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May 26, 1999
Internet Stock Trading Expands
In Latin America Despite Hurdles
By MICHELLE WALLIN
Dow Jones Newswires
BUENOS AIRES -- Undeterred by brambly capital markets and still-green Internet usage, a handful of enterprising companies are attempting to cultivate online trading in South America.
And the frontrunners in Argentina, Chile and Brazil -- none more than a year old -- report surprising interest in their business, particularly among computer-savvy young professionals making their first stock market purchases and investors outside of large cities, long neglected by traditional brokerages.
"We are opening up a market for people who previously were excluded," said Mario Velasco of Chile's CB Group, which runs the only online trading company in that country. "What we're trying to do here is make capital markets more for the masses."
However, they will have to overcome still-developing telecommunications infrastructure, the scarcity of home computers, and Internet service providers with payment structures that discourage the sort of surfing that makes e-commerce flourish.
Online trading in Latin America is a "very small, nascent market," said Frank Lallos, director of personal finance at research firm Gomez Advisors in Concord, Mass. "The industry has not taken off."
The problem starts with the phones. The U.S. and Canada had as many as 60 phone lines per 100 people at the end of 1998, according to data from the International Telecommunication Union. Compare that to 20.27 in Argentina, 12.05 in Brazil and 17.98 in Chile.
The number of computers and Internet users, while growing rapidly, remains relatively small. Matrix Information and Directory Services Inc. of Austin, Texas, counts 104 Internet hosts per 1000 people in the U.S. as of January 1999, compared with 2.56 in Argentina, 1.35 in Brazil and 2.57 in Chile.
Regional Internet providers have charge structures that makes staying online expensive -- such as providing a limited number of hours free and charging for Internet use at the same rate as a local call. Combine that with highly volatile stock markets that have failed to attract many retail investors and online trading accounts for less than half a percentage point of the volume in South America's largest markets.
Argentine Start-Ups Seeing Strong Interest
Despite all that, the pioneers in the region are signing up clients right and left.
The first company out of the gate was Patagon.com (www.patagon.com), which began trading Argentine stocks, bonds and options online in June 1998. Two months ago Patagon.com opened an office in Miami, and recently expanded in Brazil. In the coming months, Patagon.com expects to begin offering instruments traded on the Sao Paulo Stock Exchange, and, shortly thereafter, the Mexican bolsa.
Patagon.com's client list tops 4,800 -- the bulk of whom are from Brazil, the U.S., Argentina and Mexico -- with an average account size in April of $33,500. The company charges variable commissions -- on a $100 transaction it would amount to 0.5% -- although it's working toward a U.S.-style flat fee.
Patagon.com prides itself on the breadth of its services, from quotes to graphs to research to mutual funds to news. "We have an enormous array of products," says co-founder Constancio Arguia.
Patagon.com got a new competitor on its home turf when Rava Sociedad de Bolsa SA, a traditional Argentine brokerage, began offering online trading in September. The new service has 500 clients, or an average of one per day; of those 500, about 200 were existing Rava clients. Company officials declined to estimate account sizes, although they said their average trade is 10,000-12,000 pesos ($10,000 0 $12,000).
Like Patagon.com, Rava offers all instruments that are traded on the Buenos Aires Stock Exchange, plus a data base, research reports, and earnings. Rava officials say its clients tend to be young people with relatively small investments, but no qualms about technology, and older people with more money and less computer comfort. The service has proven particularly popular in the provinces, where investors previously had to rely on slow-footed and costly banks.
Rava's online commissions are identical to those of its traditional brokerage -- a maximum of 1% of the transaction.
"We offer personalized attention," said Alejandro Stratiotis, an analyst at Rava. "And we offer convenience."
Brazilian, Chilean Brokerages Take the Plunge
In Brazil, six brokerages operate through the Sao Paulo Stock Exchange's two-month-old online system, and exchange officials estimate another 30 could join over the next three months.
The six, all of which were existing Brazilian brokerages, are: Banco Cidade CCVM Ltda., Corretora Souza Barros Cambio e Titulos SA, Hedging-Griffo Corretora de Valores SA, Coinvalores, Novacao Corretora de Cambio e Valores SA and Sociedade Corretora Paulista.
Clients are attracted to the familiar mix of lower cost, greater speed, and more convenience.
In Chile, holding company CB Group launched the country's first and only online stock trading service at the end of March, charging a flat fee of 5,000 Chilean pesos ($10.20) on trades of up to 20 million pesos. Clients don't open accounts with CB -- Chilean law prohibits that -- but rather authorize the brokerage to make automatic debits from their bank accounts.
Traditional brokerages charge 0.5% on the size of a transaction.
CB is just shy of 500 clients, carrying out around 30 transactions per day of between 100,000 pesos and 20 million pesos. Many of its clients are young people and residents outside of Santiago, drawn to the lower costs and ease of trading.
All 120 stocks comprising the Santiago Stock Exchange's IGPA Index can be traded under the system, but, like the other companies, CB has its eyes on other products and other Latin American markets.
'The idea is to expand," says CB's Mr. Velasco said. "We want to offer all of the products out there." |
