A quintet of financial services firms has hopped on the Redibook electronic communications network (ECN) consortium bandwagon. Last week, PaineWebber Inc., Credit Suisse First Boston, Lehman Brothers, TD Waterhouse Group and National Discount Brokers Group Inc. (NDB) all signed letters of intent to purchase minority stakes in Redibook--an ECN that has seen its daily volume rise significantly since it forged an alliance with Fidelity Investments, Charles Schwab Corp. and Donaldson Lufkin and Jenrette (DLJ) this summer (ETW, 7/26/99).
For its part, PaineWebber, one of the largest full-service brokerage firms in the U.S., plans to offer its retail clients after-hours trading via Redibook. To achieve this, PaineWebber will likely build an interface between its online trading system and Redibook, which currently operates from 8 a.m. to 10 p.m. EST. PaineWebber expects to offer after-hours trading over Redibook by the first quarter of 2000. Similarly, NDB intends to offer its online retail investor clients extended-hours trading over Redibook by year's end.
However, the intentions of the rest of the firms that agreed to buy minority chunks in the ECN remain somewhat murky.
Back in July, Fidelity, Schwab and DLJ signed a partnership deal with Spear, Leeds and Kellogg--one of the founders of Redibook--that called for the trio of firms to build electronic interfaces between their online trading offerings and the ECN. The primary goal of the alliance was to add a large retail element to the order flow of Redibook, which had previously been targeted mainly at professional traders and buy-side institutions.
Thus far, the results have been quite good. Prior to the alliance, Redibook was trading a daily average of 21 million shares. This month, Redibook has had an average daily trading volume of between 28 million and 35 million shares, says Neil DeSena, a managing director at Redibook.
At the time of the initial partnership, the partners also indicated that they were going to register Redibook as a broker/dealer and extend the ECN's hours. The partners met the latter promise in mid-September, when it extended the close of Redibook from 5:15 p.m. to 10 p.m. EST. And in terms of the broker/dealer registration, Desana says that Redibook has sent all the proper filings to the SEC and is not just awaiting approval.
While acknowledging that Redibook is currently receiving some retail order flow from Fidelity, Schwab and DLJ, Desana declines to speculate on how much of the ECN's volume boom should be attributed to the alliance. However, he says that Schwab recently went live with an after-hours connection to Redibook.
Like Schwab, DLJ and Fidelity--along with PaineWebber and NDB--eventually expect to route some of their retail order flow to Redibook after hours. Desana says he does not yet know what benefits CSFB, Lehman and TD Waterhouse expect to reap from their minority ownerships in Redibook. Desana also declines to specify what percentage of Redibook each of the minority investors own.