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August 1, 2012

Raymond James Goes Electronic

By John D'Antona Jr.

Raymond James is building out an electronic equity trading business and is rolling out new algorithms so clients have another means to pay for research. The firm has also added new sales traders to its desk to further complement its electronic tools.

This is the second phase of its two-pronged approach to make the longtime high-touch shop a favored execution partner. The first phase was establishing a commission management business about a year ago. This follows the firm's purchase of broker-dealer Morgan Keegan.

The addition of the electronic desk and white-labeling algos won't affect Raymond James' traditional high-touch trading focus, according to Dan McMahon, director of institutional equity trading at Raymond James. But it does provide the buyside with an alternate means of paying their research chits.

Dan McMahon

"We are, and will remain, a high-touch shop, but expanding into the electronic space is complementary, particularly in light of our growing commission management business," McMahon said.

One desk head agreed, "Any real institutional brokerage needs to have an electronic offering, which is something the firm didn't have."

Raymond James completed a $1.2 billion merger with Morgan Keegan on April 2.

McMahon described the transition of Morgan Keegan traders into the Raymond James culture as "seamless." He declined to say how many traders joined from the firm, citing compliance issues.

The build out of Raymond James' New York-based electronic trading desk follows last year's startup of the company's commission management group, according to Doug Leo, the firm's head of commission management and electronic trading in New York. The commission management business was the first step in offering a complete electronic trading platform.

Commission management services are good for the buyside - and the executing broker - as they allow a buysider to pay research bills to providers through a preferred executing broker, such as Raymond James. This leeway to pay its bills gives the buyside more flexibility managing its research relationships.

"Now that the commission management business is starting to grow, we can focus on the electronic desk," Leo said. "Any statistic will tell you that 50 percent of all commissions are paid in the electronic space, so we had to have one."

The firm will be "white-labeling" algos from multiple providers to offer to its clients. This would give clients a second way to pay for research away from executing high-touch trades. Raymond James will offer a full suite of single-stock algos, as well as pairs and program-trading algorithms.

He also told Traders Magazine that the firm plans to white-label and offer clients an order management system for those who do not have one. The firm is also looking into expanding its trading into non-U.S. equities and options.

On the desk, Raymond James has added five traders: Michael Young, Jeff Melvin, Kenneth Bollinger, Paul Cornette and Mark Koczan. Young, Melvin and Koczan join from Morgan Keegan.

The desk looks to leverage the firm's research - which covers predominately the small- and mid-cap space.

"When clients seek liquidity in our names, they are confident we know where the bodies are buried, and can be trusted to make intelligent calls," McMahon said.

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