Social investing or an investment in competition?

FINALLY…something very exciting is happening in the world of online stockbrokers in Australia…hopefully…

Online stockbrokers…exciting? Ok…maybe not…but let me qualify something.

I agree that most people would not get too excited about changes in the online stockbroking industry. I on the other hand have had an interest in the space since 1998 when I was part of Sanford Securities which was one of Australia’s first online brokers.

You see back then we were doing some cutting edge stuff. Market depth, dynamic live data, alerts, option trading. We were doing it all…but then something happened. Because the market is what it is, and the ASX hasn’t changed how it does business or the products if offers in some time, once the tools that full service brokers were using had been introduced to the retail punters there was nothing else to introduce or enhance and, frankly, the industry became stagnate.

In fact leading up to November 2007 there had not been a new platform introduced for some 7 or 8 years and the industry was much like the airline business. The planes did the same things, they flew to the same destinations, and really the only two points of differentiation was brand loyalty and price.

Furthermore the choice had shrunk somewhat. Consolidation had commenced and at the end of Oct 2007 Australia’s biggest online broker CommSec’s had picked up rival online broker IWL (the company I used to work for) which not only operated Sanford Securities but had the outsource contracts for Westpac, NAB and Suncorp. ANZ had long gobbled up E*Trade and CFD provider CMC Markets purchased online broker Andrew West. By the way, this all occurred BEFORE the global financial crisis and not because or during.

But then around the 3rd of November the landscape changed when private client stockbroker Bell Potter decided to launch into the online space with Bell Direct. Colin Bell, who operated Australia’s largest private client broking house, had joined with Stephen Goh (my old boss back in the late 90′s) who founded Sanford Securities.

Bell Direct promised something different. It’s systems were developed during 2007 using the latest technology and this differed to the Commsec’s and E*Trades who were operating on systems built back in the mid to late 90′s. Bell Direct claimed they were Australia’s only Web 2.0 enabled trading site, with smart widgets that serve up live news and quotes relevant to the users portfolio. And because the technology they were using was a propriety system that minimised licensing fees they were able to offer a headline rate of $15 per trade up to $15,000.

The reality however was that, after your trade grew beyond $20,000 – $29,000, the costs were pretty much the same as the other brokers in the space such as Netwealth, E*Trade and Commsec and while the platform used Web 2.0 technologies, it really was not much different as far as the end user was concerned. The user interface design was clean, but it gave you access to the same portfolio, the same live quotes, and the same alerts. Some features were nice, such as the ability to select RSS feeds and the SMS trading – but other functions such as options trading were missing.

Actually, I must say I was rooting for Bell Direct because I know quite a few of the guys there and I was really hoping that they would take the challenge to Commsec and E*Trade and create some healthy competition around functionality and not just price. Unfortunately this was not so and for another 18 months the industry again really did not do anything really that exciting…

Macquarie's new Edge platform

Advance to end August 2009. I happened to stray across an article late on aThursday evening that made me sit up. And not only did I think that the story was interesting but several colleagues called me to discuss what they too had read. The industry had got excited about something…

Its called Macquarie Edge and it was making the promises that Bell Direct did not deliver on. Furthermore it’s a platform that has been delivered by a bank (albeit an investment bank – but still a bank none the less) that not only surpassed the functionalities of Commsec and E*Trade…it left them in the 1990′s.

Macquarie’s Edge platform costs nothing to access its basic features which included  market data and aggregated news collated by its technology partner, financial news aggregation service, Wotnews.

It also promises collaborative features such as the ability to develop closed networks with other Edge members so you, and trusted friends/family, can form online groups to see what each other are trading/holding as well as to discuss stocks and other investment information. You can also gain access to detailed information on what the total Edge community is doing – that is what shares they’re holding, which shares they’re watching etc.

It also has some really neat features that allows the aggregation of data. Its analysis engine looks for certain people, companies, sectors, products and events, and clusters them into news events on a timeline. It identifies major stories, provides visualisations of the volume of news activity, the relationships between news stories, and then ascertains a sentiment, whether positive, neutral, or  negative, as expressed in the stories and displays this information in company profile information pages and interactive market research widgets.

When researching how this build occurred, as a collaboration with the Wotnews team, I was shocked to find it was actually their “We Are Hunted” technology and NOT Wotnews that was fundamental in driving it.

For those who do not know “We Are Hunted”, which is a collaboration between Wotnews and Native Digital, tracks the popularity of songs on Twitter, MySpace, YouTube and elsewhere. It is this same technology that is analysing the financial market data we discuss above that appears as part of the investor information services found in Macquarie Edge. But instead of social media networks, the engine is mashing publicly available news stories with stock market information found within Macquarie’s proprietary internal data.

Let’s think about this – a data aggregation engine used for identifying the popularity of music is being used the generate meaningful data for investors. Now that’s exciting, and I imagine given this there is room for “Edge” to grown.

So what now?

Well, I look forward to the competition. The project I am working on at Sonray will not compete with Macquarie nor Bell Direct because it tends to be more derivatives focused then cash equities, but I look forward to see Bell Direct fire a shot across Macquaire’s bow to remind them that they will have competition. And I hope they do, because unfortunately I don’t think E*Trade nor Commsec have the new weaponry nor the tactical smarts to do so. Let the contest begin…PLEASE!!!