William: I just picked up the attached article on how "the Wall Street Firms" are starting to get squeezed. I'll bet they will have to manipulate the market a little more often to make up for the loss of generous commissions <VBG>.. !!!
Hope all is well. IMHO, DELL is on sale now -- but it won't last long at these bargain basement prices.
Have a good evening.
Regards,
Scott
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Tuesday March 2, 8:53 pm Eastern Time
Wall St. firms, NYSE face new breed of competitors
By Jack Reerink
NEW YORK, March 2 (Reuters) - Wall Street firms and the New York Stock Exchange are scrambling to arm themselves against a new and fast-growing breed of competitors -- online brokers and electronic exchanges.
What has the blue-chip brokerages and Big Board rattled are new computer systems -- called electronic communications networks, or ECNs -- that directly link stock buy and sell orders. These systems bypass traditional stock specialists and market makers, and deprive them of the profit they squeeze out of the difference between the buy and sell orders they process.
The ECNs are growing at a fast clip and now routinely account for more than a fifth of Nasdaq's daily volume.
Moreover, investors now funnel one in seven trades through any of more than 100 Internet brokers that have sprung up in the last four years, cutting into Wall Street firms' commission business.
The forces driving these changes are technological advances and a push for ever-lower trading commissions, analysts said. Some 7 million people have online accounts, and pay as little as $5 a trade. Institutional investors can pay just a quarter of a cent per share to have stock orders matched on an ECN.
The phenomenal growth of the networks has spurred the 206-year old New York Stock Exchange to consider a partnership with one of the nine established ECNs, most of which started just two years ago. The networks, meanwhile, are turning up the heat on the NYSE, and are expected next month to begin pushing regulators for recognition as full-fledged exchanges, a move that could help them trade Big Board stocks in earnest.
''The first thing (ECNs) are going to do upon registering as exchanges is go after the NYSE business,'' said analyst Bill Burnham of Credit Suisse First Boston. ''So the NYSE is really responding to a competitive threat.''
Most of the networks started in early 1997, after the Securities and Exchange Commission implemented rules that required Nasdaq market makers to post the best bids and offers on stocks, including those from private order matching networks. The networks took off as investors found they often got a better price for their Nasdaq-listed stocks by trading through an ECN instead of a broker or market maker.
The networks charge a small fee -- ranging from a quarter of a cent to 3.5 cents per share traded -- to investors or firms taking an order from their screens. By contrast, Nasdaq's market makers and the NYSE's specialists make their money on the spread between the bid and offer prices of any stock they deal in.
Brokerages, including online firms, usually sell customer trades to big market-making firms such as Knight/Trimark Group Inc.(Nasdaq:NITE - news). Growth of the ECNs has been fueled by day traders -- investors who frenetically buy and sell stock but close their positions at the end of the day. Many of those customers believe they get a better deal on an ECN's anonymous order matching system.
''Many traders feel uncomfortable about giving their order to a person (the brokerage) who then sells it, because the person who buys it (the market maker) has a vested interest in keeping the spread as wide as possible,'' Burnham said.
If they achieve exchange status, ECN orders on Big Board stocks will be broadly disseminated among market players, positioning them to grab a big slice of the NYSE's business, just as they have done on Nasdaq, said Matt Andresen, the president of Island, the fastest-growing ECN.
''We have brought the benefits of competition to the Nasdaq market, and all those benefits of competition could also be brought to the New York monopoly,'' Andresen said.
And Island, a unit of online brokerage Datek Online Holdings, has been benefited, too. In January it traded 95 million shares a day, about 10 percent of Nasdaq's total volume and triple the amount in the first quarter of last year.
Meanwhile, Wall Street firms face similar competitive threats to their business with the advent of Internet brokers. Firms like E*Trade Group Inc. (Nasdaq:EGRP - news), which pioneered Internet trading, offer rock-bottom commissions and fast trade processing, although many Internet brokers have suffered delays, glitches and outages lately.
Full-service firms, which often charge hundreds of dollars per trade, survived the onslaught of discount brokers in the 1980s and are likely to protect most of their turf from the new challengers, analysts said. They realize, however, that their wealthy customers want the online trading option, if only to trade a small part of their portfolio, or ''play money.''
''Consumers have their serious funds and (then) their funds with which they like to explore their own decisions,'' Frank Zammataro, director of Merrill Lynch and Co. Inc's (NYSE:MER - news) online business unit, said in a recent interview.
Merrill and rival PaineWebber Group Inc. (NYSE:PWJ - news) soon plan to offer online trading to some of their customers. The firms have been slow to offer the service because they must walk a fine line between keeping up with the times and safeguarding the interest of their broker troops, who dislike losing their commissions. |
