From the National Post
Wednesday, April 21, 1999
Bid.Com becomes new plaything for arbitrageurs
Not for average investors
Garry Marr
Financial Post, with files from Ian Karleff
On its first day of trading on the Nasdaq Stock Market, shares of online auctioneer Bid.Com International Inc. showed some of the volatility typical of Internet plays.
With a session high of $17 (US) and low of $11 1/8 (US), and almost six million shares changing hands, some brokers were suggesting the quick price shifts and liquidity of the stock could make it a perfect arbitrage opportunity.
In this case, arbitrage would apply to profiting from price difference on the Toronto Stock Exchange and Nasdaq once exchange rates are factored in. Arbitrageurs, whose selling prices are higher than the buying prices, help to bring markets together.
"On any volatile stock there are definitely arbitrage opportunities," said Steve Horrocks of Charles Schwab Canada. "Right now it's a good opportunity, how long it will last depends."
Following its inclusion in the Toronto Stock Exchange 300 composite index and anticipation of a Nasdaq listing, first applied for in mid-February and officially announced Monday, Bid.Com climbed as high as $32.35 on April. 18. It was a far cry from the 56¢ a share the stock traded at on Oct. 19.
"The spreads are pretty tight on both sides of the border. It's not going to be huge a spread. It's moving so fast you have to be right in there to make anything on it," Mr. Horrocks said.
That rules out average investors making a dime on the spread, even since the advent of electronic trading.
"It's easier but you're still out of the game as far as being an arbitrageur. You need instant access to both markets. Your average trader doesn't have that."
William Riedl, president of Fairvest Securities Corp., says the "small investor does not stand a chance" at making a profit on arbitrage.
"The system is so much slower than if you're in a professional's trading room where you can be trading directly live on two terminals and you can do the buy and sell where there is only a nanosecond in between."
A Toronto-based broker, who did not want his name used, said he did not think Bid.Com would be such a great arbitrage opportunity over time.
"The volatility on Bid.Com was that everybody [was] anticipating Nasdaq to create new wealth. Then there was the anticipating going into the TSE 300 index," said the broker, adding the stock was way ahead of itself.
"I don't know there will be a guaranteed market flow. Nasdaq is a very competitive marketplace; every day there is another new Internet play. There is only a finite group of people that will trade these stocks."
The fact that America Online Inc. has reduced its stake from 5% has made people realize the U.S. marketplace does not endorse the stock, the analyst said.
Separately, the latest Ontario Securities Commission insider trading bulletin shows Paul Godin, Bid.Com chief executive, sold 85,000 shares for prices ranging from $6.10 to $6.25 between March 15 and 17, to leave him with 847,500 shares and no warrants.
nationalpost.com
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