said Tuesday that it expected to lower the costs of its online brokerage firm and expand its growth abroad by making it a self-clearing organization.
Web Street Securities
, a wholly-owned subsidiary of Web Street Inc, filed with the
National Association of Securities Dealers
to allow the firm to clear all trades executed through its online trading applications.
Clearing is the conclusion of every security traded where a buyer pays for a stock and the seller delivers it to the buyer's brokerage firm.
"It's a pretty big positive," said Michael Smith, an analyst at
Fahnestock & Company
who rates the stock a strong buy. Fahnestock underwrote the initial public offering of the stock.
"As a brokerage firm develops, your revenue levels do not justify being a self-clearing firm," he said. "Once you get to a certain level, it pays to set up your own."
Web Street currently pays
, a subsidiary of
Fleet Boston Financial
( FBF), to clear its trades.
"Web Street's clearing costs are variable," Smith said. "When they become fixed with growing revenues, the company can realize more profit."
Revenues for 1999 totaled $24.9 million. Smith expects that number to increase to $60.4 million in 2000 and $122.9 in 2001.
Shares of Web Street edged up modestly Tuesday morning, gaining 3/8, or 3%, to 12 3/4. The company went public in Nov. 17 at 11. (Web Street finished Tuesday up 5/16, or 2.5%, to 12 3/4.)
The online brokerage firm said that by becoming a self-clearing organization, it would be able to offer afterhours trading, lower margin rates and increased opportunity for international customers.
Web Street's chief executive, Joseph Fox, said in a statement the move would lower the company's costs and spark an international growth strategy in Europe, Asia and Latin America.
The conversion to a self-clearing firm should not be a "big deal" in terms of cost for the company, said Smith, the Fahnestock analyst.
Self-clearing is another step in Web Street's strategy of becoming a unified global brokerage account that enables customers to hold stocks in foreign markets while translating those values to dollars.
"We're creating a network of international partners to allow them to trade here and our customers to trade there," Fox said in an interview. "People will be able to trade in local currencies. You need control of your clearing to do that."