pristine.com
November 18th, 1999
Pristine.com Co-Founders: Say Goodbye To Market Middlemen
By Sean Davis
Dow Jones Business News
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Pristine.com Co-Founders:
Say Goodbye To Market Middlemen
NEW YORK -(Dow Jones)- Oliver L. Velez and Greg Capra have a simple conviction: Before long, most investors will have direct access to a single, electronic stock market. When that time comes, say these two deans of the day-trading business, investors will need teachers, not brokers. Of course, that's what you'd expect Velez and Capra to say. Their business, Pristine .com of White Plains, N.Y., is all about training and advising active traders. Their daily newsletter, The Pristine Day Trader, first appeared in 1992, and since then Pristine .com has expanded to include seminars, tutoring and a live Internet chat room for day traders. Velez and Capra aren't the only ones to see this trend, which is known on Wall Street by the fancy word "disintermediation."
Thanks to fast, smart computer networks, buyers and sellers now can find each other without the help of middlemen - and without paying the vigorish that middlemen charge for their services. Some people, including Velez and Capra, think this could lead to a fundamental change in the structure of the financial markets.
"In the past, markets were structured in a way where a few large players could float the ship," Velez says. "In the future, if we go global with our market, you need the individual to support the market. They are the future liquidity providers. They take the place of these large elements, and now a billion molecules are more efficiently holding up the ship."
In a world with a single, largely invisible market matching buyers and sellers without middlemen, what investors will need most is education, and that puts companies such as Pristine .com in the catbird seat, Velez and Capra believe. "Okay, everyone has access," Velez says. "What do you do with this access? How do you become, with this access, an intelligent market player?"
A Tale Of Two Swing Traders
Velez and Capra are a bit of an odd couple. Velez, a 33-year-old Brooklyn, N.Y., native, is the more outgoing of the two. He was keynote speaker at the first trade show for day traders in September, and will reprise that role at the next gathering in New York in February. Capra, 42, of New City, N.Y., is soft-spoken, but that belies his intensity about trading. He largely stays out of the spotlight, focusing instead on the company's training and mentorship programs.
Velez and Capra, both long-time traders, advocate swing-trading, a form of trading in which the investor holds a stock for two to five days. That sets them apart from the typical day trader, who may sell a stock just a few minutes after buying it in order to profit from a small change in its price.
What Capra and Velez do have in common with most day traders is a devotion to direct-access trading. Instead of routing orders through a broker, the direct-access trader interacts directly with other buyers and sellers, using sophisticated trading systems formerly reserved for professionals. (Online trading, as it is practiced by most people, isn't direct-access trading; the investor essentially e-mails his order to a broker, who maintains control over where the order gets filled.)
So far, only day traders have embraced direct-access trading in meaningful numbers. But if direct-access trading becomes a mainstream pursuit, that could transform some of the existing relationships on Wall Street. For instance, Velez and Capra think that in 12 to 18 months, securities firms will pay investors for trades, not the other way around.
"Think about this," Velez says. "The market-maker firms used to say, 'I'll pay you, Mr. Online Firm, to send your orders to me.' Well, who are the future liquidity providers? The individuals. So now, the individual's going to be paid to provide liquidity. This idea of charging people for access to their market - I mean, who do the markets belong to? - is an archaic idea." Adds Capra: "Just because someone is not an active trader, why should they be at a disadvantage and not have direct access? Regulators are looking at (the situation) as, someone who is (a long-term) investor doesn't need this kind of technology. If they can narrow the spread, if they have 1,000 shares, reduce their cost by $100, $200, I'm sure they'd love to do that." Even more provocative is their theory that the market will be run someday by a governmental or quasi-governmental body. "Ultimately - we're talking very ultimately - when we have one worldwide market, it will be relegated to a governmental responsibility," Velez says. "The markets belong to the people, the public, and if it belongs to the public, and if my vision does occur, it becomes something for a government agency to regulate and maintain for the people."
SEC Scrutiny For Tip Sheets
Pristine .com currently claims 61,000 users in 52 countries. The company is planning to expand. Right now, a public offering isn't in its immediate plans, although a number of potential underwriters have made their pitch, Velez says. "We've obviously never turned a complete deaf ear to some of the proposals or ideas," Velez says, adding that right now, Pristine .com can fund growth internally and would like to do so as long as possible. More attractive than capital, he says, would be a strategic partner who could help plug up some holes in the business.
The field of Internet tip sheets for day traders is crowded, and lately it has been getting some unwelcome attention. The enforcement division of the Securities and Exchange Commission says it is investigating a number of Web sites that offer periodic stock picks for active traders. SEC probers worry that these sites are stimulating momentum in these stocks, then profiting from it with undisclosed stock trades of their own. This could be considered stock manipulation.
Pristine .com doesn't engage in this kind of activity, and hasn't been contacted by the SEC, Velez says. Pristine .com puts a priority on trading strategies, not individual stock picks, he says. Capra adds that their strategies typically indicate buying a stock once it reaches a certain price. So unless that stock trades at that level, Pristine .com's customers aren't going to buy it, in theory.
In addition, Velez says, "we tend to stick with very well-known companies, your Ciscos, your Microsofts. Manipulating those stocks obviously is virtually an impossibility for us."
When Capra and Velez started Pristine .com, they stopped trading, in part to avoid just the kind of questions raised by the SEC inquiry. "But once we started to branch out and aggressively move into the seminar arena, we felt it was a necessity to show people that we are doers of what we were preaching, and so about a year ago we opened up trading accounts," Velez says.
There are unscrupulous companies giving stock tips, Capra and Velez acknowledge. "Basically, you're talking about greed and human nature, so it's going to happen," says Capra.
Velez thinks the scrutiny of the day-trading industry is a good development. "It's the sign of a maturing industry, an industry that is about to come out of its infancy, and to really take its place amongst the big leagues. What these regulatory moves will do is shake out the people who should be shaken out."
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