Online trading platform goes bust

By : Greg Goodale

   Woodstock, the Internet stock trading platform run by Wood & Co., will shut down operations next month after its parent company closes its Warsaw office. It will be the fifth online brokerage to cease trading this year. But despite the short-term failure of online brokerages, brokers in the capital said Web trading is still the future direction of the industry.

   The demise of Woodstock follows news this month that U.S.-based brokerage Wood & Co. will close down its operations in Poland, Hungary, Russia, and the U.K. Woodstock has been in operation for just over a year. “The service will go off-line once our (850) clients have had their accounts transferred to other brokers, probably around the end of November,” said Adam Dakowicz, head of online trading at Woodstock.

   According to John Little, responsible for carrying out Wood & Co.’s restructuring in Central and Eastern Europe, the firm decided to initiate management buyouts in March this year, a strategy that has only proved successful in the brokerage’s Prague office. “Unfortunately we were unable to do the same in Warsaw,” Little said.

   Other platforms to go bust this year were Dom Inwestycyjny Banku Współpracy Europejskiej (DIBWE), Robert Fleming, Caibon and Sur5net, owned by metals trading firm Impexmetal. According to Maria Dobrowolska, chairwoman of the Polish Chamber of Stockbrokers (IDM), the market is facing difficulties and online platforms are not the only vulnerable entities. She blamed marketing errors for the failure of Woodstock, whose launch involved “very expensive marketing aimed at an indeterminate client profile.”

   Bartosz Zborowski, an analyst at 1 (DM BPH), said that because the majority of Polish stockbrokers only started Web-based trading last year, their success depends on the support of a network of offices. “Wood & Co. placed too much faith in the potential of an Internet platform without such support,” Zborowski said.

   He also blamed the timing of Woodstock’s launch – at the height of the Internet boom – as a result, Wood & Co. had great expectations of how much online clients would invest. “In the U.S., Internet trading portals saw clients worth $10,000-$20,000,” he said. “With these potential values it was possible to invest a lot in an Internet system and expect profits. But that did not happen here.”

   With profit margins for stockbrokers plummeting in line with stock prices, many brokers have undertaken extensive restructuring and cost cutting, and there is still the risk of further closures. “Those who survive the next six months will have a chance to grow and increase their profits,” Zborowski said. “There will be fewer brokers but they will be in good financial condition.”

   Despite this year’s closures, Dobrowolska is confident that Internet stock trading is here to stay. “Stock trading using traditional methods is much more costly,” Dobrowolska said. “Internet trading involves substantial costs only at the outset.”