ARMY SOFTWARE TARGETS STOCKS

What if the same sophisticated missile technology used to accurately locate enemy targets was employed to find the lowest stock price across an array of electronic markets? If it worked, it might be worth hundreds of millions of dollars. It does, and apparently it is.

CyberCorp.com founder and chairman Philip Berber was a young computer software engineer in London when he came up with the idea in the mid-1980s. Berber, a native of Ireland, was helping to develop military and aerospace software for Systems Designers, England's largest computer systems company.

While working on so-called subspotting technology, the software used by heat seeking missiles to develop trajectory lines that determine accuracy, an inspiration came to Berber.

"It occurred to me -- what if the target was a stock price. And at that moment the light bulb went off in my head," Berber said during a recent interview at the Online Traders World Expo in Oakland, Calif.

"My bosses said the Ministry of Defense isn't interested in trading stocks. I said, "'I know that, but someone is.'"

He was right -- someone was.

Charles Schwab, the world's leading online brokerage firm, agreed in February to buy CyberCorp, which is based in Austin, Texas, for stock valued at the time at around $500 million. A surge in Schwab's stock since the purchase was announced has increased the value of the deal to around $700 million.

CyberCorp's software allows stock traders to find the lowest price across numerous marketplaces in a split second and without interference from middlemen.

The software is popular among active individual investors whose frequent trades occur across a number of marketplaces, including the various electronic communications networks, or ECNs, that have proliferated with the growth of online trading.

CyberCorp also serves as a brokerage firm for its 4,000 software clients.

Still, why was Schwab willing to pay such a premium for a company few people had heard of six months ago?

"A lot of people have asked that question," said Tim Butler, a research analyst with Pacific Crest Securities in Portland, Ore.

Butler said CyberCorp had started to pop up on the industry radar, but was still relatively unknown and not seen as a threat to the well-known online brokerage firms at the time of the sale.

By purchasing CyberCorp, however, Schwab gains a stronger foothold in the small but lucrative market for active individual investors, an area where the online behemoth had previously been weak.

Active traders generate large commissions for their brokers. For example, CyberCorp's customers average between eight and 10 trades a day at a commission of between $14.95 and $19.95 a trade. In contrast, the average online investor might make eight or ten trades a year.

More significant to Schwab, however, was CyberCorp's technology -- so-called "intelligent order routing software," Butler said. Schwab can now integrate CyberCorp's software with its own to help Schwab's millions of online customers find the best stock price across the growing number of trading venues now available to investors.

Berber is credited by analysts with having had the right idea at the right time.

Berber, now 41, founded CyberCorp in his son's bedroom four years ago -- and listed as the company's assets a standard home PC and $230 in cash. He now owns half of CyberCorp, making him a very rich man.

At the time he started the firm, the vast majority of all stocks traded in the United States changed hands on the two primary markets -- the New York Stock Exchange and its regional affiliates, and the computerized Nasdaq Stock Market. And few people had ever heard of an ECN.

But the Internet revolution was gearing up, and more and more investors were starting to trade online. ECNs, which act as electronic stock exchanges, emerged as competitors to the traditional exchanges as investors sought cheaper and faster markets to buy and sell their shares.

Berber saw an opening for his innovative technology.

As the number of ECNs grew, investors frequently had difficulty locating the best price on the scattered, independently operated marketplaces, a problem now referred to as "fragmentation."

CyberCorp's software "hunts and seeks" among the ECNs and primary exchanges for the best price, Berber said. When the best price is located, the trade is completed, usually in a nanosecond.

Berber revels in the military parallels.

"A heat seeking missile locks onto a target and is launched. Our technology allows the investor to lock onto the best price and launch the order. The concepts are identical and the techniques are extremely similar," he said.

If all goes as planned, Berber said his military-style application will be adopted by big institutional traders and eventually used across a variety of international markets.