Late last year I set out to learn more about companies that profit from market volatility. In other words, who benefits the most from the madness and often chaotic behavior in the markets? My hypothesis, at the time, was that companies who profited off the emotions and reactions of investors would be interesting businesses to learn more about.I can reasonably predict that people in financial markets will behave irrationally with a great degree of certainty (timing of that behaviour is another story).
The first companies that crossed my mind were obvious ones like NYX and NDAQ who benefit from trading volume as well as listing fees, but where there more? Perhaps an undiscovered small firm that few people have heard about? Family owned if possible?In my research I came across several companies. None interested me more than a small Canadian company called Belzberg Technologies (BLZ.TO).
The company provides technology-based equity and options trading services.Specifically, Belzberg provides technology-based brokerage services, trading equities and options through Electronic Brokerage Systems, Belzberg Technologies’ wholly owned agency-only broker-dealer. The firm’s client-base includes over 200 leading U.S and international brokerage houses and financial institutions.
A quote from their 3Q earnings release should catch your attention."The third quarter results were solid in a seasonally slow period. Unusual volatility in August created a record month for the Company that was followed by an industry wide slow down in September. Overall, the third quarter was strong with continuing strength in October from renewed market volatility."Unusual volatility in August created a record month. The fall (4Q) was more of the same although 4Q numbers haven't been released yet. 1Q08 looks to be started off with similar strength. The more chaotic the markets the more the company profits - that's quite the business model.
While not commenting on valuation at this time, I will point out that cash represents about 25% of the current market cap. It also appeared like the company was up for sale until September when management said despite several interested parties none of them were willing to pay fair-value for the company.
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Closing price of Belzberg Technologies on the date of this article. ($5.20).
Company filings on Sedar
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