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Trading Technology

01:41 PM
Andrew Rafalaf
Andrew Rafalaf
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After-Hours, IPOs and Wireless to Boot!

1999 sees the continued ascendance of the Internet, after-hours trading, wireless trading, free real-time quotes and online private placements.

1999: The year that the Internet grew from an infant into a teenager. A 17-year-old with all the hope and promise in the world, yet still spending mommy and daddy's big bucks without a clear grasp on the future. 1999: The year that Charles Schwab & Co. grew into a force to be reckoned with-its market cap exceeding Merrill Lynch; the year that Merrill, Salomon Smith Barney, Prudential and PaineWebber bowed to the pressure of the Internet; the year that brokerages began affording their institutional clients a taste of the Web. And, yes, the year that brought us after-hours markets, wireless trading, free real-time stock quotes, and online private placements.

Only a year ago, industry naysayers with kingdoms to protect were still lambasting the Internet. "Uninformed, average investors are trading recklessly," they argued. "The only people trading over the Web are the fly-by-the-seat-of-your-pants day traders," they chortled. But, then, something happened. The middle class stepped in and began to demand online execution, and then high-net-worth individuals raised their eyebrows and said, why not us, why can't we have the best of both worlds: online and brokers?

And the full-service firms stepped in. Taking a page out of Charles Schwab's daily planner, Merrill, Salomon and the like began offering discounted services as well as asset-based accounts that meshed the convenience of the mouse click with the comfort and support of a broker (WS&T, 9/99). Morgan Stanley Dean Witter had its own solution, Discover Brokerage, but it decided later in the year to open up online trading to its entire clientele, folding Discover back into the fray (WS&T, 12/99).

Online trading and its ease of execution wasn't enough. The public was having such a great time trading online that they wanted more, and online firms like Datek Online and E*Trade met the challenge with after-hour trading through ECNs Island and Instinet, respectively (WS&T, 10/99).

Non-market hours didn't prove to be enough, so the brokerages began to unfurl a veritable menu of wireless trading options. Imagine, a trade executed to the sound of a toilet flush. Fidelity Investments released its wireless service over the RIM 950 pager operating over the Bell South network, relying on proprietary technology to link the service to its in-house trade-processing systems. Other firms, like Schwab and Dreyfus, opted to partner with vendors like Aether Technologies and w-Trade that allow Palm Pilot-like devices to connect to the broker's front- and back-office applications (Electronic Trading Supplement, 11/99).

But, investors demanded more, and online IPOs and private placements started to enter the scene. Wit Capital, the industry grandfather, was followed by E*Trade's E*Offerings, Friedman Billings Ramsey & Co.'s FBR.com, W.R. Hambrecht, Schwab, Fidelity and DLJ (WS&T, 10/99). Despite the preponderance of new online underwriters, individual investors still complain that they're not being given access to the hot IPOs, and when they do get access, the amount of shares available is scant.

Los Angeles-based Direct Stock Market began pushing its online private placement venue, where burgeoning companies can come together with interested investors (WS&T, 1/99). Meanwhile, the already successful IntraLinks, which had till now focused on capital-markets deals, began eyeing the online private placement market after a investment by Ernst & Young (WS&T, 7/99).

When first conceived, the World Wide Web was intended to democratize the flow of capital, whether it be intellectual or financial. With more and more retail investors jumping online, from the rowdy daytrader to the staid septuagenarian, 1999 became the year that the Web began to live up to its promise.

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