WITC and NITE
It's an e-eat-e world
Electronic distribution of capital ruffles Wall Street
By Thom Calandra, CBS MarketWatch
Last Update: 1:03 PM ET Jun 10, 1999
Also: Options Watch
NEW YORK (CBS.MW) -- It's an e-eat-e world. E for e-loans, e-offerings, e-banks,
ECNs, e-commerce.
In the cozy world of corporate finance, the electronic
delivery of capital is rumbling through New York, London,
Boston and San Francisco, where lawyers, bankers and
executives at one very large stock exchange at the corner
of Wall and Broad streets are looking nervously over their
shoulders.
Waiting for the other e-shoe to drop.
The Island ECN, the electronic communications network
controlled by Datek Holdings, says it doesn't expect the
Securities and Exchange Commission to rule on its
application to become a self-regulated stock exchange for
a year or more. Still, Island, the second largest electronic
trading network for stocks in the United States, could
become the first new U.S. exchange in 25 years.
Investment banker Sandy Robertson's
www.eoffering.com, which offers 50 percent of all the
IPOs it underwrites to E-Trade customers, this week
opened its indication book for the first time for secondary
shares of Web lender First Sierra Financial. E-broker
E-Trade (EGRP: news, msgs) owns a piece of e-offering.
The underwriting of shares, because of Robertson, Bill Hambrecht and other
pioneering bankers, is becoming less of a Wall Street undertaking and more of a
Main Street one.
Oh, and those e-brokers. And ECNs. And e-bankers.
"Be not afraid," an E-Trade television ad advises. Tell that
to the bankers whose birthright was splitting 7 percent
underwriting fees for a conventional IPO. After all, who
needs a syndicate to distribute freshly scrubbed
securities when you have a World Wide Web?
Putnam, Lovell, the San Francisco investment banking
firm that advises financial services companies, says nearly
all investors will use the Internet to access their accounts
in coming years. "The barriers to entry are low but barriers to success remain high,"
Putnam, Lovell analyst Gregory Smith said.
'Brutally efficient marketplace . . . '
Wit Capital (WITC: news, msgs), the maverick banking firm armed with a Web site,
hopes to initiate 24-hour trading later this year. Wit distributes small pieces of IPOs
to individual investors.
The largest Nasdaq market maker, Knight-Trimark (NITE: news, msgs), says it will
unveil a Web site for trading this autumn. "We think there will be a tremendous
opportunity to take business away from the New York Stock Exchange,"
Knight-Trimark's executive vice president Walter Raquet this week told West Coast
fund managers in San Francisco.
The best remark I have seen recently about this e-eat-e world came from Bob Gold,
a New York City consultant at Transaction Information Systems. The Internet's
"brutally efficient marketplace . . . will switch the power from the sell-side to the
buy-side," Gold told CFO magazine. Touché for the buy-side -- the individual
investors and the mutual funds, trust funds and pension funds that represent them.
Next week, a group of traditional bankers and their e-counterparts will talk about
their hopes, their fears, maybe their birthrights. Former Apple Computer CEO
(AAPL: news, msgs) John Sculley will discuss his role as a so-called venture
catalyst. Sculley and his two brothers, Arthur and David, run an investment capital
firm that has sunk money into 20 companies in Israel, Bermuda, New York and
Silicon Valley.
Sculley will be joined at a New York City breakfast meeting Tuesday by Carolyn
Buck Luce, national director of e-commerce for Ernst and Young. Buck Luce spent
17 year in investment banking and consulting.
Also attending the 8 a.m. panel at the Harvard Club will be John Forlines III, a
managing director at J.P. Morgan and Co. (JPM: news, msgs). J.P. Morgan
Thursday said it would buy 20 percent of the ECN Archipelago. For J.P. Morgan, it
is the first foray into the world of U.S.-based ECNs, which trade largely Nasdaq
stocks. J.P. Morgan has a stake in Tradepoint Financial Networks PLC, a British
ECN.
Wall Street institutions, looking over their shoulders, are shelling out tens of
millions for these ECNs and other alternative trading systems, which account for as
much as a fifth of all U.S. stock trades. This week, Madoff Investment Securities, a
top market maker, linked with Merrill Lynch (MER: news, msgs) and Goldman Sachs
(GS: news, msgs) to form Primex Trading, a platform to trade stocks using an
auction system. See the story.
Waterhouse Investor Services, the third-largest Internet broker, owns a 12.5
percent piece of the Island ECN. Microsoft co-founder Paul Allen's venture fund is
investing $25 million for a 12 percent stake in Island ECN And so on. See related
story.
Rounding out the panel next week, Wit Capital Chairman and CEO Robert Lessin is
sure to ruffle some starched white shirts at the breakfast, which is free. Lessin sits
on the board of MarketWatch.com, the publisher of this Web site.
IntraLinks Inc., a Web-based deal management service for global capital markets, is
the sponsor of the breakfast. For more information, send an e-mail to
courtney@middleberg.com. I'll be moderating the event between bites of e-muffins.
AOL Live Market Chat: Thom Calandra talks markets, stocks and the economy
on America Online's Live Market Chat each Friday at 2:30 p.m. Eastern time. Sage
Online runs the discussion.
Thom Calandra is CBS MarketWatch's editor-in-chief. See our new MarketWatch
partner, www.bigcharts.com.
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