WOFEX announced this week that it will enter the ever-crowding world of online, electronic trading systems sometime in the fourth quarter in the hopes that some special features of the system will attract the liquidity needed for its success.
WOFEX is designed to be a one-stop shopping site for broker-dealers and institutional investors who want the transaction speed and matching ability of an electronic communication network (ECN), the ability to move large chunks of stock anonymously and without moving the market-such as with a crossing system like ITG or POSIT- and the ability of an exchange to generate capital.
WOFEX Chief Executive Officer Rich Kelly says, "What we've done is taken those three pieces and melded them together, so any trader can come in from an institution or a broker-dealer and, if he needs the commitment of capital, it's there. If he needs fast executions of highly liquid stocks with no spreads, it's there, if he needs to execute large block orders, the possibility is there for that also."
WOFEX will use Persistence and Talarian software and Hewlett-Packard hardware (HP also made a $15 million convertible debt investment in WOFEX-the remainder of the funding is private venture capital) to run its system. Clients can connect to the system using FIX-in which case a private line or router will run from the client to the server, over a proprietary Internet account, or through a front end that WOFEX plans to produce. Although there will be several small Java applets available for viewing order books and such, active trading will be carried out in an application-based environment.
Kelly says WOFEX is targeting the exchange space more than the broker-dealer arena, "We believe that the structure of Nasdaq isn't necessarily the best structure for the marketplace," he says. WOFEX is looking for broker-dealers, mutual funds, large financial institutions, pension funds and hedge funds to trade on its site. In most cases, trading for broker-dealers will be free but for institutions will cost anywhere from half a cent to two cents.
Although WOFEX has loose commitments with 25 to 30 companies to use the site, no one has signed on as of yet. Kelly says he hopes to have at least 100 institutions and broker-dealers on board-the amount he cites as a minimum for the necessary liquidity-by the time the system launches in the fourth quarter.
Kelly adds, "If you like, you can put 50,000 shares out there on our system only showing, say, 800 shares at a time, and the other 49,200 is eligible to be crossed at the next crossing session crossing will occur at least six times a day. It's totally integrated, you don't have to move it from marketplace to marketplace." And, if an order cannot be filled on the WOFEX site, linkages to NASDAQ and all the ECNs through SelectNet will send the order out to be filled elsewhere.
WOFEX will be regulated as a broker-dealer under regulation ATS.