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   Strategies & Market TrendsThe Final Frontier - Online Remote Trading

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To: TFF who started this subject2/13/2001 4:43:36 AM
From: supertip
   of 12617
Instinet instigates ECN IPO battle
Reuters unit aims to use offering to consolidate power

Feb. 12 — When it comes to executing stock trades, cost, speed, and liquidity reign supreme. By dictating the rules of the game in seconds and fractions of a penny, electronic communications networks (ECNs) have permanently altered that landscape, executing more than one-third of the billions of shares traded on Nasdaq and the New York Stock Exchange every day.

IT’S NO WONDER then that Instinet Group, currently the world’s largest ECN, is now seeking to cash in on this trend through an initial public offering. The company, a subsidiary of Reuters Group, has unveiled its plans to raise $450 million through an offering later this year.

Instinet is expected to use the IPO as a launching pad to consolidate a crowded field of dozens of ECNs. In a world where liquidity is king, Instinet reigns supreme. Last year, the ECN executed an average of 264.7 million shares per day, representing 9.1 percent and 7.8 percent of the shares traded on Nasdaq and the NYSE, respectively. “Instinet is clearly a destination for liquidity,” says Scott Appleby, a financial services analyst at Robertson Stephens. “They’re the eBay of trade execution.”


But the company will face stiff competition in the coming months. The Nasdaq, which last month gained Securities and Exchange Commission approval to roll forward with its own super-ECN, SuperMontage, is eyeing a public offering of its own. Two weeks ago the exchange raised $180 million in a private placement that paves the way for an IPO. So the timing of the Instinet filing was obviously no accident.

For Reuters, selling a stake of the ECN to the public could not have come at a better time. Although Instinet’s presence in large institutions gives it the necessary access to deals to execute trades internally, its grip on that market may be slipping. One of the keys to Instinet’s business, and its biggest challenge, is that its fees for trade execution are high by industry standards. “They’re operating a three- to six-[cents]-a-share business in an industry that’s quickly going down to fractions of a penny to execute,” notes Mr. Appleby.

By way of contrast, Island ECN, which derives the majority of its business from retail customers, charges as little as 15 percent of a penny-per-share for the trades it executes, Mr. Appleby says. Instinet’s high-cost strategy is clearly reflected in its healthy financial returns. For the nine months ended September 30, 2000, the company reported net income of $107.3 million on revenue of $1.03 billion. And while year-over-year top-line growth of 45 percent is evidence that its business continues to flourish, the net margins on that business — 10.4 percent for the nine months versus 15.4 percent in the year-ago period — show that competition may indeed be intensifying.

While SuperMontage — which positions Nasdaq as an ECN to the ECNs by requiring them to display the bid and ask prices of stocks on their systems — would almost certainly eat into Instinet’s market share, Instinet has gone to great lengths to distance itself from other ECNs. For example, it has aggressively expanded its trading platform into international markets. In addition to the NYSE and Nasdaq, its customers can access 40 securities markets, including those in London, Paris, Toronto, and Tokyo. Last spring, Instinet expanded its platform to facilitate trading in more than 800 different U.S. dollar- and euro-denominated fixed-income securities.

Instinet’s IPO will undoubtedly pressure other ECNs to test the public markets. Island, which executed an average of more than 270 million shares in October of last year, is the most likely to take the plunge. In December, Island laid the groundwork for a possible IPO through the $700 million sale of a stake in the company by Datek Online Holdings to a buyout group headed by Bain Capital.

Another possible scenario, however, could be a merger of Instinet, with its strengths in the institutional markets, and Island, which operates largely through retail investors. Either way, it looks as if the battle between the major ECNs and Nasdaq will play itself out in the IPO market.

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To: supertip who wrote (8743)2/14/2001 8:46:15 AM
From: TFF
   of 12617
Waterhouse Slashes Fees For Frequent Stock Traders
By Stacy Forster Feb 09,2001

Amid the stock market's recent sputters, TD Waterhouse Group Inc. ( ) has joined the fray of firms aggressively courting traders who can help cushion against a downturn in activity when casual investors become timid.

The firm slashed commissions Wednesday for active traders and unveiled other meatier services -- including professional-type tools and market data -- as a lure for a segment of investors whose business is considered lucrative for online brokers.

But Waterhouse ( ) is a Johnny-come-lately. Several of its rivals, including Charles Schwab Corp. ( ), E*Trade Group Inc. ( ) and Fidelity Investments ( ), have long ago moved firmly to establish ground among these traders. Other specialty brokers already offer professional-type tools and cut-rate commissions geared toward frequent traders.

Waterhouse, which is the No. 2 online brokerage firm by market capitalization behind Schwab, ran the risk of being at a severe disadvantage if it had continued to allow its competitors and niche players to become more dominant among active traders without an aggressive response.

"TD Waterhouse recognizes this and they don't want to cede that market segment to any of their competitors," said Tim Butler, an e-brokerage analyst with Pacific Crest Securities in Portland, Ore. Mr. Butler and other analysts note that active traders generate a significant amount of commission revenue for online brokers by making frequent trades.

Indeed, Waterhouse acknowledged that it didn't want to overlook active traders. "The active investor is a great segment for us, so we've listened to what they want and we've developed this product to meet their needs," said Stuart Rubinstein, a senior vice president of e-commerce for Waterhouse.

Waterhouse plans to offer two levels of service for active clients. For both, the firm will charge a commission of $9.95 for market orders compared to its regular $12 fee. (The first ten limit orders in a quarter will cost $12.95; after that, all orders will be $9.95). For the time being, prices for options, mutual funds and bond trades will remain the same, Mr. Rubinstein said.

For the lower level service, customers must conduct at least 36 stock, option, mutual-fund or bond transactions in a single Waterhouse account during a calendar quarter. They will get real-time quotes, account information and order tickets all in one page. Mr. Rubinstein said this will cut down on the amount of time it takes investors to see their account data and place a trade, because it will be consolidated on one screen.

Eligibility for the top-tier service requires at least 72 transactions per quarter. In addition to the other features, these customers will get Nasdaq Level II quotes, which allow them to see prices from various market makers in a stock, and get news headlines and First Call earnings estimates, among other things.

Customers must re-qualify for the programs each quarter based on account activity.

Melissa Gitter, a spokeswoman for Waterhouse, declined to say how many of the firm's customers would be eligible for the new services. Waterhouse has about 2.4 million customers. The firm had given benefits before to its active clients -- but nothing as aggressive and comprehensive as its latest program.

Data show that even when the market has been volatile, as it was for much of the final quarter of 2000, active traders are less likely to remain on the sidelines than average investors. Richard Repetto, an electronic brokerage analyst for Putnam Lovell in New York, said typically 20% of a firm's customer base accounts for about 80% of its trading activity.

"[Brokerage firms] want to keep these customers because they're so profitable," Mr. Repetto said.

Scott Appleby, an analyst with Robertson Stephens in San Francisco, said an active trader is about 10 times more valuable than a casual investor when you compare their trading activity and commission revenue. These traders continue to trade -- albeit less -- even when the market is sour.

Schwab began targeting active traders early last year when it slashed commissions for its biggest traders by half and bought CyBerCorp Inc., an Austin, Texas, firm that catered to day traders. Schwab charges $14.95 per trade for its affluent clients who make at least 60 transactions a quarter. Investors trading at least 30 times pay $19.95. Meanwhile, commissions at it CyBerCorp unit range from $9.95 to $17.95 a month.

E*Trade and Fidelity had developed programs geared toward their high-volume customers even earlier than Schwab. E*Trade cut its commissions in August 1999 to $4.95 a trade for customers who make 75 or more trades a quarter. The firm also offers power-trading tools and information. Fidelity also offers lower commissions for very active clients, but it has been more aggressive in providing trading tools and information.

Meanwhile, other smaller firms such as Datek Online Brokerage ( ), a unit of closely held Datek Online Holding Corp., and A.B. Watley Group Inc. ( ) have made active traders a prominent part of their focus. Datek charges $9.99 a trade and A.B. Watley charges $9.95; both offer frequent traders direct access to trading venues.

Unlike Waterhouse, E*Trade and Schwab also offer direct-access trading, an important consideration for active traders because it allows them to direct their orders to specific market makers or electronic trading venues where they see the best price. Ms. Gitter said Waterhouse could add direct-access trading in the future, but it wasn't currently planned.

Waterhouse customers trade less frequently on average than other firms. The firm's customers traded an average of 3.2 times in the third quarter of 2000. Datek's, for example, traded an average of 9.9 times and Ameritrade's 5.5 times. However, Schwab customers, including those trading through CyBerCorp, traded an average of 2.2 times.

Like many other online brokerage firms, Waterhouse has been sharply hit by the market decline, which kept individual investors on the sidelines toward the end of the year. Although Waterhouse reported average daily trading volume of 151,900 in the third quarter of 2000, an increase of 49% from the year-earlier period, volume dropped toward the end of the year.

In November, Waterhouse reported average daily trading volume of 136,900, a decrease of 15.5% from October and 14% from November 1999. Trading volumes picked up in December, with an average of 160,000 trades a day, down 12.4% from the same month a year earlier. The company will release its quarterly earnings next Wednesday.

These market slowdowns are when active traders become more important to firms, because they are less likely to sit on the sidelines until conditions improve. For example, CyBerCorp customers are accounting for a greater share of trading activity at Schwab, conducting 9% of Schwab's volume in the third quarter of 2000, up from 7.8% in the second quarter.

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To: TFF who wrote (8744)2/14/2001 8:50:41 AM
From: TFF
   of 12617
Ameritrade to Add Direct Access With Acquisition of Tradecast
Company enhances execution options for retail and institutional customers Expands distribution in B2B marketplace
OMAHA, Neb.--(BUSINESS WIRE)--Feb. 14, 2001-- Ameritrade Holding Corporation (Nasdaq: AMTD - news), one of the brokerage industry's technology leaders, today announced a definitive agreement to acquire TradeCast® Ltd., which, through its subsidiaries, is a leading provider of direct access trade execution and software designed for the active trader. The advanced trading capabilities of TradeCast leveraged with Ameritrade's operational efficiencies and technology engine will provide customers superior order management and decision support tools.

The combined competencies of Ameritrade and TradeCast add significant strategic elements for both companies to expand their presence in the business-to-business marketplace. TradeCast's broker/dealer customer base consists of approximately 60 broker/dealer, hedge fund and money management customers, complementing Ameritrade's existing institutional offerings through OnMoney Financial Services Corporation, AmeriVest, Inc., Ameritrade Institutional Services, Inc. and Advanced Clearing, Inc.

``Our acquisition of TradeCast represents an important strategic entry for Ameritrade into the professional trading market,'' said Jim Ditmore, chief information officer of Ameritrade Holding Corporation. ``TradeCast's relationships and market reach with broker/dealer customers perfectly complement the B2B elements of Ameritrade's strategy. By bringing together TradeCast's capabilities with our trading engine, we will offer one of the industry's best suites of technology and execution for broker/dealers who serve highly active traders.''

``TradeCast is a pioneer in direct access software, advanced trading tools and customer service, while Ameritrade offers a 25-year heritage of delivering speed, value and customer experience to self-directed investors,'' said Bobby Earthman, president and co-founder of TradeCast Ltd. ``We plan to strengthen our foothold among active traders and our broker/dealer, hedge fund and money management customers by leveraging the technology of our combined companies to meet the needs of our customers and stay ahead of our competition.''

The Transaction

The acquisition is structured as a stock transaction in which 7.5 million shares of Ameritrade stock will be exchanged for all of the outstanding ownership interest of TradeCast, with the potential to receive up to an additional 750,000 shares based upon future performance. Ameritrade expects the transaction to close in 30 to 60 days, after customary approvals are obtained from the regulatory authorities. Upon completion of the transaction, TradeCast, based in Houston, Texas, will operate as a subsidiary of Ameritrade Holding Corporation. As part of the transaction, Ameritrade intends to retain TradeCast's approximately 90 employees.

Market Growth

The management of both companies anticipate strong market share growth among active and professional investors due to recent and pending market developments such as decimalization, disclosure requirements for trade executions and SuperSoes. Ameritrade expects the acquisition of TradeCast to have an accretive impact on the Company's earnings per share for its fiscal year ending September 28, 2001. Ameritrade will update its current projections to reflect the Company's main business drivers in the Investor Relations ``Outlook'' section of its corporate website located at after the acquisition is completed.

A comprehensive broker/dealer offering and integrated direct access/active and professional investor platform is scheduled to launch Spring 2001.

TradeCast Tools & Features

Ameritrade will integrate certain parts of its systems with TradeCast's platform to benefit Ameritrade and TradeCast's growing base of broker/dealer business partners and active and professional investors. Ameritrade's tools include the advanced analysis features that comprise the BigEasy Investor client software and website. The BigEasy Investor package includes strong technical and fundamental analysis tools that provide decision support to the active investor.

TradeCast's advanced decision support tools include:

-- direct access execution to NASDAQ, all major ECN's and
NYSE/AMEX with the ability to route to multiple destinations
-- smart order routing;
-- rapid trade execution;
-- level II quotes;
-- real-time charting, news, streaming quotes and watchlists;
-- real-time confirmations and updating of positions, balances
and buying power;
-- price and trading alerts;
-- real-time account and risk management.

``The combination of Ameritrade and TradeCast's technologies creates the industry's elite platform for active and professional investors,'' said Ditmore. ``TradeCast's advanced trading platform adds an important element to Ameritrade's offerings to retail and institutional investors. By applying this unique blend of technology and execution platforms, both companies will attract new customers and enhance the experience of existing customers.''

About TradeCast

TradeCast ( pioneered direct-access online stock trading. The Houston-based company developed the first ``point-and-click'' trading software enabling individual equity traders to trade stocks online and was the first company to tie directly into the NASDAQ SOES mainframe computer in a Windows® format. TradeCast's software allows traders to ``Go Direct(TM)'' by executing trades through TradeCast Securities, Ltd., a licensed broker/dealer, member NASD/SIPC.

About Ameritrade Holding Corporation (Nasdaq: AMTD - news)

Ameritrade Holding Corporation ( is a pioneer in the online brokerage industry with a 25-year history of providing customers a self-directed approach to brokerage services. The award-winning Company, through its broker/dealer subsidiaries, provides brokerage and clearing services to self-directed individual consumer investors and to financial institutions.

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To: TFF who started this subject2/14/2001 12:51:55 PM
From: TFF
   of 12617

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To: TFF who wrote (8746)2/14/2001 8:12:25 PM
From: Eric P
   of 12617
Interesting chart, nice find.

I was surprised to see the peak SI activity was well before the market peak in early 2000. Anyone have thoughts on the causes of the decline that started in early 1999? Did other message boards pick up around this time, or was there an SI bungle that may explain this


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To: Eric P who wrote (8747)2/14/2001 9:11:28 PM
From: TFF
   of 12617
I believe that was the beginning of the end of E*tailers.

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To: TFF who started this subject2/14/2001 11:15:18 PM
From: TFF
   of 12617
Enron Online

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To: TFF who wrote (8749)2/15/2001 12:03:12 AM
From: Jon Tara
   of 12617
Oh, cool We can trade "weather" now. Heck, that beats Presidential Elections all to heck.

More seriously, is this practical for an individual trader? What kind of capital does it take to trade these contracts? (And is it even possible?)

One of the really annoying things about the California energy situation is that they set-up a rigged market. You had to be either a producer or a consumer to trade electrnicity at CAL-PX. There was no opportunity for speculators to enter the market. I suppose they must have somehow thought that by limiting participation to producers and consumers that they were somehow "protecting" the public from manipulation. I think that, in fact, this structure INVITED manipulation, and had speculators been allowed into the market, we would never have had the disasterous results that ensued.

BTW, just read an article (Economist? Not sure where I saw it) claiming that California actually has MORE reserve generating capacity than most other states. Yes, we haven't been building new plants, but we had so much excess capacity that we didn't need to. The article said that it's all been basically a put-up, with plants being taken off-line to create an artificial shortage.

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To: Jon Tara who wrote (8750)2/15/2001 12:18:54 AM
From: LPS5
   of 12617
I met with someone a few months back who explained to me that, for the retail end of the market, weather contracts could be used to hedge against the risk of financial loss to holders of an outdoor wedding - for example - in the event of rain (which might lead to losing deposits, damage to rented tuxes, etc). Or, for those in those "big square states" out west, losses due to tornados and such could be hedged some extent.

I wonder what the insurance/reinsurance industries will do to address the potent threat that such contracts present (if indeed they prove threatening). Possibly issue their own contracts or address the new market with OTC weather derivatives along the lines of swaps, etc.?


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To: Jon Tara who wrote (8750)2/15/2001 8:44:29 AM
From: TFF
   of 12617
Futures have amazingly low performance bond rates. But more importantly the quick pace of change is making futures far more attract than stocks for short term trading. Some things happening include:

Demutualization of futures exchanges

creation of electronic markets (globex, a/c/e, etc)

Proliferation of direct access platforms(ISVs')

Simplified execution.

High volume/highly volatile contracts.

rapidly falling commission rates

creation of many new contracts such as individual stocks, stock sectors, indices, etc.

Should make for interesting times ahead.

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