Three online brokers -- TD Waterhouse, Ameritrade and Charles Schwab -- said Monday they are partnering with three venture capital firms to form an online investment bank to distribute IPOs to their customers.
TD Waterhouse Group, Inc. (NYSE: TWE) rose 1 7/8 to 18 1/2, or 11 percent, and Ameritrade Holding Corp. (Nasdaq: AMTD) jumped 2 13/16 to 24 7/8, or 13 percent. Charles Schwab & Co., (NYSE: SCH) fell 9/16 to 42 5/16 Inc., as statistics on monthly trading volumes were released. Online brokers surged Friday following reports that Nasdaq trading volumes were fueling gains. Shares in Night/Trimark (Nasdaq: NITE), up 3 7/8 to 42 7/8 and E*Trade Group (Nasdaq: EGRP), up 2 7/16 to 39 3/16, were also gaining ground.
The three firms, which currently serve more than 50 percent of active online investor accounts, are pairing up with VC firms Kleiner Perkins Caufield & Byers, Trident Capital and Benchmark Capital. The company, which was unnamed, will be based in Silicon Valley and should be operational by early 2000.
The new firm plans to change the IPO process by giving individual investors more access to new issues. The current offering process does not satisfy the demand of online investors to take part in IPOs. The online brokers will have exclusive rights to distribute the the offerings underwritten by the new bank, which will mostly be of technology and Internet companies.
Many online brokers have been left out of the IPO distribution game. Wit Capital (Nasdaq: WITC) recently bought SoundView Technology for more access to the IPO market.
The company will also provide research to individual and institutional investors, and invest in later stage private companies.
"This bank, together with the online brokers, will seek IPO pricing that better reflects the total underlying investor interest in pending IPOs," said Scott Ryles, formerly head of Technology Investment Banking at Merrill Lynch, who will serve as CEO of the firm.