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November 13, 2007

BNP Paribas's Contrarian Move

By Nina Mehta

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  • BNP Paribas's Contrarian Move
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BNP Paribas is beefing up its U.S. agency cash-equities business. The existing division-known as Global Execution Services, or GES-is being revamped in the U.S. with a broader mandate and product offering.

"It's a bit of a contrarian move, given the compression in margins," said John Bohan, U.S. head of GES, which sits within the equities and derivatives business in BNP Paribas's corporate and investment banking division. "But we're serious about being a full-service global bank and a U.S. cash-equities business will allow us to close the circle."

GES in the U.S. will offer single-stock direct market access, high-touch single-stock executions, program trading, as well as the current requisites of an institutional equities trading desk: smart-order-routing technology, a dark pool, and a set of new algorithms that seek out liquidity in a fragmented marketplace rife with hidden orders.

Best known stateside for its equity derivatives prowess, BNP Paribas already has a foothold in U.S. equities as a result of its derivatives business, its vast proprietary trading operation, and client flow. The firm executes 250 million to 300 million shares per day on average, roughly 3 percent of the U.S. equities market, according to Bohan. He noted that the firm is the third-largest trader of Dow Jones Industrial Average stocks, after Goldman Sachs and Merrill Lynch.

BNP Paribas will draw on its program trading expertise and flow as a key source of "unique liquidity," Bohan said. Todd Steinberg, head of the Americas equity and derivatives division at BNP Paribas, pointed out that cash equities is a business "our hedge fund and equity finance customers are interested in and want us to provide." He added that offering equities execution will also enable the firm "to be more relevant to long-only derivatives users," such as mutual funds that sell listed options to generate income and pension funds seeking international exposure.

GES has been in existence for years. A half-dozen years ago, BNP Paribas had a short-lived risk-based operation that focused on program trading. That business was subsequently shuttered.

To rebuild GES's U.S. segment, BNP Paribas brought in new management. Bohan joined last spring. He previously worked at Deutsche Bank, where he ran the bank's international and emerging-markets equity trading in New York and was co-head of U.S. equity DMA. Managing director and senior sales executive Alan Rubenfeld arrived in June after 10 years at Deutsche Bank, where he headed program trading sales.

GES, which has a 10-person front-office group in the U.S., currently has five hybrid traders and sales traders, with plans to add a few more next year. GES globally is a 70-person sales and trading operation. The group currently commits capital for guaranteed volume-weighted-average-price trades and is considering risk bidding in program trading, Rubenfeld said. Unlike bigger Wall Street trading firms, BNP Paribas will not make markets or offer U.S. company research.