11/1/99 Web Fin. (Pg. Unavail. Online)
1999 WL 17598809
Web Finance
Copyright 1999 Securities Data Publishing
Monday, November 1, 1999
Was the Third Quarter Bar Too High?
Howard Stock
Third quarter analysts' estimates for online broker dealers may have
set the bar too high for companies in a perversely seasonal sector (See
WebFinance, 10/18/99), according to Knight/Trimark Group, Inc. EVP, CFO
and Treasurer Robert Turner.
"We cautioned analysts not to model third-quarter earnings based on
the high watermark of the second quarter. Many of the analysts did not
consider the possibility of two Federal rate hikes, seasonality and a
major correction in the Internet sector," Turner said.
Curiously, despite missing its analysts estimate by 11 cents in the
third quarter, the company saw revenues grow by 49% and net income
increase by 66%, figures that were swallowed up by concerns over the
sickly online trading sector.
Knight/Trimark is trying not to get caught in the same trap again.
Although its core business is still retail investors, the company is
setting up shop in Europe in an effort to bolster itself against a
potentially choppy market.
So far, the market maker has acquired 19% of the new pan-European
exchange Easdaq, making it the largest owner. The company also plans to
buy into the first electronic equity options exchange, the International
Securities Exchange, which is due to open next near.
"We're very bullish about the company's long-term growth prospects.
The anticipated growth of online trading and the growth of our
institutional business will fuel the growth of the U.S. equity trading
business as well," Turner said.
But this type of consolidation may be an indication that all is not well in the markets at the moment.
Increasingly reduced trading costs
are creating unsustainably high trading volumes which have produced an
environment totally dependent on liquidity to survive-which is
precarious at best, according to a report by Salomon Smith Barney
Analyst Guy Moszkowski.
As middlemen in the trading process, broker dealers and market makers
will have to consolidate to survive as spreads continue to be squeezed.
Eventually, larger dealers will stop making markets in certain
securities which will mean that smaller dealers will find it difficult
to compete. Electronic communication networks like MarketXT will start
picking up the slack by capturing smaller orders. Larger orders will be
dealt with by firms with enough capital to facilitate the order which
will necessitate further M&A action, the report predicted.
The trend has already begun. Between 1997 and 1998, the number of
market makers dropped from 530 to 478. By 2005, this figure is expected
to have dropped to 350, according to the report.
---- INDEX REFERENCES ----
COMPANY (TICKER): NITE (NITE)
INDUSTRY: Securities (SCR)
Word Count: 409
11/1/99 WEBFINANCE (No Page)
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