Crashing The Corporate Access Party

Agency brokers play matchmaker

Traders Magazine, May 2010

James Ramage

At the end of March, Instinet introduced a whiz-bang electronic service that connects money managers to corporations looking for institutional investors. Midway through last year, Liquidnet launched its own technology-driven corporate access service. Around the same time, JonesTrading rolled out a product that leverages its deep client relationships. Detect a pattern here?

If so, you're not alone, because agency brokerages of many stripes have started corporate access businesses, long the domain of the large investment banks.

For these firms, corporate access is an inexpensive way to get into the research game. Maybe more important, providing access to company management gives money managers more reasons to trade with them--at a time when firms find it harder to transact with execution-only shops in a tight commission environment.

Corporate access is a breadwinner. It represents an estimated $2.2 billion--or 17.5 percent--of the $12.5 billion in equities commissions, according to Greenwich Associates.

This niche has been open to newcomers with an innovative approach, strong relationships on the buyside and good knowledge of where stocks--particularly of the small- and mid-cap varieties--trade.

"Everybody's jumping into this business because all of their clients are telling them it's a priority to them," said John Adam, who heads the Insight Group, a research offering at Liquidnet. "That's why you're seeing a lot of interest in the space. The nuance of it is finding a way to differentiate the offering, because if it's just another research product, or if it's just another non-deal road show, it's tough to differentiate yourself."

Due to demand, there's opportunity for firms looking to provide this nontraditional form of research. But many suspect that when the deal calendar returns--initial public, secondary and bond offerings--corporate access will once again become the domain of the largest investment banks. The thinking goes that the buyside will have to pay the bulge bracket for these services. That could eat away at any inroads the independent firms make in their corporate access businesses. Consequently, all eyes are on the deal calendar.

Anecdotally, one trading executive whose firm provides corporate access says he's heard that investment banks are already pressuring clients for more business for their research. Clients, he said, have told him that the bulge bracket has been applying the "soft strong-arm." The bulge expects institutions to come running back to them for deal-based road shows, as stock and bond offerings rev up.

"They're saying, 'We're not doing this for free,'" the exec said. "And agency brokers like us have suffered to some extent, based on that. We haven't done anything wrong. It's just with commission pools shrinking, they've got product offering that we don't, and there's been pressure applied."

 

Not Enough Coverage

In the traditional corporate management access model, sellside research sales organize investor meetings for the management of companies that their analysts follow. Corporate access is a valued part of the overall research offering because the best information on a company often comes from the company itself, according to one brokerage exec. Therefore, institutions want to sit down with a company's president, chief executive officer or chief operating officer to gain perspective on the company, its sector and the economy at large.

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