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February 1, 2011

ConvergEx Ties RealTick Knot

EMS Finds A New Home

By James Ramage

Also in this article

RealTick's long and winding road continues after a recent deal to purchase the pioneering execution management system closed. Brokerage ConvergEx added RealTick to its stable of offerings to institutional traders. At the end of 2010, it purchased RealTick from Barclays Capital, which decided to exit the business, selling the independently run subsidiary.

Craig Lax, ConvergEx

RealTick's history is an interesting one: It was purchased by Lehman Brothers in 2005 from Townsend Analytics, which developed not only RealTick, but also created the ECN Archipelago. Lehman purchased RealTick when big brokerage shops were falling over each other to own a front end.

Despite the changing landscape for the EMS, participants in the deal describe the transaction as a win-win across the board.


Filling a Need

For ConvergEx, the acquisition delivers a respected EMS as another service to offer customers. As an EMS vendor, RealTick brings more heft to the agency brokerage's efforts to reposition itself as a technology company, said Craig Lax, who runs ConvergEx's electronic trading business. In recent years, ConvergEx has viewed itself as more of a technology provider than a traditional brokerage firm.

"We're trying to transform ourselves," Lax said. "The EMS was certainly a hole in our offering."

For RealTick, the move to an agency brokerage fits its broker-neutral model better--ConvergEx is seen as more broker-neutral than Barclays. RealTick also retains its stand-alone status under ConvergEx and can continue its own strategy to reach out to new customers--namely brokerages--with technologies it plans to continue developing.

For Barclays, the sale loosens the responsibility of overseeing a subsidiary that develops technology, said one industry exec. But it also demonstrates an unraveling of a trend that started among the largest banks 10 years ago: the great EMS buying spree.

In 2000, Goldman Sachs made the first move by purchasing Spear, Leeds & Kellogg, the New York Stock Exchange specialist and Nasdaq market-making firm. This gave Goldman the EMS REDIPlus. Goldman made REDI a central component of its electronic trading and its prime brokerage offering.

Soon thereafter, Goldman's competition followed suit and jumped on board. Morgan Stanley built Passport in 2002. Citi bought Lava Trading in 2004. Banc of America Securities acquired Direct Access Financial Corporation and its front end, Instaquote, in 2004. JPMorgan acquired Neovest Holdings in 2005. UBS first deployed Pinpoint for clients in 2006.


Front End Needed

As three of the largest prime brokers in the business, Morgan Stanley, JPMorgan and Goldman wanted front ends as part of their prime brokerage offerings, so they could make changes quickly in response to customer demand. They also believed having an EMS would lead to more incoming order flow.

In 2005, Lehman Brothers bought Townsend Analytics. Lehman was looking to build out its electronic equities platform, according to Barclays spokesman Mark Lane.