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September 2, 2013

REDI or Not

A new consortium-owned EMS vendor, employing a broker-neutral business model, emerges from Goldman Sachs

By John D'Antona Jr.

About eight years ago, as the number of execution management systems on offer from brokers mushroomed, buysiders found themselves with more systems on their desktops than they needed.

What they wanted was one system that gave them access to multiple brokers. What the brokers wanted was for their customers to use their platforms to access their own services exclusively.

The two positions were at odds with one another. Finally, one side prevailed.


And it was the buyside. Its discontent drove the spread of the broker-neutral platform-a system that could be used by asset managers and hedge funds to trade with multiple brokers.



All brokers, including Goldman Sachs, professed to supply broker neutrality, but many didn't. Sources tell Traders Magazine that Goldman actively discouraged its customers from routing their orders to its competitors.

As broker neutrality gained in popularity, Goldman Sachs had to make a decision: Let its REDI division become an independent firm and grow. Or keep it in place as a service of Goldman Sachs, and risk obsolescence as the market moved away from its business model.

It chose the former. According to Rishi Nangalia, CEO of the technology provider now known as REDI Holdings, the buyside was clamoring for so-called "broker-neutral" execution management systems, so the umbilical cord to its parent had to be cut.

"We listened to market trends and clients' demands for an independent, multi-asset EMS solution, but also to preserve the strategic relationship with the sellside," Nangalia said. "This resulted in us partnering with several significant industry participants to deliver an innovative and uniquely positioned broker-neutral solution to the broader financial community."

He added that the buyside said it wanted a single experience across all brokers, and this was something REDI couldn't offer while at Goldman-too many other brokers saw Goldman as competition.

The buyside, Nangalia said, said it did not want eight different systems to trade with- just one or two. And this is where independent vendors like REDI are making inroads versus the brokers' own systems.

Ready or not, REDI has taken the plunge and become an independent firm. It was a decision that took years to fully implement.

Amid the commission slump, contraction in equity trading volumes and an overall decrease in the amount of cash the sellside had to spend, Goldman Sachs spun off its REDI trading technology unit to five new investors. These include brokers Bank of America, Barclays, Citadel Securities and BNP Paribas. Private equity firm Lightyear Capital rounds out new consortium ownership.

Details of the sale we not publicly disclosed. However, Goldman Sachs remains a "significant minority" investor in REDI, with less than a 50 percent interest.