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Online brokers go global
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May 25, 2000: 1:37 p.m. ET
E*Trade, TD Waterhouse gearing up to offer global access to exchanges
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - It may literally be the last frontier for online brokerages -- breaking down the barriers that prevent investors from buying individual stocks from one part of the world if they live in another.
Within a year the three kingpins of online trading, Charles Schwab (SCH: Research, Estimates), E*Trade Group Inc. (EGRP: Research, Estimates), and TD Waterhouse Group Inc. (TWE: Research, Estimates), all plan to offer real-time access to major exchanges in North America, Europe and Asia through central clearing houses that will allow traders buying and selling stocks in different countries to trade other nations' securities online.
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Their plans are impressive. Simply put, investors will be able to buy and sell securities on a host of exchanges throughout the world no matter where they happen to be sitting. With a click of a button, a Canadian will be able to buy stocks in Sweden, a Swede will be able to buy stocks in Japan, a Briton will be able to buy stocks in Frankfurt, an American will be able to buy stocks in Italy -- you get the picture.
At the same time, significant questions remain concerning regulatory issues that differ from country to country, the availability of research and information on overseas companies to U.S. investors, accounting issues, tax issues, currency issues and even language barriers that put the cart well ahead of the horse when it comes to buying and selling securities listed beyond borders.
An aggressive strategy
"It is definitely the way things are going, but a year-end target sounds a bit aggressive," said Greg Smith, an Internet analyst with Chase Hambrecht and Quist in San Francisco. "You have the currency issues and the accounting issues and you still have the regulatory issues, and in some countries there are issues about foreign ownership on stock. I think it's a lot easier to have foreign investors buying U.S. stocks rather than the other way around."
 As exchanges in Europe and North America move to forge closer ties and develop relationships, so, too, online brokers are moving toward providing their clients with as many places and methods to trade as they can.
Since April, the Nasdaq stock exchange has unveiled agreements with exchanges in Japan, Canada, Great Britain and Germany to establish variations of its tech-heavy exchange in other parts of the world -- central equity trading operations that will be linked with its main exchange in New York. It is widely expected to unveil other deals with other exchanges in the months to come.
And the New York Stock Exchange, the granddaddy of exchanges in North America and the world, is working at establishing relationships both within and beyond U.S. borders, according to Chairman Richard Grasso. The NYSE already has set up initiatives with exchanges in Toronto, Tokyo and parts of Europe, and is working on an Internet-based trading platform that also will offer seamless multinational trading.
Trans-border trading
It's all supposed to add up to a way for retail and institutional investors to trade equities and other securities issued in almost any country in the world faster, easier and cheaper -- and free of the usual trans-border nuisances that slow up transactions and deter investors from buying stock of companies on exchanges beyond their own borders.
 For the fledgling online brokerage industry, it undoubtedly will be a boon. Stock trades piped through online brokerages surged almost 70 percent in the first quarter of the year, with online brokers stuffing more than 2.5 million new accounts under their collective belt, according to figures compiled by U.S. Bancorp Piper Jaffray. The amount of assets held in online brokerage accounts grew by 23.5 percent from the previous quarter to over $1 trillion.
And that's just in the United States. In Europe and Asia, online trading is only beginning to gain in popularity as retail investors become familiar with high-speed Internet access and discover they can trade stocks cheaply and more efficiently than by picking up the phone and calling their broker.
"It's a hot thing in Europe and it's a hot thing in Asia -- it's taking off dramatically," Smith said. "It's about two years behind where the U.S. is in offering online services and in terms of being the choice of retail investors."
Sterling? Yen? Ringgits?
So what exactly would borderless trading look like? Not that much different from the way it looks right now. U.S. investors would be able to scroll or click their way to view companies listed on exchanges outside the United States, access research about them and place a trade. Accordingly, investors residing beyond U.S. borders would be able to buy and sell equities in the United States, Canada, Japan and many other markets.
 On the flip side, offering clients the option of buying and selling international equities isn't as simple as the click of a button.
Bharat Masrani, executive vice president of TD Waterhouse Securities, said that one of the principal problems with breaking down the borders when it comes to stock trading is the lack of progress among regulators and lawmakers -- particularly in Europe - in finding a way to establish a uniform method to share and disseminate information between exchanges.
Also, because of significant differences between countries -- tax laws and company reporting requirements in Germany, for instance, are notably different from tax laws and reporting requirements in Japan -- arrangements need to be made between the exchanges themselves first, and then with the online and offline brokers, before they can provide the service to their clients.
Lots of talk, little action
"One of the challenges on the continent has been that we have had lots of announcements, lots of initiatives that have yet to come to fruition," Masrani said. "It's just not easy for someone in the U.K. to buy German stocks and the other way around. There are different regulatory regimes, different clearing systems and different custody arrangements. One of the reasons that cross border trading has not taken off is because of those problems."
And that's just in Europe. In Asia, there are whole different sets of problems. Investors in Japan, for instance, are more comfortable placing trades with their local institutions, meaning online brokers might make better inroads in those markets by hooking up with someone who has local expertise, said Tim Butler, an e-banking analyst with Pacific West Securities in Seattle.
 What's more, there are the brick-and-mortar brokerages to worry about -- heavy hitters such as Merrill Lynch & Co. (MER: Research, Estimates) and Morgan Stanley Dean Witter & Co. (MWD: Research, Estimates), that already have a strong international presence and have been altering their strategies to fold their retail equity operations into one recognizable brand name.
That's all from the perspective of international investors, the millions of potential clients that online and offline brokerages are eager to sign up. Of equal significance are the millions of existing U.S. clients who may be quite at ease with trading online but might not be so comfortable trading Taipei-listed stocks at 3 a.m.
"On the one hand, you're empowering people in a huge way, but on the other hand you're placing a burden on U.S. investors to understand a foreign market," Butler said. "When you're investing in a foreign company, very often you have legal, governmental and political issues coming into play." 
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