International Business: Markets
The Tremors from Online Trading in Europe
Buying stocks over the Net is shaking up the equity market
Back in late 1996, Alessandro Foti saw a revolution in the U.S. that he knew would soon reach Europe's shores: Hundreds of thousands of Americans were trading stocks via the Internet. Foti, who runs Fin-Eco, the asset-management business of Brescia's Gruppo Bipop, soon signed a deal with software house TIBC in Palo Alto, Calif. The Reuters Group PLC subsidiary provides the electronic platform not only for NASDAQ but also for burgeoning Internet brokers such as E*Trade Group Inc. "I wanted the best system possible in place when we decided to go ahead," says Foti.
Foti's persistence is paying off. After launching online stock trading services last December, Fin-Eco is attracting 200 new clients a week. By midyear, they will be able to trade in Frankfurt, Paris, Madrid, and on both NASDAQ and the Big Board in New York, as well as in Milan. Foti expects that before the end of the year, Fin-Eco will have several thousand clients. "This is all happening much more quickly than anybody expected," he says.HISTORIC SHIFT. So it is--and not just in Italy. Internet stock trading is taking off in Europe. In two years, estimates Jean-Philippe Huguet, who heads the German operations of Fimatex, the online trading unit of Societe Generale, cybertraders in Europe could number 10 million. Such prospects coincide with a historic shift already under way in Europe, where share ownership is not nearly as broad as in the U.S. Recent privatizations, including behemoths such as Deutsche Telekom, are encouraging small investors. Others are fleeing government bonds in search of better returns. And since the euro's launch on Jan. 1, share prices from Helsinki to Lisbon are all quoted in a single currency.
Amsterdam broker IMG was doing 50 orders a day in 1996. But it was quick to spot the U.S. trend. At about the time Alessandro Foti was studying American trading habits, IMG became one of the first in Europe to offer cyberservice. The firm initially attracted only a few hundred clients--almost all of them computer science students at Dutch universities. But last year, its growth took off. The Internet client list is now 4,500 names long. "We can grow several hundred percent a year," predicts Olaf Nijemanting, IMG's director of private broking. The No. 1 reason: Trading costs are a fraction of ordinary commissions. A $50,000 trade with Fin-Eco costs $52; the traditional charge could be as high as $500.
It's the same story in France and Germany. At Paris-based Cortal, which Paribas set up in 1984 as a discount brokerage modeled on Charles Schwab Corp., roughly a third of its 420,000 clients use the Internet service. Cortal now offers "bed-and-breakfast" specials: If you buy a stock online one day and sell it the next morning, you can execute the sale commission-free. The intent is to encourage the day trading that has helped fuel the U.S. equity boom.
But electronic trading will have a look of its own in Europe. Internet use, while expanding, is still small. What's more, most Continental investors still seem loath to give up financial advisers for "do-it-yourself" discount operations. Indeed, banks have moved slowly for fear of cannibalizing their traditional equity-trading businesses. This has left them years behind such U.S. players as E*Trade, Ameritrade, and Schwab.
Most banks now recognize that they have to get online quickly, and they will probably get the lion's share of online trading in the near future. But American companies are angling for a piece of Europe's pie. Charles Schwab, which bought British discounter ShareLink in 1995, says it has attracted 6,300 customers since launching Internet service last June. E*Trade is licensing its name and interface platform with local players. In January, it launched a service with Paris brokers CPR Bourse. It is now negotiating in Britain, Germany, and Italy. For Europe's fledgling day traders and other converts to the thrill of the markets, the new services can't come fast enough.By John Rossant in Milan, with Gail Edmondson in Paris, and bureau reportsReturn to top