"WallStreet Electronica carves a niche in a crowded online field"
By JOHN DORSCHNER Herald Business Writer


At 9:51 a.m., the order from Hong Kong suddenly popped up on the computer monitor of WallStreet Electronica in Coral Gables, FL.: Buy 300 MER at $74.50. An investor halfway around the world where it was the middle of the night, was buying 300 shares of Merrill Lynch, the brokerage behemoth that has just decided to go cyber - but he was doing it through Coral Gables' online global broker, WallStreet Electronica. Presided over by two brothers the brokerage is one of more than a hundred firms specializing in online trading -all of them far ahead of Merrill Lynch, which won't start its online service until Dec. 1--that's six months from now! "Six months is an eternity on the Internet," says Carlos Otalvaro, a long-time Senior Vice President and Managing Director with Merrill Lynch, Shearson Lehman and Bear Stearns, who says he has poured $10 million in WallStreet Electronica, which is run by his two sons, Carlos Francisco (Paco), 29 and Noah, 30. Cyberspace, says Noah, has "really leveled the playing field. We could never have competed with their brick and mortar, but if our Web page looks good, efficiently delivers information and allows the receiver of this information to just do it, they can pick us up as easily as they pick a Merrill Lynch." Electronica has 6,000 personal accounts, 60 percent of them held by foreigners, plus a software service that provides links for 50-some independent brokers and 750 financial advisors who use WallStreet Electronica to serve their customers. In a March review, Barron's gave Electronica three stars putting it on performance par with Charles Schwab and Fidelity. The publication noted that Electronica was best known to the online cognoscente." It ranked the firm No. 1 for reliability. Smart Money, a magazine published by the Wall Street Journal, ranked WallStreet Electronica No. 2 overall, and judged it No.1 in research, real time quotes and service among the electronic boutiques. Shakeout seen With all this competition, some experts believe many will fall by the wayside. Forrester Research is predicting that "75 percent of 'Net discount brokerages in existence today...will be purchased or out of business in 5 years." Carlos Otalvaro acknowledges, "The competition is tough, no question about it." Still he thinks WallStreet Electronica can make it. Born in Bogota, Colombia, Carlos made his career as a top producer in Miami, concentrating on Latin clients while serving as a Senior Vice President and Managing Director for several major brokerages, the last of which was Bear Stearns, in which he worked out of his Gables home while being linked to six assistants in New York. The computer link was provided over dedicated lines by his son Noah, Columbus High class of '86, who took a leave of absence from Boston College for two years to do the programming. When the World Wide Web sprouted in the mid-'90s, Carlos says he realized that dedicated phone lines were no longer necessary and neither were the big brokerage houses. Everything could be faster and cheaper via the Internet. Noah became Electronica's chief information officer. Paco, Columbus class of 88, who graduated from Florida International University, became Electronica's president, though their father is still the on-site presence and deep-pocket investor behind the service.

WallStreet Electonica (www.wallstreete.com) has servers in New Jersey and western Miami-Dade and Internet Investment Assistants ready to take calls in New Jersey and North Carolina, but the core of the operation, the place that monitors daily global trade activity, is a cluttered study with 11 monitors in the family's Coral Gables home. WallStreet Electonica uses the New York market making firm of Herzog Heine Geduld (the largest wholesaler of stocks in the United States) to execute its trades and to hold its clients funds.It pays 30 vendors to provide clients with online information about earnings reports, news developments, insider trading and such. It offers clients unlimited real-time quotes, as well as credit cards, check writing and other basic investment services. It tries to be all things to all investors. It charges $14.95 for a basic Nasdaq market-order trade, $19.95 plus two cents a share for trades on the New York Stock Exchange or for those having order limits. For many trades, that's well below Schwab's $29.95 and Merill Lynch's announced $29.95. To attract day traders, WallStreet Electronica offers those who generate more than $1,000 in commissions a month a 15 percent discount on commissions over $1,000. Those who are charged $2,000 in commissions get a 20 percent discount. Customers who need "a little hand-holding" can execute a trade through a WallStreet Electronica Internet Investment Assistant for an additional $20. For those who want a "Rolls Royce" service, Electronica offers full financial planning with investment advice, with charges based on an annual percentage of the funds in the account. "The bottom line is we're open for business for anyone, " says Carlos, though more than 80 percent of customers choose to trade online. Expensive ads shunned The Otalvaros have preferred to grow through word of mouth, a little direct mailing and those who learn about the site through publications or Web surfing. The Otalvaros look askance at E*Trade, which has built up 900,000 accounts by aggressive advertising campaigns that have popped up everywhere from billboards to Ally McBeal. E*Trade is now spending $288 on average to acquire a new account. Carlos says that Electronica is making money now - unlike E*Trade, which is losing money solely because it is spending so much on advertising A good chunk of the business comes through Net International Inc. a software company run by Noah, that has set up a system by which an independent stockbroker or investment advisor can manage multiple client accounts online, buying and selling stock through WallStreet Electronica. One such customer is Felton Financial, a Westport, Conn., firm. WallStreet Electronica even helped the company set up a Web page to serve its clients. A global reach WallStreet Electronica also stands out because of a small button on its homepage that visitors can click to get a Spanish translation. Paco says that most of their Latin American customers send their first email in English, but the Otalvaros respond in Spanish, and that establishes a bond. They have one customer at the Brazilian-Colombian border in the middle of the Amazon who communicates with them via satellite phone and wireless internet interface. Most foreign customers however are in Europe and the Far East. Paco thinks that foreigners have been attracted by the familiar WallStreet name - and also by some indexing tricks that Noah has put into the software so that if Web surfers search Yahoo, for online stock brokers, for example, WallStreet Electronica pops up near the top of the list. Once they get dollars deposited in their account, they can use the Internet to make a trade in 4 seconds. Having a majority of customers from foreign countries is unusual for a U.S. online broker, but there is a huge pool of prospective clients to go after--66 percent of the world's capital is outside of the United States--ten years ago this figure was 22 percent. Foreign investors made net acquisitions in U.S. equities of $70 billion in 1997 and $54 billion in 1998. That's a lot of business to divide up - and in fact both E*Trade and Schwab are aggressively pursuing international customers. Competition will heat up Jame Punishill, an analyst with Forrester Research, says that most very-active traders are already online. "Pretty soon they [the online brokerages] are going to be starving for new customers, and they're going to have to steal from other firms." Punishill predicts the biggest, like E*Trade and Ameritrade will get bigger, while "we'll see most of the others disappear." Carlos Otalvaro thinks the traditional brokers are the ones who are going to disappear...they should be very concerned! Merill Lych's "about face" has validated WallStreet Electronica's ground breaking concept and existence. Speaking from several decades of experience as a broker, he suggests that even the best won't be able to command their usual fees for giving supposedly infallible advice. He comments "In these markets you have to be a fool to charge someone for telling them what is going to happen! The market humbles you...sooner or later it is going to prove you wrong," then Ameritrade's ad tagline will be right on--"Your full service broker will tell you you're going to hate online trading...you can add that to all the other things he has been wrong about!" For the moment, Electronica has no plans to start selling its stock to the public. Since the only investors are the family, says Carlos, they need worry only about pleasing themselves. "We're more interested at the moment in building a solid business."