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July 6, 2009

Aussie Firm Macquarie Capital Acclimates to U.S. Market

By James Ramage

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  • Aussie Firm Macquarie Capital Acclimates to U.S. Market

Macquarie Capital USA might not yet be a household name in U.S. equities among institutional investors. But the firm appears to be moving at an accelerated pace to get there.

Australian brokerage Macquarie Group launched its U.S. broker-dealer as an agency and research shop in November 2007. The strategy was to gradually roll out more execution and research services as it picked up business by making inroads onto more buyside broker lists.

But as revenues outstripped expectations in its first year, the firm adjusted its schedule upward. Macquarie hired more traders and research staff as its client list grew and its research coverage increased.

The U.S. broker-dealer also started committing capital in March. And it plans to debut its program trading capabilities in the third quarter, said Austin Graham, head of U.S. equities trading.

"What started off as a bolt-on business in the U.S.--that was content/research-driven--has now escalated into full service," Graham said. "But what we hoped was going to be an agency-only, pay-for-research model has morphed into sectorized trading."

Macquarie's history of trading in the U.S. goes back 12 years. Until recently, though, the firm was mostly known to U.S. institutions for brokering Australian and Asian stocks, according to Greg Coleman, head of U.S. equities sales and trading.

Austin Graham

The U.S. launch fit Macquarie's plan for a wholly global execution and research business. Accordingly, Macquarie started a European broker-dealer in London that trails its U.S. cousin's rollout by about six months, Coleman said.

Market trends unwittingly helped the firm boost its level of talent for the build-out of its New York beachhead. The U.S. broker-dealer picked up many traders and research pros from firms that were broadsided or sunk by the economic downturn: Bear Stearns, Lehman Brothers, Bank of America, Merrill Lynch. Graham himself joined after almost 20 years of equity sales and trading experience at Lehman.

"That window of opportunity was open, and we ran through it," he said.

Macquarie now has 13 sales traders and four sector traders. The firm plans to add another sector trader and two more sales traders, Coleman said. On the research side, the firm has 15 research sales people, with plans to expand to 20.

Macquarie's broker-dealer offers its mix of long-only and hedge fund customers an execution service that is all high-touch, Graham said. The firm doesn't offer a direct-market-access product or an algo product to clients at this time, he added.

"Nobody pays Macquarie's execution in the U.S. without talking to a sales trader right now," Graham said.

That, however, should change. Ultimately, the U.S. and European businesses will grow and transform into the model of products and services Macquarie offers in Asia, which includes low-touch, Graham said.