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Published in U.S. 1 Newspaper on May 10, 2000. All rights reserved.

Internet Market for Nanocaps


Larry Shiller’s website for online trading has been

"almost ready" for more than a year, but now, he says, the

prospects look good for him to make a go of it. Shiller’s company,

SBX, has devised a Web-based system ( to

trade over-the-counter bulletin board stocks — typically stocks

for companies that are too small to be listed on the major boards

like Nasdaq or the New York Stock Exchange. By providing an alternative

trading system for these bulletin board securities, called nanocaps,

it could help young companies raise capital more easily.

The business model for SBX has changed significantly. Two years ago

Shiller was planning to set up small websites for small retail brokers

as an introduction to the firm’s over-the-counter trading capabilities.

Now, though Shiller is still there as chief technical officer, Jason

Shore is the new chief operating officer. Shore has refashioned SBX

so it focuses solely on the small trades.

Shore says he is getting close to securing financing, and that though

the site is not trading, it is available for a demonstration. "It’s

a chicken and egg situation, whether to start or get the financing.

We need to break through and give it a shot. It is an efficient way

of distributing information. The underlying trading model works."

SBX offers a transparent market, accessible to individual investors,

for the nanocap stocks. "This does not exist anywhere else today,"

says Shore. A service like this can streamline the back office transactions

for broker/dealers, he says. "We can automate the special order

handling rules and make it easier for them to conduct trades in this


"It is an exciting opportunity to create something new with great

market potential," says Shore. "We have had consistent reinforcement

from players in the industry."

Shore learned of the job through one of the first customers

of SBX, a hometown friend in Lancaster, Pennsylvania, where his parents

had a printing business. He majored in history and math at Colgate,

Class of 1988, spent three years as a commercial lender in a bank,

and then went for his MBA in finance from the University of Michigan.

He joined Unilever, first with the food business and with Lipton in

the United States and then, in Israel, as CFO of a Unilever company

that manufactures cleaning chemicals for professional use. He and

his wife had their third child in Jerusalem and returned to the U.S.

last year. He works from an office in Ossining, New York.

"I was looking for a corporate role, which is what we are doing

here. It is less about securities and developing a business model

and executing against it. It is more like what I did at Unilever,

but it is a big learning curve," says Shore. "We have a sound

business model and just happen to be doing it over the Internet to

make it more efficient. We are not one of these dot-coms with no revenue

and no business model."

As for the company’s founder, Larry Shiller grew up in Long Island,

the son of a chemist and a registered nurse. A prodigy with a penchant

for music, math, and Wall Street, he toured the country and abroad

as a concert violinist, then went to MIT and got a BS in math (Class

of 1975). He has also attended the OPM (owner/president/management)

program at Harvard Business School and written a Prentice Hall book

on software analysis and design.

For his first three years out of college, Shiller worked as an engineer

for Owens Illinois, and in Toledo as a research supervisor for Blue

Cross. At night he played with the Toledo Symphony. At age 24, he

started his first business, a Florida-based accounting software company

and service bureau.

In 1988 he tried to capitalize on the pre-Internet CD-ROM craze by

launching the Bureau of Electronic Publishing with a partner, Barry

Cinnamon, out of a garage in Verona. It sold entertainment CD-ROMs

with titles like "The Great Kat’s Digital Beethoven on Cyberspeed,"

"Inside the White House," and the Weather Channel’s "Everything


Shiller took his company public for $5 million in 1995. Then in 1996

it moved to 619 Alexander Road and changed its name to Thynx shortly

thereafter (U.S. 1, April 17, 1996). As the Internet grew stronger,

CD-ROM sales began to dwindle and the company’s stock price dropped.

Shiller ended up selling the company’s corporate shell to a group

participating in a joint venture in a lucrative Chinese polyester

plant and got out with a "decent valuation," he says (U.S.

1, January 8, 1997).

Early in SBX’s history, Shiller had a partner, K. Richard B. "Nick"

Niehoff, known for his work automating the Cincinnati Stock Exchange.

Niehoff left.

At first SBX’s programming was being handled by Research Park-based

InfoFirst. But that relationship fell apart after Shiller hired one

of InfoFirst’s partners, Simon Blackwell, as vice president of technology.

Blackwell left SBX the following year and now works on the West Coast

for another dot-com,

Now Shiller is CTO of SBX Management, which provides Internet infrastructure

for two companies, SBX and Netroleum. The latter firm aims to do E-commerce

in the petroleum industry (

SBX will begin by offering efficiencies for those in

the business today, the brokers and dealers, and then it will expand

by offering its services to individual investors. "A lot of the

brokers are in this business merely as an accommodation for their

customers," says Shore. "We offer the best execution, price

improvement, and efficient order handling."

Price improvement? "The market today is a `dealer only’ market.

People who want to trade have no way of doing it. We will be reducing

the spread, the difference between the buy and sell price," says

Shore. "Trades will actually take place on our site. They are

locked in. We show all of the orders that exist. We charge $1.25 a

side, to buyer or seller, per transaction, the same price as Nasdaq."

With a site like SBX, brokers could offer their customers access to

a market they don’t have today and could display both open orders

and matched trades. "Before, they had to hand it off to a dealer,"

says Shore. "The broker who hands it off has no idea whether the

order will ever get displayed, let alone filled," says Shore.

"The person you hand it off to is not required to display it."

An example: The buy price might be $5 and the sell price $7. If you

met someone on the street and agreed to "do a deal" at $6,

and you called the dealer on the same day, the dealer would not match

you up because he wants to buy at $5, sell at $7, and pocket the difference.

The resulting flaccid market deprives young, struggling companies

of capital and artificially forces prices up and down.

"We are learning as we go and getting feedback from the broker/dealer

community, that it will help them as a back office solution, not as

a front end opportunity, as Larry had thought," says Shore.

"The brokers make a transaction fee and will like the SBX system

because they are in the market as an accommodation to the client.

It is a small piece of the portfolio. To provide the service, really

all they want is quick, easy execution," says Shiller.

Some market makers, the ones taking advantage of the "spread,"

will not be pleased to see it go away. "The dealer in the middle

of the market won’t make the spread because the spreads will shrink,"

predicts Shore. SBX has two strategies to pacify those dealers. The

first is motivation. "Today they make money only on spreads. We

are changing the motivational nature of the market to encourage liquidity

so they have the same incentives as the investor, broker, or dealer.

We are offering to share trading fees with firms that sponsor securities

on the SBX system."

Second, SBX will make it easier for the market makers to comply with

new SEC requirements. The SEC, he predicts, is going to change the

nature of competition by making due diligence requirements more stringent

for the market makers. Market makers must be capitalized with a certain

amount of money in their coffers, and this amount is going to increase.

"We offer an alternative to making markets without changing their

due diligence requirements. They can participate like a market maker

in the SBX system."

"The bulletin board market is unique and has different requirements

for brokers and dealers. It is a very thin marketplace," he says.

"If you want to trade bulletin board issues, the broker has to

do due diligence on you, to find if you are suitable, and the dealer

has to do due diligence on the broker."

"What’s changed, and that is the reason for these antiquated rules,

is that until now there was no efficient way to create a trading environment

like SBX. The Internet helps automate all these requirements."

"It is a tough environment, very fast moving. Because the bulletin

board is so special and has such a high level of due diligence requirement,

the people in this market are very experienced. Big institutions can’t

allow trainees on the bulletin board. There is too much risk."

Competition may come, but not from the big broker dealers like Merrill

Lynch and J.P. Morgan. "This is such a small part of the market

they are not going to dedicate resources to it. They would like us

to succeed as an accommodation to their customers, but they are just

not prepared to dedicate resources."

Says Shore: "I really believe this will happen — whether it’s

us or somebody else."

— Barbara Fox

SBX Management, 15 Normandy Court, Larry Shiller.

609-466-4005; Home page:

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