Happy Mothers' Day
Here is an article that will help with what the Count was posting about.
thestreet.com
CNBC-Archipelago Deal Gets Fuzzy Reception
By Caroline Humer
Staff Reporter
9/14/99 7:00 PM ET
Archipelago, the Chicago-based electronic trading system that has applied to become a stock exchange, enlisted another prominent investor Tuesday.
And if all of its other big-time brokerage and investment bank partners didn't turn heads, the new one certainly has.
Omnipresent financial news channel CNBC plans to buy a 12.4% stake, in a move that shows exactly how popular investing in alternative trading systems has become. But it also has raised some questions about how close a financial news company can be to the business it covers.
By investing in Archipelago, CNBC joins a partnership that includes, among others, E*Trade (EGRP:Nasdaq - news), Goldman Sachs (GS:NYSE - news), Reuters' Instinet, Merrill Lynch (MER:NYSE - news) and J.P. Morgan (JPM:NYSE - news).
Who's Who in Electronic Trading
ECN Partners
Archipelago Goldman Sachs - 12.4%
J.P. Morgan/American Century Investment - 12.4%
E*Trade - 12.4%
Southwest Securities - 1%
Gerald Putnam - 12.4%
Townsend Analytics -12.4%
Instinet - 12.4%
Merrill Lynch - 12.4%
(CNBC 12.4% stake pending)
Island Datek Online Holdings
(TD Waterhouse 12.5% stake pending)
Instinet Reuters
Tradebook Bloomberg
REDIbook Spear, Leeds & Kellogg - 25%
(DLJ, Fidelity, Charles Schwab 25% stakes pending)
(ECN to be re-registered with SEC under new name)
BRUT Morgan Stanley Dean Witter - 10%
Merrill Lynch - 10%
Goldman Sachs - 10%
Knight/Trimark - 14%
Automated Securities Clearance or Sungard Data Systems
Strike Technologies Consortium of about 25 shareholders including Bear Stearns, J.P. Morgan, Susquehanna, Cantor Fitzgerald
Attain All-Tech Investment Group
NexTrade Privately owned
Other Trading Systems
Posit ITG
Optimark Dow Jones, Softbank, Goldman Sachs, Merrill Lynch, American Century
Primex Morgan Stanley, Salomon Smith Barney, Merrill Lynch, Goldman Sachs, Bernard L. Madoff Securities
MarketXT Morgan Stanley, Salomon Smith Barney, Herzog Heine Geduld, Polaris Venture Partners
Electronic trading systems, already on the to-buy list of securities firms since late last year, have gotten headlines in recent weeks as they pioneer the nascent after-hours trading market. Both the New York Stock Exchange and Nasdaq stock market are in the background, waiting until next year to start after-hours trading.
So it's easy to see why CNBC, which has closely covered this new after-hours trading market, would be interested in buying one. CNBC is owned by NBC, which is owned by General Electric (GE:NYSE - news).
"It makes sense from both a financial and strategic point of view," said one analyst who asked that his name not be used. "But I also think it brings up some potential conflict-of-interest questions."
Archipelago head Gerald Putnam says he's not concerned with that question. "CNBC's core business is reporting on financial news. It's impossible that they would compromise that."
CNBC won't be the first media company to own an electronic trading network. Bloomberg owns Tradebook, a medium-sized electronic communications network; Dow Jones (DJ:NYSE - news) owns a piece of Optimark, a small alternative trading system; and Reuters (RTRSY:Nasdaq - news), the U.K. news giant, owns Instinet, which runs the original and largest electronic order matching system in the United States.
"It doesn't seem to me any more weird than Dow Jones buying a stake in Optimark," said William Freund, director of the Pace University Center for the Study of Equity Markets and a former NYSE chief economist. "I don't see any conflicts that arise."
But weird is exactly how some analysts and one competitor described it. Unlike Bloomberg, Dow Jones or Reuters, CNBC is extremely mainstream in the investment community, seen on the desktops and televisions of not just institutional investors and corporate executives but retail investors, too.
It's available in 70 million households in the U.S and its power in the markets in unmistakable. A quick trip through Internet bulletin boards shows momentum traders hoping to make money off a pop related to an executive's appearance or story on CNBC, even if the story never aired. As such, analysts say CNBC will have to tread carefully.
Andrew Schwartzman, president of the Media Access Project, says the investment raises troubling ethical issues for CNBC. While Schwartzman says the network has done a good job of pointing out its ties to corporate parent General Electric whenever it airs stories that concern GE, he wonders whether CNBC will disclose that it is now partners with several big investment banks every time it discusses them.
"It's very hard for that disclosure to take place in the kinds of relationships they have here," Schwartzman says. As for Reuters' ownership of Instinet, Schwartzman quips that "two wrongs don't make a right. If your mother jumped off an ethical bridge, would you jump, too?"
A CNBC spokesperson says that the company will cover Archipelago just like it covers any other company. It will use Archipelago content the same way it uses other data from the NYSE, Nasdaq, Instinet, Island and MarketXT, he says.
The purchase is a strategic one, he said, related more directly to CNBC's business than any of the other GE companies. "NBC is actively getting involved in the Internet distribution of information. This is a business-related thing, a business-related financial Internet company. That's why it would be a CNBC investment, not an NBC or a GE investment."
-------------------------------------------------------------------------------- |
