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November 10, 2009

Cover Story: Spreading Their Wings

Regional Brokers Expand Services Beyond the Traditional

By James Ramage

In the past five years, Milwaukee-based investment bank and brokerage Robert W. Baird & Co. has almost doubled the size of its research division, expanded sales and trading into New York and London and completely rebuilt its trading room. In late September, the firm expanded into program trading. In the coming months, it will start to build its own algorithms.

Dan Renouard, Robert W. Baird

"We're excited about building out program trading," said Dan Renouard, Baird's chief operating officer of institutional equities. "Broadly speaking, we're focused on building out our electronic executions offerings, as well. There's going to be a lot more coming from us in the next three to six months."

Behind the moves, according to Baird executives, were client demand, low-cost technology and a surplus of talented ex-bulge-bracket employees looking for work. The result has been an expansion by the firm that has elevated its profile from a regionally oriented shop into something more akin to a full-service bulge bracket firm.

Baird is not alone. Firms such as Piper Jaffray & Co., Raymond James & Associates, William Blair & Co., Stifel, Nicolaus & Co. and others have also spread their wings in recent years, far outgrowing their regional rubric and garnering reputations as talented national firms that happen to specialize in small- and mid-cap stocks. While they may still underwrite local municipal bonds, finance companies in their own backyards and service retail customers in concentrated areas, their institutional customer base has grown, along with their offerings.


Outside the Region

Over the past five years or so, the mid-tier trading desks have been reorienting their roles in the market. They aren't the capital, product and service-heavy behemoths of the bulge bracket. They're also not the narrowly focused, institution-only specialists of the boutique mold. And they've moved far outside their original "regional" coverage areas.

During this time, they have extended their execution business across the country, even overseas. They've been offering more products and services, including bulking up their electronic execution capabilities. And following the disruptions in the marketplace last year, they've been adding experienced pros from the largest investment banks to their trading desks and research ranks, looking to enhance their execution quality and expand their coverage.

But none of these firms changed to be fashionable. They've changed because they had to, if they wanted to increase their chances of getting paid. Industry trends had been moving away from a payment model where mid-tier brokerages more or less had to be compensated in flow for their research.

And they've changed because they could. New lines of business became more accessible as more sophisticated trading technology became more affordable.


The Baby Bulge