This is really worth a read .
So there you had Google coming out rightfully declaring that any incremental value generated by investors belongs to Google, at the same time as the broker dealer mechanism was busy trying to steer basic equity trading business through its desk. I believe that Google’s decision to set its offering price through a retail auction mechanism has the potential of destroying a traditional profit center of wall street. …
…(I) got together with some friends for dinner. One of the husbands works for CSFB and I congratulated him on the coup of being named the lead on the Google IPO. Whereas I expected a little gloating, instead he bit his tongue and complained about the greed of Google and how little money CSFB was going to make (including its not insignificant banking fees). I think the point he was trying to make was that by going the way of the auction, that Google was trying to take every single penny off the table that they can. ….
…what I saw was the end of a certain kind of investment banking innocence. No, the outsized commissions are not your divine right. No, you can’t control the allocation of underpriced shares to your best clients. Yes you will be paid, but it will be in fees like those paid to lawyers, consultants or accountants. Profiting off of outsized bid-ask spreads would have to be replaced by a different type of value. I am not sure Wall Street has figured out what it will do if Google’s auction model proves to become the rule rather than the exception from here on in.
Seth runs a very interesting research company called Majestic Research.