It’s getting so that even the pros need a checklist to remember all the ways stocks and bonds can be traded these days. And Los Angeles is something of a center for alternative trading arrangements.
In days of yore (the early 1970s), investors bought stock through brokerages, which then executed trades through either the NYSE or AMEX exchanges. Nasdaq was just a baby.
But since then, Nasdaq has grown up (allowing traders to bypass the NYSE floor on Nasdaq stocks), and institutions developed the Instinet, for trading large blocks of stock with each other (and bypassing the brokerages and the NYSE).
Into this market, L.A.-based Jefferies Group Inc., long known for its expertise in moving large blocks of stock (tens of millions of dollars and up) this May added its @Harborside trading system, designed to allow large-block holders to anonymously seek out potential trading partners through a proprietary Jefferies Web site.
A problem for the big boys is that, if the market is tipped that a big trade is looming, prices will move in the wrong direction.
In the Harborside system, a big player indicates interest, but the interest is invisible until a corresponding bid or sell order is placed into the system. Then Jefferies brokers negotiate to close the deal, while keeping both parties in the dark about the other’s identity. The idea is to line up “natural” buyers and sellers, so that the transaction can get done without impacting market prices.
Out in Westlake Village, low-profile Jones & Associates does the some sort of thing, lining up big buyers through its computer networks and then negotiating a transaction, while keeping identities as secret as possible. And Santa Monica is the birthplace of “Bondlink,” the Web site put up in April by the Trading Edge Inc., which allows institutional bondholders to trade corporate IOUs anonymously.
In addition, some local medium-sized money managers (under $10 billion) have been aggressive in patronizing off-market traders, such as Bernie Madoff Inc. in New York (a subsidiary of discount giant Charles Schwab Corp.).
For individual traders, these so-called electronic communications networks, or ECNs, have bloomed in the Internet-crazy ’90s. They allow the little guys to trade stocks through off-market brokerages, which do not clear through the floors of the major exchanges. One ECN, called the Island ECN Inc., handles roughly 90 million shares a day. All in all, it’s a vastly different world than the one many Baby Boomers grew up with. And some local money managers are openly wondering about the future shape of Wall Street.
“The New York Stock Exchange, with its system of floor specialists, is certainly archaic in the age of electronic communication,” said Dan Genter, chairman of RNC Capital Management in Century City, a $4 billion shop. “I would guess in five years we will have 24-hour trading, and no specialists on the floor. It will all be an electronic marketplace, where bids and asked quotes are matched up.”
For the big boys, the plethora of trading routes is probably a good thing, said David Ryan, founder of Ryan Capital Management LLC in West Los Angeles, a $25 million shop. But he wonders about individuals who get itchy fingers.
“When you see the promotions of day trading and other systems as ‘professions,’ you worry a little bit,” said Ryan. “Just because trading is easier doesn’t mean that making money by trading is easier. This is a hard, hard business.”
Wine or whine?
In the vintner business profits can turn to vinegar, not just because consumers are fickle and the middlemen are tough guys, but because of storms and cold fronts.
And unseasonably cool weather has depressed yields, hurting revenues, reports Scheid Vineyards Inc., a grape-grower with seaside headquarters in Marina del Rey. The company recently reported a net loss of $411,000 (7 cents a share) for the second quarter ended June 30, compared with a loss of $216,000 (4 cents) for the like period a year ago. Second-quarter revenues fell to $271,000 from $660,000 in the year-ago period.
Scheid’s underwriter and sole source of research coverage, Newport Beach-based Cruttenden Roth, lowered its rating on the stock from a “strong buy” to a “buy.”
The cool weather is expected to reduce crop yields by 25 percent on Scheid’s 6,000 acres, the company has reported.
Scheid went public back in 1997 at $10 a share, and its stock has wandered south ever since, trading last week at under $5 per pop. It recently sank as low as $3.50 a share, but rallied a bit.
Chairman and founder Alfred Scheid has intimated that the company would buy back shares whenever the stock sank below $4. Be that as it may, the second year of bad weather has some investors treating hangovers.
One Web room chatter, in response to the company’s announcement of smaller crops, posted a note stating, “Pass me the Ripple. I need a drink.”
Bucks for biomed
The Southern California Biomedical Council, an organization devoted to growing the region’s biomedical industry, is already almost booked up with presenters for next year’s conference, in February. The heavy interest in the meeting, named the Biomedical Investment and Strategic Partnering Opportunities Conference, reflects the strong capital needs of the local biomedical industry, said Ahmed Enany, executive director of the non-profit council.
“In the past, much medical technology has been developed here, but it has tended to be commercialized elsewhere,” said Enany.
The huge medical intellectual base in Los Angeles UCLA, USC, St. Vincent Medical Center and several other centers has not generated a big biomed industry. Right now, Enany is whittling down about 60 biomed applicants, to settle on 20 to be presented in February, in 15-minute segments.
“We’re almost already booked up. There is a very strong selection this year,” said Enany.
So why not make time for more companies to give presentations?
“We have decided to keep the conference to a day, and that is the maximum you can fit in,” said Enany.
About 500 people, mostly would-be investors, are expected to attend next year’s gathering at the Pasadena Convention Center, which would be double the number at this year’s confab.
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
