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April 30, 2001

The Yanks Are Coming: Europe is behind the States in the online trading revolution. But now many de

By Staff Reports

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  • The Yanks Are Coming: Europe is behind the States in the online trading revolution. But now many de

The timing may not seem perfect but who can blame U.S. broker dealers looking for a piece of Europe's fledgling online stock trading business?

Projections for growth in the budding pan-European stock culture have convinced some not to hold off until the market perks up. And the names on the bandwagon include some of the biggest American dealers.

Despite declines in the European stock markets, the trend in online trading in Europe is towards unprecedented growth, according to analysts.

"U.S. and European investment banks are waking up to the equity revolution in Europe," said J.P. Morgan analyst Huw van Steenis. "The pay-off for the winners will be very significant."

Enormous Potential

The total number of European online retail accounts will number 7.1 million by year end, up from 3.74 million earlier this year, according to a report Steenis co-authored for J.P. Morgan. And that presents enormous potential for new order flow for U.S. market making firms.

"Although prone to seasonal and cyclical turbulence, the long-term dynamics will continue to attract new and existing shareholders online," the report stated. "We forecast that there will be some 15 million online investors in the major European markets by 2003."

Some think those projections are overly optimistic but U.S. firms are not intimidated.

Hit Parade

The list of American entrants into the European field is a who's who of Wall Street firms: MarketEdge from Merrill Lynch, Goldman Sachs' PrimeAccess; Knight Trading Group's Roundtable; Jiway, a joint venture run by Morgan Stanley and OM Gruppen AB; and BestWins, a joint venture of Winterflood Securities and Dresdner Bank's Dresdner Kleinworth Benson.

The platforms taking root are typically agency-based systems with links to the various exchanges. One player contends it offers competitive prices as well as liquidity. "You will never pay more for a stock on Jiway than you will pay for it on the exchanges," said Peter Sibirzeff, a sales executive at Jiway. "We are also using market makers so you will always have the same liquidity you get on an exchange."

Who's taking the lead?

"The three firms making the real running are Goldman, Knight and Merrill," van Steenis said. "Goldman has the lead. Why do I say that? Building one of these agency-based systems for retail investors requires a fair amount of money. Goldman started spending earlier than most of the pack."

Goldman is penetrating Europe with its PrimeAccess system for online retail equity brokers. These brokers, in turn, offer Goldman's services to their clients. PrimeAccess provides electronic execution on European and U.S. markets, as well as settlement and custody services.

Knight has some some 20 participants enlisted in its European arrangement. Merrill is not as far advanced as either Goldman or Knight.

For OTC dealers in the States, the opportunities in Europe are tantalizing. About 50 percent of cross-border trading in Europe is directed to the U.S. with the lion's share going to Nasdaq dealers, according to Steenis.

"Being a Nasdaq market maker certainly gives you a headstart," he said.

Multi-Currency

Citigroup's Salomon Smith Barney, which is introducing a European equity order handling system to banks based in Europe, is one of the newest arrivals.