Computerized Stock Trading System Moves to Arizona
After a slow start on Wall Street, a computerized stock trading system that bypasses traditional exchanges is moving to Arizona.
The state last week approved a plan for R. Steven Wunsch to move his 8-month-old electronic auction to Phoenix and rename it the Arizona Stock Exchange.
Wunsch’s system will receive up to $2 million in loans plus promotion by Arizona as incentive for the move.
Wunsch said the new “exchange” is not intended to be another regional market, but Arizona officials hope that it gives small- and medium-size companies there added exposure.
The move also will give Wunsch--a former Kidder, Peabody & Co. executive whose plan was fought by the New York Stock Exchange--more time and money to drum up business.
About 3,100 stocks can be traded during two daily computerized auctions. Wunsch said the system has 56 institutional customers.
But the auction in the past three months has attracted just under 20,000 shares a day. The average daily volume in its best month was 140,000 shares. That’s less than one tenth of 1% of the NYSE’s average daily volume, and far less than even the smallest electronic trading networks.
Wunsch said no more than a dozen customers have placed orders on a single day, about half of what he views as necessary to create enough trading activity, or “liquidity,” to attract a steady business.
Arizona’s governor signed legislation in June calling for ways to stimulate the capital markets in the state, including establishing a stock exchange.
Sandra Forbes, an assistant director in the Arizona Securities Division, said Tuesday that starting an exchange from scratch could have taken four years or longer.
“The money that’s available for small businesses here is extremely limited,” Forbes said. “We thought that having something like a stock exchange would provide a platform for our . . . companies.”
Forbes said most Arizona companies now trade on the NASDAQ electronic network but receive little attention.
Arizona is “hoping for better liquidity for regional companies, but it does it by bringing a national exchange within its borders,” Wunsch said in an interview.
While other private trading systems have appeared in recent years, Wunsch’s network is different because it actually sets stock prices, as opposed to simply matching up orders to buy and sell.
On the system, traders enter the amount of a stock they want to buy or sell. A computer calculates an equilibrium price satisfying the most trades possible in a particular stock and then executes them at that price in an electronic “auction.” Participants are linked by personal computers.
Wunsch’s system is not intended for individual investors but for large traders such as money management firms, insurance companies and pension funds.
Arizona has agreed to loan Wunsch $700,000 through 1992 and up to $2 million by mid-1993. The money is from an account containing corporate securities registration fees.
Arizona will also cover the costs of relocating Wunsch’s computers, now based in Minneapolis. The system will begin operating from Arizona in February. Wunsch will keep an office in New York at least temporarily.
Wunsch said that despite the slow start, he is confident that the system will attract enough liquidity to survive. So far, big customers are trading on the system to support it, not because they know they can complete a trade.
The Securities and Exchange Commission has exempted Wunsch from costly regulations governing exchanges. But if volume reaches the level of the Cincinnati Stock Exchange--about 1.2 million shares daily--its status will be reconsidered. No regulatory changes were required for the Arizona move.
