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It is just my personal opinion, but I think the recent weakness in the
Internet IPO sector, leading the Nasdaq down something like 11.5 percent, is
not a good environment to to launching futures brokerage firm IPOs.
The bloom may be off the rose, at least for the time being. If I were an
underwriter of any of the proposed deals in the futures industry, I would be
a little nervous right now.
Without good firms to make valuations against, these hopeful brokerage firms
are difficult to value without the Internet IPO frenzy to buoy them.
FCMs just don't make a lot of money. Some of these firms were started by
floor traders who managed them in the afternoon after they came off the
trading floors, or at least from that mindset. They controlled their risk by
hiring good people and training them well. All orders crossed a desk that
someone was watching.
However, with electronic trading, it is more difficult to control your risk.
So the time was right to cash out and give the risk to the public investor or
the sophisticated institutional investors who would buy the IPO.
Perhaps this can still be done by private placement, but that does not really
allow for the added value of the Internet IPO frenzy. And waiting for the
time to turn right might be too long for merger partners to keep it together.
The Alaron IPO announcement might have been a tipoff as well, when they
displayed their books showing losses. Granted the losses seemed to be
improving, but this might just give an underwriter new information to give
them pause. If the FCM business is so great, why isn't a firm like Alaron,
with a high advertising profile within the industry, making money.
Maybe two firms will emerge from the Lind Waldock, LFG, FADC & Saul Stone
merger dance. But who will be partnering with who?
I for one would have like to see this merger/IPO go through, it would have
made the industrry a lot more interesting with all the changes it would have
brought. Maybe they will come just a little slower.
Regards,
John J. Lothian
Dislosure: Futures trading involves financial risk, lots of it!
Disclosure: John J. Lothian is the President of the Electronic Trading
Division of The Price Futures Group, Inc., an Introducing Broker and
competitor to the firms mentioned. These opinions are mine alone.
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