Datek CEO Sees Accounts Doubling, New Products In 1999
By CAROLINE HUMER
Dow Jones Newswires -- October 21, 1998
NEW YORK -- Datek Online Holdings Corp. Chairman and Chief Executive Jeffrey Citron expects Datek's online accounts to double next year as the company expands its product line to include option products and access to initial public offerings.
The privately held Datek plans to double its customer accounts in 1999 to between 250,000 and 260,000, Citron told Dow Jones recently in an interview at the company's Iselin, N.J., headquarters.
During the fourth quarter of this year, Citron said, he aims for double-digit growth in daily trading volume. In the third quarter, daily trades rose to 21,000, up 11% from 18,900 in the second quarter, he said.
Datek, which bills itself as one of the first online brokers to offer real-time updated accounts and provide free real-time quotes for customers, plans to begin offering constantly updating or "streaming" quotes by the end of 1998, Citron said.
That is one example of how the company aims to "raise the bar," Citron said.
Only one other brokerage among the 80 offering online trading has announced plans for "streaming" quotes this year - DLJ Direct, the online unit of Donaldson, Lufkin & Jenrette Inc. (DLJ). DLJ company plans to sell the product for about $30 a month.
Datek charges $10 a trade for up to 5,000 shares in equities and mutual funds - not the lowest in the industry - and promises a money-back guarantee if trades aren't executed in less than one minute.
While low prices typically draw day traders, Citron said such investors - who trade several times in one day and typically close out their positions before the day ends - make up only a "single-digit percentage" of customers. Most trades come from investors shifting within a sector, he said.
Citron has transformed Datek Online into the eighth-largest online trading company since its creation in 1996, about the same time the U.S. online market began to explode. Such rapid expansion is evident at the company's headquarters, where cubicles and extra furniture spill into corridors and an equipment-filled training room awaits the customer-service representatives the company says it plans to hire.
Datek Online was created in 1996 from a brokerage in Brooklyn, N.Y., that specialized in day trading. It now controls $2.5 billion in assets and has an average account size of more than $20,000, according to Citron.
In March 1998, Datek sold the controversial day trading operation Datek Securities Corp., which had become a unit of Datek Online, to Heartland Securities Corp. Datek reportedly is the subject of an SEC investigation regarding potential wrongdoing, but it is unclear where the focus of the investigation lies. Citron has denied all wrongdoing.
Citron's emphasis was on the future as he ran off a list of new services he
is planning for Datek, including options products and access to IPOs in the
first quarter of 1999.
IPOs had been a big draw for online firms as they opened the door to a market that had been largely closed to individual investors. The past two months of market volatility, however, have put most IPOs on hold.
Citron said demand for IPOs is likely to pick up during the second half of January, at which point Datek plans to provide access to IPOs by forming multiple agreements. He didn't provide further details.
When it comes to the long-rumored possibility of its own IPO, Datek remains noncommittal.
Rob Bethge, vice president of marketing for Datek, said, "The company will continue to investigate any and all options that make sense to support the continued growth of the company."
Citron plans to push Datek into banking services next year. He foresees a partnership with a mortgage broker and joint ventures for expansion into credit and debit cards. Competitor E*Trade already provides mortgage lending and credit cards.
But unlike E*Trade, Datek has no intention of becoming a destination site, or portal. Instead, Citron said, the company will look to link with portals like Yahoo! Inc. (YHOO) or Internet sites like Silicon Investor and the Motley Fool.
And unlike discount brokers like Charles Schwab or Waterhouse Securities, a unit of Waterhouse Investor Services and of Toronto-Dominion Bank (TD), Datek won't open branches or take on "bricks and mortar." While the discount brokers say those branches are big customer draws, Citron said they are a legacy of an outdated system.
Citron aims to pull in customers by doubling Datek's advertising budget and keeping focused on the U.S. while some competitors start looking overseas.
"In the next year or so, the U.S. market is by far the largest market," Citron said "We will stay 100% focused on the U.S. market."
-Caroline Humer; 201-938-5234;
caroline.humer@cor.dowjones.com
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