Morgan Stanley has pulled out of Jiway, the loss-making pan-European share trading platform for retail investors established in partnership with Swedish technology group OM.
OM is to take full control of the exchange's technology platform and operations and fold them into its existing business in a bid to run the company at substantially lower costs.
Jerker Johansson, managing director at Morgan Stanley, comments: "Given the current market conditions, it is necessary for Jiway to reduce its cost base. This is best achieved by integrating the operations with those of OM."
Jiway has struggled to generate volumes since its launch in November last year. In August, average daily turnover was a puny 400 trades.
Morgan Stanley's retreat from the initiative follows the failure of Jiway's management to raise fresh capital from outside investors. In July, both Morgan Stanley and OM had agreed to pump an additional EUR30 million over and above their original EUR100 million investment in Jiway - if the exchange could attract matching funds from third party investors.
Johansson says Morgan Stanley will remain actively involved as a market maker and trading party on the Jiway exchange.
The takeover of Jiway will result in extraordinary effects on OM's profit & loss as well as balance sheet. OM's net cost for the Jiway project since its inception in February 2000 amounts to Skr530 million. Following write-offs, restructuring costs and positive tax effects, OM's net profit will be reduced by approximately Skr145 million during the third quarter of 2001. Shareholder equity will be reduced by Skr145 m.
OM and Morgan Stanley have agreed to share responsibility for those Jiway liabilities incurred before 1 October 2001 not specifically assigned to OM.
Per Larsson (pictured), chief executive of OM, says: "This restructuring enables Jiway to retain its full potential, whilst substantially reducing its cost base. We are now in a much better position to extend the time needed to realise the full value of Jiway as a fully integrated retail exchange."
With the restructuring, operation of the exchange activities within Jiway Limited will be taken over by OM London Exchange, OM's Recognised Investment Exchange in London, resulting in significant cost savings in personnel, adminstration, operation and IT, says Larsson.
The ownership of Jiway Broker Services, Jiway's facility management business for settlement and back-office services, will be taken over by OM's technology division.
Jiway currently employs 45 people in London and 130 in its back office in Stockholm. No figures have been given for redundancies.