Fun_People Archive
28 Mar
Internet stock trading poised to change the securities landscape

Date: Thu, 28 Mar 96 18:14:57 -0800
From: Peter Langston <psl>
To: Fun_People
Subject: Internet stock trading poised to change the securities landscape

[I don't know why this has a "WASHINGTON" dateline, but the Spring Street  
Brewing Company is in Greenwich Village, NYC, NY (as is Spring Street, or at  
least one Spring Street).  -psl]

Forwarded-by: Keith Bostic <>
Forwarded-by: "Jeff H. Snider" <>

Thursday, March 28, 1996

Internet stock trading poised to change the securities landscape

Small companies may follow brewery's lead

By Ryan J. Donmoyer

WASHINGTON -- When the Spring Street Brewing Company decided to sell its
stock on the Internet last year, it didn't do so expecting to forge a new
era in American securities history.

But with the SEC's decision last week allowing Spring Street to continue
trading its stock online, an entirely new electronic exchange may emerge.

According to Spring Street president Andrew Stein, more than 500 firms have
contacted the company for guidance on setting up their own virtual trading
floors. "This is a breakthrough opportunity for small and developing
companies everywhere," says Klein. "It's starting a whole transformation of
how securities are sold and traded."

The SEC's green light for Internet trades indicates a cautious embrace of
the new technology. But some observers wonder what effect, if any, Internet
trading will have on the traditional stock market.

Spring Street made headlines in February when it conducted its initial
public offering partly on the Internet.  Determined to raise cash but unable
to attract underwriters and unwilling to go to venture capitalists, the
company decided to take advantage of the booming popularity of the new
technology. "We wanted to sell our stock directly to the public," Klein
explains. "We reached a lot of people through the Internet that we may have
never been able to reach otherwise."

Before long, Spring Street had 3,500 stock holders and had raised $1.6
million, says Klein, a former securities lawyer.  It decided at that point
to create Wit-Trade, a virtual exchange on the company's World Wide Web page
( where investors can post buy and sell
offers for Spring Street stock.

The SEC, which had been monitoring the company's Internet activities since
the IPO, raised concerns about the security ramifications of Web-based
trading and asked Spring Street to shut down the exchange while it explored
the legal ramifications. After a series of meetings with the agency, Spring
Street on Friday received a letter from the SEC approving the project, with
only a few required modifications. The company expects to have Wit-Trade
active again by next week, once it makes the SEC's adjustments, which
include making arrangements with a bank to process the trades.

Robert Colby, deputy director of the SEC's division of market and
regulations, dismisses the notion that the SEC's stamp of approval in this
case could fundamentally alter the securities industry or make the New York
Stock Exchange a dinosaur.

"This is really limited to companies that have a very limited market for
their securities," Colby says.

Colby believes that Internet trading is unlikely to appeal to investors who
own stocks that are widely held. The bulletin board trading mechanism of
Wit-Trade will move much too slowly for most traders' tastes, he says.

"When people want to sell, they want to sell," he says. Even if a price is
posted on a bulletin board, most online security sales will be subject to
negotiation, Colby adds.

Despite the publicity Spring Street has received, Colby says his office has
not received many calls of inquiry from other companies interested in
following in Spring Street's wake.  "There hasn't been a flood," he says.

Klein said that whether or not Internet trading overcomes traditional
exchange mechanisms, the option will remain extremely attractive to smaller
companies like his own because conducting business is extremely cost
efficient.  Establishing Wit-Trade cost the company only $800, he notes.

By using the Internet, Spring Street not only increases its own exposure,
it saves a great deal of money in postage costs by making financial
information available on the Internet. It will still mail stockholders
annual reports using snail mail if they prefer, he says, "but we would
prefer them to be online because it saves us money."

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