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March 1, 2011

Trading Pros Move Into Wholesaling

By Peter Chapman

There's a new kid on the wholesale block. Global Liquidity Partners, a small broker-dealer with operations in Chicago and New York, recently entered the business of servicing retail brokers with market making.

The firm was put together by industry veterans and has built a new trading system to support its activities, which will extend to the handling of institutional orders, as well.

The firm sees opportunity. "There's room for better execution capability," said GLP chief operating officer Kevin Close. "We intend to provide execution quality tailored to the clients' parameters, whether that's price improvement, quantity improvement, time of execution and so on."

Close joined the firm from the now defunct middleware vendor Selero, along with Michael Wojcik, who was responsible for marketing a market-making system to exchange specialists.

Tim Lang, previously in charge of internalized trading at Swiss American Securities, a unit of Credit Suisse, is GLP's chief executive. Lang runs trading, while Close oversees technology and operations. At Swiss American, Lang's group made markets in 3,000 securities, handling order flow from customers and other broker-dealers. Swiss American was a Selero client.

Also on board is Dr. Mark Gimple, an early proponent of electronic trading at agency brokerage Reynders Gray, and Christopher Taylor, who ran a large trading operation at Deutsche Bank.

Close bills GLP as a "highly automated algorithm-driven market maker." The firm is owned by a group of investors with ties to Belzberg Technologies, and also clears through Belzberg's EBS subsidiary. The firm is a member of the CBOE and stock exchange unit through which it makes its markets. The firm is also a member of the Securities Investor Protection Corp., a requirement for broker-dealers that handle customer orders.

The wholesaling business is dominated by five firms: Knight Capital Group, UBS, ATD/Citi, E*Trade Financial and Citadel. That hasn't stopped others from jumping in. Surge Trading, which launched in 2009 after purchasing the assets of Bernard L. Madoff Investment Securities, has been making inroads. It counts Raymond James, Crowell Weedon and Legent Clearing among its customers, according to the public routing reports.

At least one order-sending firm says there's room for newcomers, but notes the bigger players still have an edge.

"It's to our advantage for there not to be too much consolidation," said Patrick Fay, director of equity trading at Great Falls, Mont.-based D.A. Davidson & Co., "for reasons such as the Madoff situation, where a lot of orders didn't get executed when the firm blew up." He tries to ensure that no more than 25 percent of his flow goes to any one firm.

Still, Fay noted, he has to go where the liquidity is. "There are probably two or three providers that have the best liquidity and best prices," he said. "The larger shops have access to much of the liquidity."

 

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