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April 30, 2002

Storm Capsizes Another Small Boat

By Peter Chapman

In a sign of hard times, H&R Block Financial Advisors, formerly Olde Discount, shut down its market making operation last month. The broker blamed lower profitability due to the introduction of penny increments and the slump in retail volume.

"In the current market environment, the business model is no longer sustainable," said Tom Fitzgerald, chief operating officer of the broker dealer subsidiary of the well-known tax preparation house. "Adapting to the changes in hopes of increasing profitability would have required us to take on significantly more risk and expend more resources."

Neither of those options is consistent with the firm's objectives, Fitzgerald added. Since Olde's purchase by H&R Block in 1999, the Detroit-based brokerage has quietly charted a new course. Instead of the cheap trades that made its reputation after May Day 1975, the discounter now emphasizes financial advice. Market risk is no longer on the agenda. "Our value proposition is advice," Fitzgerald said.

The brokerage shed 23 of its 33-person trading staff, including Nasdaq trading head Dave Nager and listed head Mitch Semon. An agency desk, run by Kathy Van Houten, will remain as will a preferred stock dealing desk.

Until last month, the firm traded 425 Nasdaq and listed securities, printing on both Nasdaq and the Cincinnati Stock Exchange. It was ranked No. 67 by Nasdaq for the year through March, trading 397 million shares.

Olde began making markets in 1987 and accounted for one percent of Nasdaq's volume for a number of years, according to Fitzgerald. It lost that distinction with the explosion of institutional volume in the mid-90s.