Commentary

John Turney
Traders Magazine Online News

Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

Traders Poll

What is your favorite movie about trading?

Wall Street

23%

The Big Short

13%

Margin Call

6%

Equity

0%

Trading Places

38%

The Wolf of Wall Street

8%

Boiler Room

7%

Arbitrage

0%

Too Big to Fail

5%

Free Site Registration

May 1, 2013

Joining Forces

Agency Broker and Research Broker Team Up to Grow Market Share

By John D'Antona Jr.

Agency brokerage Rosenblatt Securities is going to execute trades and provide other infrastructure services such as technology, back office and compliance for Wedge Partners, a research-focused broker-dealer based in Denver that is choosing to hone its focus on research.

Rosenblatt, an agency-only institutional broker, has entered into an agreement to offer Wedge's clients its full suite of execution services, from upstairs portfolio trading to single-stock, exchange-traded fund and options trading. Rosenblatt already offers both high- and low-touch trading alternatives, as well as algorithms it "white labels" to customers.

The reason for the shift? Wedge, which operates through Wedge Securities, a registered broker-dealer, wants to trim its costs and focus on its core strengths of providing research on the U.S. and China media and telecom industries. To that end, Wedge fired two traders and converted two others to research sales guys. Only William Walter is left and is the firm's head of institutional trading. He is dually registered with both Wedge and Rosenblatt. Wedge now has a staff of 15.

Joe Gawronski, Rosenblatt

Wedge Partners will remain a separate legal and operating entity from Rosenblatt Securities. The firm will execute any trades it generates from its research through Rosenblatt, not its affiliate Wedge Securities.

"We needed someone who had a better trading platform than we have, and it was Rosenblatt," said Kirk Adams, chief executive of Wedge Partners. "We want to focus on what we're best at, research. We have a transactional relationship with them."

In the current low-volume and -commission environment, the move seems a logical choice, said Joe Gawronski, president and chief operating offer at Rosenblatt.

"This is partly an economies-of-scale play," Gawronski said. "The table stakes to run all the operations, connectivity and other functions of a broker-dealer today in this environment are not insubstantial."

From Rosenblatt's point of view, the deal makes sense because it is an execution-only broker and these types of brokers have found it tough going in recent years, thanks to smaller margins and lower commissions. Like other brokers, Rosenblatt needs research to get order flow. ITG has also added research in recent years.

Rosenblatt will be marketing Wedge's TMT-centric research, while at same time Wedge will market Rosenblatt's market structure research. The upside for Rosenblatt is that it should be able to garner more order flow, thanks to an increased research offering.

"Rosenblatt sales folks will talk to its clients about Wedge's TMT product, and Wedge sales folks will talk about Rosenblatt's market structure and analytics work, as well as Rosenblatt's macro strategy, energy and derivatives research," Gawronski said. Rosenblatt offers its clients an array of services from algorithms that it "white labels," direct market access and market structure services as well as dark pool analysis.

Wedge doesn't offer options trading or sponsored direct market access or algos to its clients, Gawronski noted.