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 websites 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, a partner with New York-based prime broker Shoreline Trading Group, which works with firms such as Goldman Sachs, JPMorgan Chase 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.
"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," Morgenstern said. "These guys don't have three hours to spend on these sites."
According to Forrester Research, 25% 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.
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, Bettany explained. "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," Reich said.
This article originally appeared in Securities Industry News.
(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.