First Report for Susanna Khavul’s Tuesday NVD course
Team Members: Alexander Botha, Michael Fidance, Laurent Frederic, Ashley Jones,
Radhakrishnan Kadengal, Shaun Sellers
Idea: We propose an internet portal for on-line equity trading that provides proprietary
services currently unavailable to retail investors, such as linking subscribing retail
investors to a variety of research documents and brokerage partners. TotalTrader would
thus act as an online infomediary between retail investors and brokers.
A proposed format consists of three steps. First, the retail investor is provided with data
from Reuters that ranks equity research at broker/dealers and investment banks around
the world. Second, the investor chooses, based on the Reuters or other data, which
research reports to buy. Finally, the investor is provided the opportunity to transact. A
single fee would be charged for the three-step process. The key point in this procedure is
to provide the investor with choice in information and choice in trading.
Market: We are aiming for the “smart” retail investor, i.e., the retail investor who wants
high quality information about previous performance, future expectations, etc. Facilities,
such as Instinet, are already in place for institutional investors. Further, online discount
brokers, such as Scott Trade, would better serve retail investors who do not need
We think that there is a significant business opportunity to engage the smart or
sophisticated retail investor. They will be interested because (1) they will have access to
previously proprietary information, and (2) they will have a choice in how they trade.
And by channeling the many small retail investors through our portal, we provide the
volume needed to interest the major brokerage firms.
We expect, however, that initially there will be significant barriers to entry in the US
market, as there are already many well-entrenched players who would be hesitant to
changing the format of trading. We therefore will aim first at the UK market, and then
expand more generally into the European market, and possibly the Asian market.
Competition: Current online trading facilities for retail investors either do not offer
additional services, such as research information, or do not give the investor the choice of
which information. Many investors are unsatisfied with such minimal services. We would
try to form alliances with established players, such as Reuters and Instinet, in order to
impede others from offering similar services.
Risks: Several alliances are key to the success of this idea. Most importantly, Instinet has
already developed a transactional platform for online trading. We need to form an
alliance with Instinet where we provide a front end to their platform. Client transactions
would be directed though the TotalTrader website to the Instinet platform. Without
access to this platform we would have to spend substantial resources on developing our
own trading platform, which could adversely affect the profitability of the company.
Clearly, some type of exclusivity agreement would have to be made with Instinet, to
exclude potential competitors. An alliance with Instinet would also be needed for the
prestige and credibility in order to differentiate TotalTrader from other online providers.
Further, alliances would have to be formed with the brokers, who would be willing to
execute the trades. Brokers would have to be convinced of the idea of giving customers a
choice in how to execute the trade. It is expected that some brokerage firms will be
unwilling to share clients.
Further, we need access rights to high quality information, such as Reuter Survey reports.
This service is currently being offered for sale, so that we need to act quickly to obtain
the access rights.
There is also the risk that a substantial number of retail investors may prefer the
minimalist service providers, such as Scott Trade, so that profitability is not achieved by
selling additional services.
Current Status: Instinet has already invested millions of dollars in developing a reliable
transactional platform. We would need to provide a front-end, such as a website that
interacts with this platform.
Revenue: Clients would have accounts with TotalTrader. When a client wants to access
information, such as a research report, a specified fee would be charged to the account.
The fee would include the opportunity to trade for free with the provider of the
information. This fee would be shared between Instinet and TotalTrader. Additional
revenue would be generated by advertising on the TotalTrader website.