The hour-and-a-half before the over-the-counter market opens is a busy time for dealers. They're trading. They're quoting. They're preparing for what is typically the busiest trading period of the day. Until recently, though, market makers of Bulletin Board and Pink Sheets stocks didn't have a market data service that gathered and presented this pre-opening activity in a conveniently accessible format. That made gauging how a stock might trade at the opening a cumbersome process. OTC market makers report their pre-opening trades to Nasdaq, but Nasdaq does not disseminate any of that data. Bloomberg and others do, but on an individual stock basis and at
a not insubstantial cost.
Pre-opening share volume in OTC securities now accounts for about five percent of an average day's activity. So getting a handle on where the market is going to open has become increasingly important.
A Newcomer
Now, a relative newcomer to the institutional market data world is claiming a breakthrough in the collection and display of pre-opening OTC trade data.
MicrocapTrade, a small market data vendor headquartered in Canada, has added a feature to its data and information service that paints a picture of the early morning activity in the approximately 5,000 OTC securities.
The vendor now publishes last sale data price and volume on every trade that occurs in Bulletin Board and Pink Sheet stocks between 8:00 a.m. and 9:30 a.m. as soon as they are reported.
In addition, it displays cumulative balances of all shares traded and the number of trades done during this unofficial pre-opening period. The intention is to give market makers a complete picture of the state of the market before it opens.
"This is information that is extremely important to the market maker," says Spencer Olsen, president of MicrocapTrade. "It was out there, but no one was picking it up."
Olsen, an ex-trader whose career was spent with a number of major wholesalers over 35 years, joined MicrocapTrade as president two years ago.
At the time, the firm was selling subscriptions to an OTC market data service strictly to individuals, or daytraders.
Using that service as a starting point, Olsen created the professional product that he now markets to OTC dealers and hedge funds.
MicrocapFeed Pro, as it is called, competes with the likes of Bloomberg and Reuters, but is one of the few specifically designed for the over-the-counter market.
The service has been available for just over a year and is in use by 100 individuals at 18 firms. Firms pay between $250 and $300 per month per user.
The Core Product
By contrast, the firm's core product, MicrocapFeed Individual, is used by about 1,000 traders, according to Olsen. They pay less between $99 and $139 per month.
The price is a big plus, according to the market makers with which Traders Magazine spoke. Bloomberg, for example, sells for up to $1,700 per month per user.
Among the pros signed on to the service are some of the largest dealers of OTC names. UBS, Jefferies, E*Trade, Pershing and TD Waterhouse are all customers.
One of the very biggest is not though. Knight, either No. 1 or No. 2 in the OTC game, depending on who's counting, does not subscribe. The reason, sources close to Knight tell Traders Magazine, is that the giant wholesaler is tied to a Bloomberg contract.
In any event, the tiny MicrocapTrade is winning friends among the OTC set. "You can never have enough information at your fingertips," says Bill Groeneveld, director of equity trading at vFinance.
"They are more in tune with the microcap sector than other services and have better pricing." The exec views the service as an addition to his primary suppliers.
Olsen's Record
MicrocapFeed Pro isn't the first piece of technology Olsen has introduced to the over-the-counter market. In the late 1970s, when Olsen was working at wholesaler Troster Singer, he and his colleagues (including a green Kenny Pasternak) designed Wall Street's first automated execution system.
The service enabled Troster, by that time owned by Spear, Leeds & Kellogg, to automate the executions of incoming orders from its brokerage customers. Up until then, all trades were done over the phone.
Charles Schwab was the first Troster customer to sign up for the service, according to Olsen. The product was a success and soon Troster was marketing it to the rest of the Street.
Olsen spent 10 years with Troster and later worked for Schwab Capital Markets and Knight Capital Group.
Olsen was actually a MicrocapTrade customer before becoming its president, trading his own portfolio with the help of Microcaptrade's daytrader feed.
He decided to join the firm and shape its professional product after conversations with MicrocapTrade chief executive and founder Stephan Touizer.
Touizer is Canadian and a former tech stock daytrader. He founded the firm in 2001 and works out of an office in Montreal.
MicrocapFeed Pro is similar to other market data services in that it offers stock price and volume data as well as news and financial reports.
It has five news services that report primarily on OTC-traded companies. The service also offers access to 10-K Wizard and Edgar Securities and Exchange Commission filings.
It's About the Data
But what appears to register most with market makers is the data and the way it is presented and can be manipulated. The main page dubbed "Universal Manager" lets traders construct and keep tabs on all the stocks they trade. Another page lists all Level II quotes in a name, down five levels.
"It gathers information very well," notes Ron Schwartz, head of OTC trading at UBS. "Plus the maneuverability is pretty good."
Schwartz also likes the pre-opening indication service: "It makes it easier for you to understand what stocks are trading actively before the opening."
MicrocapTrade gets its data from Nasdaq and Pink Sheets, but it does not replace those services. Dealers still need OTCBB, for instance, to update their quotes.
OTCBB permits traders to enter, update and display their markets on a real-time basis. Those quotes may or may not be firm.
The amount of dissemination Nasdaq provides depends on the activity in the stock. Many of the often-speculative OTC issues trade infrequently.
That is actually an important issue for OTC dealers. Many dealers in OTC securities depend on their trading prowess to make their living. If stocks don't trade, they don't make money. Therefore they are constantly on the lookout for stocks that are popping.
"If your stocks are dead," notes Olsen, "you shouldn't even bother going to work."
It is not that easy for traders to keep tabs on names in which their firm does not make markets. To that end, MicrocapTrade offers a service it calls "Non-Market Maker Stock List."
A special page lists all the stocks in which a trader's firm does not make markets that may be popping on a given day. Traders can sort the list however they want: by those with the most volume or trades, or by biggest gainers in either dollars and cents or percentage terms.
"Stocks go hot and cold," says Olsen. "No one has this tool."
