Direct Market Impacts
Author: Dennis McCarthy, April 2012
After I spoke with Kevin Lupowitz, head of the DirectMarkets unit of Rodman Renshaw, about the upcoming launch of his automated public offering service, I considered its likely impact on the small cap market on Wall Street.
In my opinion, this is more than idle speculation. I expect reasonably rapid trial and adoption by small cap companies of automated offering systems like DirectMarkets.
One of the first outcomes will be that the percentage fee charged for raising capital will be reduced from current levels. This is, of course, immediately beneficial for small cap companies raising capital.
The flip side, however, is that the correspondent reduction in Wall Street’s revenue from small cap companies will likely result in a reduction of services and, maybe, new revenue models. I doubt that Wall Street will be able to continue to pay for its current research, sales and trading infrastructure for small cap stocks?
Will this lead to unbundling of services?
Maybe small cap companies which infrequently raise capital will engage bankers specifically for advice but use the automated system for processing the transaction.
What about research? Kevin indicated that DirectMarkets will carry information about companies to inform investors. Will research reports be available for sale on the site to provide investors with projections and independent company assessments? Will we see specialty research firms develop independent of the rest of the Wall Street infrastructure?
I’ll be watching these developments with great interest.
Tell me. Do you think automated offering systems will succeed? And how will they change Wall Street?
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