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July 31, 2002

Recapture Broker Finds More Profit in Disaster

By John A. Byrne

A bear market may be good for agency brokers that specialize in commission recapture programs.

That's because some cost-conscious investment managers may view these programs - which send hard cash to the manager based on overall commission dollars - as a way to save money.

Critics of these soft-dollar arrangements see another side: a less prudent approach to how commission dollars are spent. But try telling that to Lynch, Jones and Ryan, which regards itself as the largest commission recapture broker in a field of some 55 competitors.

"The investment managers must meet industry benchmarks and are looking more closely at costs in these difficult markets," said Todd Burns, president of Lynch, Jones and Ryan, the plan sponsor unit of Instinet. "The manager's want people like us to help them reduce their costs a bit."

With 900 clients in the U.S. and another 300 overseas - the first New Zealand client was recently signed - Burns says the unit's business is growing 25 percent annually since 1997. "I don't see a reason why we won't finish the year up 30 or 35 percent from last year," he added. In the first half of 2002, 175 new clients were signed.

Instinet does not generally publish share volume for Lynch, Jones. However, the volume is likely somewhere around 10 million listed shares daily, based on reported volume of eight million shares in May 2000. Nasdaq volume is negligible.

Burns, previously a Lynch, Jones executive vice president for global sales, succeeds industry veteran Howard Schwartz. He will retire as chairman at the end of this year. Lynch, Jones, a 55-person operation, is based in Times Square where it also runs a trading desk.