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May 31, 2000

Cover Story - Florida's Upstart Foreign Traders: The Sunshine Man's Formula

By Sanford Wexler

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  • Cover Story - Florida's Upstart Foreign Traders: The Sunshine Man's Formula

On the second floor of an unpretentious office building in the center of Winter Park, Fla., a small band of young traders is challenging the big boys at their own game: making markets in foreign securities for U.S. broker dealers and wealthy investors.

International Assets Advisory Corp., the 100-person broker dealer affiliate of a publicly-traded Nasdaq company, created the trading unit in 1994. INTL, the unit's name, didn't have a problem attracting talent.

Winter Park is the sort of community that traders in financial meccas like New York come to fight stress, not to work over a long, weekend break: a leafy paradise of oversized homes and manicured lawns, pricey boutiques and beautiful people. A place where ordinary means big cars and catered garden parties.

The sunny locale, next door to the Disney World playground, is a stunning paradise. Finding traders from outside to work here does not seem hard.

Even so, a small trading desk like INTL, equipped with the best talent and a sensible business plan, could have a tough time striking oil in a market dominated by several large dealers, including Merrill Lynch & Co. and covered by others, including Arnhold and S. Bleichroeder. But six years after its beginning, INTL appears to be a success.

INTL trades 8,000 foreign securities, primarily in the form of American Depositary Receipts (ADRs.). About 15 percent of INTL's trades directly represent foreign ordinary shares. Shares are bought and sold through a network of overseas brokers who mostly speak English, the language of international business. (INTL's desk has an abundance of multi-lingual talent, however).

The ADRs, quoted and tradable in U.S. dollars, are created for a small fee by Bank of New York for INTL, out of the ordinary foreign shares it trades. The bank is known as a custodian. Like other custodians, it can effectively disassemble the ADR, releasing the shares whenever INTL needs them for trading. INTL uses Wexford Clearing Services Corp. in New York as its clearing agent.

INTL is dwarfed by the huge volume of non-U.S. trades executed by Merrill Lynch and other dealers. The Winter Park-based dealer said it executed 17 million shares, valued at $290 million, in the first four months of this year.

"We execute trades as small as a few hundred dollars and as large as a few million dollars," said Gerry Mastrianni, the plucky head of the trading desk.

Foreign agency traders on U.S. desks are finicky. They obviously shop around for the best markets. "We can't just go to one market," said Sharon Brown, an agency trader at A.G. Edwards in St. Louis, who is an INTL client.

Clearly, there is no contest between INTL and Merrill on the revenue stream. International Assets Advisory Corp., which runs INTL, had net income of $620,033 for the six months ended March 31. Merrill, by contrast, had net income of about $1 billion for the quarter ended March 31. The publicly-traded holding company for INTL is International Assets Holding Company (Nasdaq: IAAC).