Armed with special Securities and Exchange Commission's correspondence, the owner of an Internet-based trading system said it is the first Internet trader with an SEC no-action letter
Peoria, Ill.-based Niphix Investments is planning to inaugurate its service next month with the $5 million initial public offering of Peoria's Clark Engineers.
Clark Engineers plans to issue 500,000 shares priced at $10 per share.
"A lot of small companies want to do Internet IPOs, and many Internet companies are doing offerings," said Nimish Gandhi, president of Niphix, and a distant relative of Mahatma Gandhi, the Hindu nationalist leader and social reformer. "But to my knowledge, we're the only company with a no-action letter."
Interest
Gandhi said a number of companies have expressed interest in issuing stock through Niphix, but so far only Clark Engineers has received regulatory approval from the SEC and the state of Illinois.
"We want to help small companies issue their stock and build a strong presence," Gandhi added. "Companies can get seasoned with us."
According to Gandhi, the SEC no-action letter, issued in 1996, allows Niphix to issue and trade over-the-counter stocks under a plan presented by Niphix. A no-action letter is a statement by SEC staff that informs a party the SEC will take no enforcement action against the party if business follows the approved plan.
A spokesman for the SEC declined to comment on the status of the Niphix no-action letter at press time.
Account Application
Investors using the system must complete and sign an account application and open a cash account with Niphix at a U.S. bank that provides escrow services.
Gandhi said the cash account allows Niphix to guarantee trades and to eliminate shorting and margin trading.
The firm has contracted with Computer Clearing Service in Los Angeles to clear trades.
Niphix is a member of the National Association of Securities Dealers and the Securities Industry Protection Corporation.
Niphix has competition on the Internet marketplace, however.
The most publicized outfit is Wit Capital, a 33-person New York broker dealer which has provided investors access to at least a dozen IPOs in the past 12 months.
Some people familiar with the industry said Internet trading could eventually challenge the current OTC marketplace.
"In the short term, Internet companies can't really compete," one expert said. "But down the road, if the OTC market gets overregulated and becomes less efficient, the Internet market could explode."
