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January 1, 2000

New ATS for the Little Known Stocks - Ex-NASD Staffers Join Florida Firm's

By Peter Chapman

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  • New ATS for the Little Known Stocks - Ex-NASD Staffers Join Florida Firm's

Most market makers think alternative trading systems are just for trading large cap stocks such as Dell Computer and Microsoft. But could they be wrong?

Early this year, GlobeNet Capital says it will launch a web-based matching system for stocks which do not have the liquidity and visibility regarded as a prerequisite for an active market.

GlobeNet, a 28-person outfit which is based in Winter Park, Fla., believes there are thousands of thinly-traded stocks languishing on market makers' books and in investors' portfolios that could gravitate to its ATS.

The reason: investors do not know much about these thinly-traded stocks or how they trade. The stocks are not followed by the media or brokerage analysts.

The GlobeNet ATS, pending regulatory approval, will be a bright light shining in the darkness, officials of the firm hope. A limit order book on the Internet and an adjacent depository of Securities and Exchange Commission filings, research reports, and news items are expected to provide extensive transparency for individual investors.

"If people can't see [these thinly-traded stocks] they can't trade them," said Bob Semones, chief executive of GlobeNet Capital. "Under-represented companies will finally have an Internet trading system to meet their needs."

GlobeNet Capital, which also operates a broker dealer subsidiary, says it is targeting retail order flow. The firm will provide direct ATS access to its own retail customers or indirect access to retail customers via arrangements with other broker dealers. Over time, GlobeNet sees potential to handle small institutional orders. GlobeNet has selected Dallas-based Penson Financial as its clearing broker.

Rule of Thumb

Semones says a 90-10 rule applies in the stock market. "Ten percent of the stocks get 90 percent of the attention," he explained. "We intend to register those companies that don't really get their story out to the public in a cohesive manner."

In Semones' view, that could include all but 300 of the approximately 1,300 stocks listed on the New York Stock Exchange. GlobeNet will register any stock listed on other exchanges, or traded on another market system. An OTC Bulletin Board stock must report its financials to the SEC to qualify. Not all of them do although the National Association of Securities Dealers is phasing in mandatory reporting.

To trade on GlobeNet, an issuer must have equity of at least $1 million, a minimum of 300 shareholders and a float of 100,000 shares. Semones expects to register fifty companies by the time his firm begins operations, scheduled in the first quarter.

GlobeNet's launch arrives against the backdrop of a Nasdaq crackdown on poorly-performing small-cap stocks. Those issues trading for less than one dollar for six months get the boot under the Nasdaq arrangement.

Many could end up in the sometimes volatile bulletin board market where they could drop off investors' radar.

Semones says GlobeNet will register companies trading at less than a dollar provided they meet GlobeNet's other requirements.

Comparison

Functionally, GlobeNet, which uses the FIX protocol, is similar to the Island ECN. It will match limit orders and display the entire book on the Internet. It differs, however, because every order has an I.D. number. An investor will be able to follow the progress of the order as it achieves priority in time and price.