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November 2, 2011

State Street Buys Pulse Trading

By John D'Antona Jr.

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  • State Street Buys Pulse Trading

State Street Corp.'s deal to purchase Pulse Trading offers the Boston-based bank the ability to leverage its huge transition management business through Pulse's dark pool, BlockCross, according to industry observers. With the addition of BlockCross, they say, State Street Brokerage would be better able to attract more block-size liquidity from money managers looking to trade anonymously and in size, giving the broker both sides of a trade.

This would not only bring in additional commissions for State Street, observers say, but would also give it an additional selling point in the transition business-a midpoint cross is attractive to investors. BlockCross uses buyside blotter-scraping technology and integrates both sellside and dark algo liquidity. The deal, announced Sept. 14, is expected to close in the fourth quarter of this year. 

Mark Enriquez, Pulse

"State Street has a great transition business," said one brokerage executive familiar with the crossing business. "If you want to cross as much stock as you can with your clients, a dark pool is a great venue to do that. So you populate your dark pool with your transition business and that transition interacts with buyside flow. It is a compelling model, theoretically. On paper, if all the math works out, it is a very compelling business."

State Street has long had a robust transition management business. Because it is a custodial bank, it has strong relationships with pension funds. When pension funds fire money managers and hire new ones, State Street is a familiar face offering its transition management services-the selling and buying of stocks to harmonize the portfolio of the old manager with the new one.

Once closed, the transaction will represent a homecoming for one Pulse Trading executive. Mark Enriquez, a managing partner and a founder of Pulse Trading, served as director of electronic trading at State Street from 1997 until 2000, according to his LinkedIn bio.

Craig Jensen, principal and head trader at New Canaan, Conn.-based Armstrong Shaw, said the union of the two makes sense in that State Street is a custody bank that is focusing on growing its transition management business by "adding more liquidity." He added that "anything that helps them keep more business under their roof helps."

Dennis Fox, head trader at Boston-based Munder Capital Management, who trades with both firms, said the BlockCross technology will make it easier for him to trade with State Street and access its transition business. "I view the acquisition as a net positive for State Street," Fox said.