Securities Industry News
August 11, 2008
By Katherine Heires

Ever since those first gatherings under a buttonwood tree, the business
of Wall Street has been highly social, with personal contacts, access to
information and networking abilities playing a crucial role. Now,
several companies are taking a page from social networking Web sites
like Facebook and seeking to move some of those activities online.

Professional investors who want to post questions, share information,
debate issues, find jobs and, in some instances, cut business deals in a
password-protected environment are finding an array of Web-based
communities comprised of like-minded individuals. And some observers
note that at a time of cutbacks, such sites could see significant
growth, as people try to stay in touch with colleagues and pursue new
positions.

Many cite the emergence of LinkedIn, which is designed to foster
communication among business professionals and has seen its user base
climb past 24 million since launching in 2003, as a sign that social
networking on the Internet has become serious business. In June,
LinkedIn said it had raised $53 million in a round of funding from
venture capitalists, putting its value at $1 billion.

"We're now seeing social networks serving financial professionals ...
because social networking as a communications tool has exploded," noted
Michael Murray, partner with New York-based prime broker Shoreline
Trading Group, which works with firms such as Goldman Sachs, JP Morgan
Chase & Co. and Credit Suisse.

Many of the new sites are targeting specific groups within the
community. Placing Traders, which went live in May and is headed by a
former London Metal Exchange broker, aims to match up commodity traders
with jobs and service providers. The yet-to-launch CapIntro.com--founded
by Chris Betz, an alumnus of Morgan Stanley and Deutsche Bank--plans to
help introduce hedge fund managers to potential investors. Other
networks include AnalyticBridge, Financial Modeling Community, Finxch,
Fixedincomespace.ning.com, HedgeFundProWorld and IFA Life.

Reuters Space, a free community for corporate customers that launched
last year as an outgrowth of the Reuters Messaging service, touts its
security, privacy and regulatory compliance features. Unlike Facebook,
the Reuters network does not permit pseudo-identities. "We are much more
locked down than consumer social networking sites," said Eran Barak,
head of business development for collaborative services at Thomson Reuters.

However, certain features are standard across the various sites. Member
profiles are searchable by key word, which makes it easier for, say,
quants with an interest in five-year relative value to find each other.
Also, members are typically able to ask questions, publish ideas and
converse in community areas and forums, as well as recommend users and
rate postings.

*Networking 'Revolution'*

"I think that social networks are part of a revolution," asserted Howard
Lindzon, founder and manager of Phoenix-based hedge fund Lindzon Capital
Partners and founder of Stock Twits, a service that combines
micro-blogging features--the ability to send instant messages of up to
140 characters--with social networking features such as the ability to
rate and filter members' posts.

"We are building on the tools that the kids have been using," said
Lindzon, creating better, lighter services that are cheaper than
Bloomberg or Reuters messaging, filter out noise and unwanted messages
and "can follow you on your cell phone." Lindzon added that he regularly
uses Stock Twits to communicate with fellow investors.

"Before LinkedIn, people thought social networks were just for 14 year
olds talking about skinny jeans and haircuts," said Catherine
Morgenstern, director of Quant-Link, which claims 350 members. The
network, introduced two months ago, is a non-profit outreach initiative
from Naperville, Ill.-based Quantitative Services Group, a provider of
investment research and pre-trade analysis software. As more people see
the value of business-oriented networks, there will be more
industry-specific sites where professionals can "get in, make contacts,
ask a question and get out," said Morgenstern. "These guys don't have
three hours to spend on these sites."

According to Forrester Research, 25 percent of U.S. adults who spend
time on the Internet visit social networking sites on a monthly basis.
And groups on LinkedIn that target financial services professionals are
among the fastest growing, said LinkedIn spokesperson Kay Luo. "I would
put the number of users in the hundreds of thousands," she said.

*Obstacles to Adoption*

Software platforms such as KickApps, Ning and Wetpaint have made it
easier to build networks, and retail investor sites including Cake
Financial, Covestor, Mint, TradeKing, UpDown and Zecco have seen steady
growth. It is less clear to what degree the services will take off among
the Wall Street set. According to analysts, there are hurdles that could
slow down adoption and issues that could attract the attention of the
Securities and Exchange Commission.

"The openness, trust and honesty that is kind of implicit in the ethos
of social networking does not mesh well with the cutthroat mentality of
a trader," said David Schehr, a Dowingtown, Pa.-based research director
at Gartner. In an environment where information is carefully guarded,
such networks will be a hard sell. "The notion of social networking, at
its base, is intended to be altruistic and that is not typically the
strategy of professional traders," Schehr added.

Jacob Bettany, who runs MoneyScience, a U.K.-based Web portal that
aggregates financial news, pointed out that "social networks as they
exist today are not monitored, while financial professionals must work
in an environment where all communications have to be monitored and
logged." Something as simple as a status update in Facebook or a "tweet"
communication in Twitter can be easily updated and viewed on a mobile
device, thus imparting confidential trading information, explained
Bettany. "While a bank can monitor phone calls and e-mails in its
compliance efforts, social networks provide an alternative mode of
communication which is difficult, if not impossible, to monitor," he said.

With the SEC cracking down on the spreading of false rumors, Bill
Burnham, founder and general manager of hedge fund Inductive Capital in
Menlo Park, Calif., noted that traders have to be very careful about
social networks. "It's kind of a regulatory minefield at this point," he
said, "and no one knows where the mines, if any, are buried because
there have been few, if any, regulatory test cases."

But many entrepreneurs see the expansion of networking services as
inevitable. "Some professional investors are joining social networks
simply for the fun of it," said Michael Reich, a recent Harvard Business
School graduate who is CEO of UpDown, which lets its more than 60,000
members make virtual trades to hone their skills and win money in
contests. "There is a place in the professional investing field for fun
and social interaction among peers," said Reich.

Katherine Heires (www.mediakat.com) is a business & technology
journalist based in New York.

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