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August 6, 2009

Small Broker Looks to Go Big-Time

By James Ramage

Two executives, with backing from interdealer broker ICAP, are set to transform a 30-year-old New York-based broker into a bigger player in the equities and derivatives space.

That's the task at hand for former Collins Stewart execs Shawn McLoughlin and Joel Plasco, who in June acquired Reynders, Gray & Co., a firm that started as a floor brokerage in 1979 at the New York Stock Exchange. It later launched an upstairs desk and currently has 11 traders.

At Collins Stewart, McLoughlin was chief executive for the London-based firm's U.S. arm in New York. Plasco was group chief executive. The two left to start their own firm, they said, because their vision of how to build a U.S. brokerage clashed with those of Collins Stewart. Consequently, they targeted Reynders, Gray and closed the deal.

"They've had a nice, clean equities business for 30 years," said McLoughlin, the brokerage's co-owner and manager. "We thought it'd be a great platform to build out, instead of starting one from scratch. It comes as a great opportunity."

The two intend to add about 10 traders to the 11 already there by the end of the year and eventually fill out their new trading floor, which accommodates 150 workstations. They also plan to expand the firm's services by adding research, program trading and risk-arbitrage desks and will expand its algorithmic trading offering over the next half year, McLoughlin said.

Reynders, Gray's ambitions square with the trend over the past year where smaller agency brokerages have taken advantage of the displacement at the larger bulge bracket firms to grow in staff and services. They've hired traders who have either left investment banks or have been downsized. These firms have tried to increase their market share through the relationships the new traders have brought with them and the services the firms are launching, such as research, derivatives and overseas trading.

But with so many of these agency-only shops staffing up--each with their own strong connections on the Street--is there room for another player to gain traction? It's possible, but will be a difficult undertaking, said Sang Lee, a managing partner at Aite Group.

"We've certainly seen a slew of smaller firms raise their profiles," Lee said.

"They are probably seeing increased opportunities, especially earlier this year. But I'm not convinced that it's actually sustainable, unless they have something that's so dramatically different that it can make a difference moving forward."

Reynders may have that something: a well-capitalized backer.

On June 18, the giant English interdealer broker ICAP acquired a minority stake in Reynders, Gray as part of its effort to expand its own equities business, the firm said. McLoughlin, though, declined to disclose the size of ICAP's stake or what role ICAP will play with the firm. ICAP did not respond to either question by deadline.

"We have an investor with a market capitalization of close to $5 billion," said Plasco, co-owner and manager of Reynders, Gray. "That will make our comfort level for the institutional clients that we're pursuing significantly higher than most boutiques on the Street." 


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