Commercial Paper on the Web

As we know, commercial paper consists of unsecured promissory notes with maturities ranging from one to 270 days with denominations of $100,000 or more. Large corporations, including many financial institutions, issue them. Presently, about $1.4 billion of commercial paper is outstanding, up from $0.6 billion at the end of 1994. Commercial banks, finance companies and other financial institutions account for 80 percent of these outstandings.

Recently, a group of 19 major issuers of commercial paper decided to sell their paper via the Internet, expecting to reduce the costs of routine transactions and to broaden the market for their paper in order to reduce the interest cost. When they put their proposal up for a bid, the two-year contract was won by an "upstart," called Prescient Markets. Laurent Paulhac, a 31-year old entrepreneur born in France, founded the firm in 1998. According to plan, the firm will be in operation as you read this and will account for about a fifth of the commercial paper market.

Among the well-known firms participating in the innovative approach are American Express, The Associates, CIT Group, Citigroup, DaimlerChrysler, Ford Motor Credit, General Motors Acceptance, Household International, Norwest Financial and Sears Roebuck Acceptance Corporation.