Written by: CBS.MARKETWATCH.COM
The renegade day trading firms are officially no more.
The little engines that could have either been brought or have bought their way to the table in the past two weeks and the industry probably isn’t going to be the same again.
That’s good in many ways. Day trading’s reputation was already tarnished thanks to scattered lawsuits and regulatory probes long before Atlanta day trader Mark Barton’s shooting spree last year.
“We will continue to innovate and consolidate this sector,” Omar Amanat, Tradescape.com
Still, news Thursday that Softbank-backed Tradescape.com was buying struggling after-hours trading network MarketXT for $100 million in private stock, one week after Charles Schwab SC.H, +0.00% picked up CyberCorp. for $475 million, may carry a downside for the renegade investor.
The two firms, headed by old friends Omar Amanat at Tradescape and Philip Berber at CyberCorp, rocked Wall Street, and in turn lowered the costs of access for investors. Are they really ready to settle down?
Like Ameritrade AMTD, +2.81% before it, the leading day trading firms pioneered a new way of trading stock. Ameritrade and the many online brokers that followed the Omaha’s firm’s lead changed the nature of retail investing by allowing the little guys to conduct trades more cheaply and conveniently by emailing in buy and sell orders.
Tradescape and CyberCorp, software vendors at the core from their CyberBlock days, upped the ante. The two took advantage of new trading applications and started injecting small investor’s orders right into the markets, making far more out of changes to arcane order handling rules than many thought possible. Soon enough both started seeing trading volumes that vaulted them to player-status despite their small account bases.
Now that CyberCorp’s been folded into Schwab’s massive operation, the industry will be watching whether the firm’s near evangelical commitment to trawling for the best bid and offer starts to wane. Schwab sends most of its customers’ orders in Nasdaq stocks to its own market maker, and that’s not likely to change for the time being, Schwab executives have said.
Tradescape, for its part, hardly needs MarketXT for a trade volume booster. Tradescape’s hyper stock traders are delivering some 40 million shares a day. Revenue last year totaled $75 million, Amanat said.
What the firm now has, thanks to this deal, are the MarketXT shareholders, which are among the biggest players on Wall Street: Morgan Stanley Dean Witter MWD, +0.00% Salomon Smith Barney, a Citigroup C, +2.06% unit and two market makers, Herzog Heine Geduld and Madoff Investment Securities.
And suddenly the trading landscape is starting to look a little more like we left it some three years ago. We just learned via an SEC filing that Merrill Lynch’s MER, +0.05% a 5.7 percent holder in Reuters Group PLC rtrsy Instinet’s parent.
Not an issue
Amanat says Tradescape’s independence isn’t an issue. The four Wall Street firms are minority shareholders, and Japanese Internet investor Softbank remains a minority holder, even after leading another $100 million this week to top its original $40 million. (E-Trade EGRP, -0.16% another Softbank portfolio member, was seen as a recent suitor for Tradescape.)
“We will continue to innovate and consolidate this sector,” Amanat said. “We’ll be more aggressive. We’re still a start up.
“In fact, the reason that the Wall Street firms were so positive about the combination was in order to get our ECP and smart order routing technology,” he said. ECP refers to electronic communications platform, an outgrowth of direct-access to the ECNs and exchanges technology.
It’s going to be interesting to see what the 27-year-old Amanat does next. Morgan Stanley and Salomon Smith Barney will continue to use MarketXT as their exclusive after-hours exchange for retail customers, giving Tradescape a solid start. Meanwhile, Tradescape will continue to route orders to the best bids and offers, Amanat said.
The great leaps investors have seen in market transparency and better pricing won’t fade, Amanat says. Tradescape’s looking at shaking up the pricing model now, he says. Oh, and at an IPO.