The Anglo File: InvestIN To Offer U.K. Daytraders a Shot at U.S. Market

InvestIN Securities' Direct Access system will give daytraders online access to a Nasdaq Level II quote screen.
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LONDON -- Daytraders are a rare breed in the U.K., but starting this week they will be able to ply their trade in U.S. stocks.

On Monday,

InvestIN Securities

, the U.K. division of Dallas-based online brokerage

InvestIN.com

, announced it was offering a version of its Direct Access service, which U.S. daytraders use to deal directly with market makers, to British investors interested in trading American shares.

The Direct Access system will give U.K. traders Internet access to a

Nasdaq Level II

quote screen, the same screen traders from big institutions like

Goldman Sachs

and

Merrill Lynch

see when they trade.

For those Americans who think the country has far too many daytraders as it is, that's bad news. It's also a sign that there are still too many impediments to trade in the U.K. stock market.

InvestIN's service will cost $300 per month for the software, which is refunded if a person carries out more than 75 trades during that time. Trade commissions will range between $12 and $16, plus 1 cent per share. The commission on 100 shares of IBM, the company says, would cost $13, which compares favorably with the $29.95 fee the U.K. arm of

Charles Schwab

(SCH)

would charge. By comparison, many U.S. online brokers charge single-digit commissions.

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Not only is Schwab's $29.95 commission indicative of the high costs U.K. Internet traders suffer when buying U.S. stocks, but online traders in British shares are further penalized by a mandatory 0.5% tax on all share purchases. There is no U.S. equivalent of this "stamp duty," as it is known.

Ben Ensor, an analyst at the London-based consultancy

Fletcher Research

, also points out that the U.K. market is still wedded to the costly certificate-based system of share and fund ownership -- stockholders get certificates proving their ownership -- unlike the ubiquitous trustee system in the U.S. Stephen Coles, a director of InvestIN Securities, says the practice of issuing certificates is declining, but there are still many people who prefer it.

Finally, for traders to deal directly with each other they must be members of the

London Stock Exchange

. Therefore, retail investors who are not members of the LSE are forbidden from broadcasting their bids without the aid of a broker.

Fletcher's Ensor says financiers in the City of London appear to be trying to recreate the same environment that contributed to the high stock valuations seen in U.S. by limiting the amount of publicly traded shares in initial public offerings, such as those of

Freeserve

(FREE)

. Such illiquidity fosters the highly volatile conditions that are well suited to daytraders.

Yet any bull run in the market similar to that seen in the U.S. is unlikely to occur because of the structural impediments that effectively bar the daytrader from entering the market.

Coles says he knows of some daytraders in the U.K., but their numbers are low because of these barriers, and as such InvestIN has received a large number of inquiries since Monday about the Direct Access service.

"We're hearing from the new investor who wants to trade in U.S. stocks, and there's been a good response from investors who are already trading in the U.K. market and want to trade in U.S. stocks," Coles says.

While many see daytraders as the pariahs of the U.S. stock market, their numbers are few -- there are an estimated 100,000 active daytraders in the U.S. -- and they represent only the extreme example of the online trader, who is generally seen as a good thing for the market.

And with more and more firms such as Freeserve and

E*Trade

(EGRP)

beginning to offer online-trading services, more retail investors may be exactly what the U.K. needs. Perhaps the presence of the much-maligned daytrader is a necessary evil.