acquired properties are sure to get a boost from Knights technological superiority.
Bottom Line:
Knight/Trimark is well on its way to becoming the next financial services powerhouse. As the company continues to build market share, profit growth should remain robust |
