Making It Easy to Trade Restricted Stock

NJBIZ, Sep 6, 2004 by Nelson, Jennifer

RESTRICTED STOCK SYSTEMS

Four years ago, Greg Besner left a comfortable job at Merrill Lynch in New York City managing restricted stock for executives, venture capitalists and institutions. He saw how tedious it was to manually process the trading of restricted shares. Why not develop software that would automate the process, he asked himself.

In 2000, Besner launched Restricted Stock Systems (RSS) in Princeton with $2.5 million from angel investors and venture capitalists. Partner Joe Studholme, 43, a 20-year veteran of information technology, worked out the software.

"It was scary but I felt compelled to pursue this," says Besner, 39. "You have to feel it in your head and in your gut that there's an opportunity. Then you have to sell people on your vision."

Sell it he did. RSS customers include Deutsche Bank, Charles Schwab, Bear Stearns, Lehman Brothers and U.S. Trust. Revenue has grown from $200,000 in 2001 to $1.7 million last year. Besner says RSS will break even this year, and he is aiming for a profit in 2005.

"RSS has targeted a cumbersome and important process in the financial services market: the management and liquification of restricted stock," says Rich Marin, the CEO of Bear Stearns Asset Management who moonlights as chairman of RSS. "They have very tightly built software that solves these problems for both front- and back-office purposes."

RSS has carved out a niche among rivals that include eRestrictedStock, eTrade and Computershares; they provide software that automates some processing of insider transactions. Some financial institutions have also devised in-house systems for the handling of client transactions.

The company has benefitted from the tough corporate-governance rules that arrived in 2002 with the Sarbanes-Oxley Act. For example, Sarbanes-Oxley shortened the time required for insiders to report stock trades from as many as 40 days to just two, putting a premium on the rapid processing of transactions. As a result, dozens of companies currently license RSS software.

RSS has teamed up with Nasdaq, the over-the-counter securities market, which recommends the company's products. Through a deal with Thomson Financial, a major provider of financial data and information, RSS reaches out to financial advisors.

"We hope that [Thompson] partnership will help accelerate our growth," says Besner, a graduate of Rutgers University who holds an M.B.A. from the Wharton School at the University of Pennsylvania. "We now have a large publicly traded company helping distribute our products to large organizations."

Business runs in the Besner family. Besner's wife, Leslie Hsu, designs handbags from the family's home in Millburn while taking care of daughters aged six months and two-and-a-half years. "We talk about business quite a bit," says Besner. "We're definitely two entrepreneurs."

Jennifer Nelson