Russett
I have attempted to answer your questions and concerns.
I wonder how big the market is, given that a little player might have to split his/her assets up into several countries they may want to play in. Perhaps only well heeled players and institutions will use this service in any significant way.
You are correct that some investor with very limited amounts of trading funds may not want to split up their assets into more than one account just to get lower commission costs and quicker execution speed. However in this electronic age of bargain hunters, opening new accounts and transferring funds is so simple that having accounts and assets spread among several brokerage houses, each offering specialized services, is fairly common and a large number of the people I know have accounts with several firms and few of these people would be considered "well heeled" by anyone's standards. Personally I have 6 trading accounts with 4 different firms and wouldn't have it any other way. Each account and brokerage house serves a special purpose (e.g. one for futures, one for US stocks, one for Canadian, etc., etc). By offering lower commission costs and quicker execution speed SEG will be an attractive option to many retail investors who want to invest in foreign countries and are looking for the best service and price. I personally don't think SEG will have any problems drawing in customers but think the majority of customers will end up trading only 1-3 of their favorite foreign exchanges. You are correct that SEG will also cater to the institutions and in their investor relation documents mention that they plan on offering an institutional account program for large volume transactions
I don't think anyone can provide a really good estimate of SEG's market (expect SEG maybe <g>). I think CC threw up the quote by Gomez Advisors that stated "There are 16.28 million investors (in N.America) waiting for the right moment to start trading online." However I think this quote taken from CPT's Feb 29, 2000 news release better reflex some of the potential.
In Asia, Europe and South America, online trading is in its infancy compared with the mature North American market and there is a huge market potential. Online trading has just opened up in countries such as India and Japan. We expect this largely untapped market to be flooded by a wave of investors and institutions that are waiting to enter this market. The 14 Asian stock exchanges that SEG is initially targeting are expected to generate 600 million transactions in 1999. Of these 600 million transactions, 50% have just been made available for online trading and the other 50% are still largely untapped.
These people have resources to gain significant discounts from the big companies, that may make up for the apparent discount to trading commissions that the SEG model will give.
The steps involved for existing brokerages with International branches will remain the same. Think of why Micheal Dell was able to undercut the rest of the PC makers. He cut out the middlemen, and the existing brokerage houses have a much higher infrastructure cost to maintain. They can only cut so far. SEG is the Brokerage industry's version of DELL. Plus, their ability to expand to other markets will be significantly restricted for many of the reasons explained previously.
What does this say about potential revenues to SEG from this service? Will the well heeled still prefer to go with the big financial companies and mutual funds?
It would be foolish to assume that SEG's model would spell the end of this option for anyone, let alone the "well heeled." But I also believe that it would be also foolhardy to expect that SEG's business model would not attract many investors. After all, many of the existing mutual funds have taken a significant hit as the trend towards Self Directed management of investments and on-line trading have gained inroads.
There has been some pretty lofty calculations made on CPT's share price on this thread based more on market speculation of IPO's than on the potential to generate revenue and profits.
This is still an untested business model. As are many of the new growth businesses. However, I have to believe that the major financial institutions who have agreed to underwrite this company will have done their own analysis and revenue projections. Based on my own understanding of the demand, the growth in the industry, and the third largest bank in the world putting their name behind this company, then you have to believe there is some value behind the idea. The actual share price levels that will be achieved is anyone's guess. But working back from expected cash on hand, average performance of new listings on the GEM exchange, and conservative valuation numbers, one can arrive at a number. Whether this number will be hit is what makes this game all the more interesting. Lets just say I hope John's magic calculator is closer than mine <gg>
Then what about the risk of having your money with this company, SEG? If I deal with a big institution with an office in Canada, I can sue them here in Canada and know they have the resources to pay if I win. How big will SEG and CPT be? What will we sue if the company fails, and how will we recover our money from the overseas country brokerages if someone gets stubborn?
Good questions. It really doesn't matter how big SEG or CPT is because your agreement will be with the foreign brokerage house and not through CPT/ SEG. SEG is only a portal for the trade.
SEG has gone through great length to do their due diligence on each partner brokerage firm. SEG is only partnering with the leading brokerage firms in each country. Every brokerage house that SEG has partnered with is one of the top five brokerage houses in that country and most of them have extremely large backers. Just look at some of the partners...
ICEA
Established through a joint venture between Industrial Commercial Bank of China and Bank of East Asia. ICBC was ranked the third largest bank in the world in 1998 and the largest bank in China with 36,000 branches. Bank of East Asia was established in 1918 and was ranked by The Banker as the top bank in Hong Kong in terms of capital, assets and profitability.
Tai Fook
20 years experience and one of the top securities brokerage firms in Hong Kong, with offices in US and Europe. They are backed by the resources of the renowned Chow Tai Fook Enterprises Limited, an investment holding company with diversified interests and the principal shareholder of New World Development Company Limited. According to the most recent financial results New World Development Company (http://www.nwd.com.hk/) had assets of 14,991,730,000US (and no, I didn't screw up a zero <g>)
China Securities
Third largest broker in China with 95 branches, outlets in China and Hong Kong, over 3,000 employees and paid in capital of over $6 Billion (1999 figures).
Arab-Malaysian Securities
Subsidiary of Arab-Malaysian Bank Group, one of the leading banking institutions in Malaysia with 5,600 employees, 184 branches and 37,473,500,000RM in assets (http://ambg.com.my/html/finance_info_fr.html)
OSK Group
Publicly listed conglomerate in Malaysia with total assets of $177-million (U.S.) and pretax profit of $7.93-million (U.S.) in 1998.
K & N Kenanga
Over 25 years experience and has more than 350 employees and a dealer's representatives base exceeding 500 licensed dealer representatives (http://www.kenanga.com.my/about.html).
Consortium Securities
One of the larger brokers in India and one of the few able to execute trades on all of India's 22 exchanges.
By partnering with only the leading broker houses with long and successful business histories the risk of one of SEG's partners failing is fairly minimal in my opinion. The great thing about using SEG's service is that most investors would not have a clue what brokerage firm to sign up for in a foreign country. There are numerous smaller firms in these countries that do run the risk of going under, much like some of the smaller firms in North America. However SEG only partners with the leading firms and will provide the research on each brokerage house in each country so you can make an informed decision about where you put your money. Each country will have at least 2 brokerage houses to choose from so you can put your money where you feel it is the safest. If for some freak reason one of these brokerage firms goes under after decades in business I would expect there would international laws that would help secure your assets in most countries and that SEG would assist in this process.
What about execution times, SEG may deliver the order quickly, but will the institution execute a small order quickly?
Kind of like waiting for one of the largest on-line brokerage houses in Canada to put in an order when it was placed four hours earlier. Or when a NASDAQ market maker decides to play the spread with bids and asks. This problem is epidemic throughout the industry. However, I see that if SEG were receiving several complaints about one broker who is slow to place orders on one of their exchanges, then SEG could threaten to pull them from the preferred broker list and find a more responsive one. In addition, the firms SEG is partnering with are the leading firms in their respective countries. It is unlikely that anyone could process an order faster than the leading firm in that country with years of experience on the local exchange and probably the majority of the market makers in their back pockets.
My comments on China come from looking at the CIBT part of the company.
There is two heads to China, one glorious portrayal is displayed on this thread, another is displayed here
Depending on which side of the fence you are sitting on, each country has and good and a bad side. I am not defending or condoning any point of view. However, I do know that many valid arguments that point to the restrictive "hold them down and don't let them develop themselves attitude of the Treaty of Versailles as the cause of World War II. Developing a country from within, educating the people, and expanding horizons and opportunities can never be a bad thing. As a matter of fact I believe that what CIBT is doing is helping to stabilize and create opportunities for understanding and cooperation within China and around the world. Avocating isolationism and repression of learning as your comments and referenced articles have done is fraught with problems of its own.
Many companies have had enormous runs based on nothing. I'm trying to determine if this is one, because with a $4.00 share price, a lot of growth has been discounted, and I would prefer to be sitting with freebies like many of you may have, than trying to establish a preliminary position.
With an upcoming $50 million US IPO, partnerships with leading brokerage firms throughout Asia and the site going live in a couple of weeks I think it is fair to say that this run was based on fundamental changes in the company unlike many of the runs we have seen on the CDNX lately.
I cannot speak for other on this thread but I don't have a single "freebie". I have only been on the buy and have not sold a single share since I first gave the heads up on the MOMO thread last month. I bought both yesterday and today on the dips ($3.90-$4.00) to add to the ones I have already bought. If after reading all of the information on this company, you believe that there is not more growth potential left in this company then I suggest you pass on it. Personally I think the share price will be substantially higher when the GEM IPO occurs later this year. I am not sure what the price will be at that point but I think double digits is a conservative estimate based on asset value alone although John would like to tell you triple digits according to his calculator <ggg>. Will the share price dip below the current price between now and then?... that is anyone's guess. However with the site going live, CIBT, SEG's IPO financing to be closed, exchanges and partners to be added and any other unknown events I am not willing to sell my shares now in hopes of getting them back cheaper later.
I am testing your convictions.
For the record, my convictions and my belief in this business model, the management of the company, and its potential is very solid. |
