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February 1, 2011

Williams Expands With Research

By Michael Scotti

The Williams Capital Group, a New York-based brokerage firm, is expanding its presence in equities for the second time in less than two years. The minority-owned brokerage added six equity analysts, as it launched an in-house research department.

In April 2009, it acquired Connecticut-based agency broker Nutmeg Securities, itself a minority brokerage. The deal introduced a desk of 12 equity traders to a firm that up to that point was considered mostly a bond house. The firm was founded in 1994 by Christopher Williams, a former Lehman Brothers executive with a fixed income and derivatives background.

Williams' move into equity research mirrors that of numerous other agency brokerage shops over the last year, as institutional money managers continue to demand more value-added services from their brokers: A good execution alone--even a great one--just doesn't cut it anymore, because many institutions are looking to leverage their commission dollars to pay for research and other brokerage services.

In the end, agency brokerage shops learned the hard way in last year's tight commission environment that they need to offer clients something beyond an execution for clients to justify a trade.

"Clients are under pressure to get as much as they can for their commission dollars," said Matt Rochlin, who heads equities at Williams Capital. "For us to add value and to compete for those commission dollars, research is very important."

The idea behind the expansion is to grow the business, said Rochlin, adding that client demand prompted the move into research. "We really want to distinguish ourselves," he said.

Cheryl Cargie, head trader at Ariel Investments, a minority-owned money manager in Chicago with $5 billion under management, does business with 11 minority brokerage firms, including Williams. She explained that many minority firms are looking to expand their business. But she's heard from these firms that a number of money managers won't open accounts with them unless they offer research. Consequently, more minority firms are getting into research.

Rochlin estimated that roughly 25 percent of its commissions are driven by direction from pension funds. Many state and city pension funds require their money managers to set aside a certain amount of their commission dollars for certain brokers, including minority-owned firms.

Still, whether this foray into research pays off will become clearer as the year wears on. Williams officials believe it will, estimating that research will increase commissions this year by 20 to 25 percent over 2010 levels. The privately held firm declined to disclose equity trading revenue for 2010.

Jack Murphy, Williams' new co-head of research, brought in the six new sector analysts to the firm. Murphy, a 25-year industry veteran, previously with Soleil Securities, said each analyst is expected to be covering about 15 stocks by the end of the first quarter. They will cover all market caps, but the firm's "sweet spot" will likely be mid-cap stocks that don't have much coverage.

Murphy said research's goal is to get to 12 or 15 analysts by the end of the year. Research will also be distributed by the firm's three salesmen, but the primary driver will be the 13 sales traders. "Our sales traders are very capable of getting the story out," Murphy said.


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