Ticonderoga Securities Is Latest Casualty of Trading Downturn
Traders Magazine Online News, January 24, 2012
In the midst of a severe equity trading slowdown, Ticonderoga Securities appears to be the first agency brokerage firm to call it quits in 2012. The firm will shut its doors this week after an attempt to raise additional capital proved unsuccessful, according to people familiar with the situation.
Talk throughout the Wall Street trading community this morning was focused on the reasons behind the firm's shutdown and what it means for small firms: Essentially, if the large firms are having trouble making money, imagine what it's like for the small, independent agency brokers?
In addition, the closing due to the lack of capital also highlights the issue of broker net capital requirements and counterparty risk, particularly for smaller brokers, according to some institutional clients.
A call to Shawn McLaughlin, co-founder and chief executive, was not returned. He was said to be in meetings. Joel Plasco, chairman and co-founder, also was not available. He was said to be in London on business.
One of Ticonderoga's investors was ICAP, the huge global interdealer broker based in London. According to its annual report, dated as of March 31, 2011, ICAP wrote off $16.8 million it invested in the firm. Plus it continues to hold a $3 million note, according to the report.
Ticonderoga Securities was launched in May 2009 and about a year later took on roughly a dozen former Pali Capital employees---traders and research pros. McLaughlin told Traders Magazine in an April 2010 article describing the firm's plans that its goal was to become a boutique with top-notch analysts and execution. The firm later merged with Soleil Securities the following May to gain additional research heft.
Bloomberg reported today Ticonderoga had 75 employees. In April 2010, McLaughlin told Traders Magazine the head count was 77---one year before the Soleil merger. One knowledgeable source said the Soleil deal never delivered the business that many had hoped. It was difficult, he said, to continue to make the grade on the research vote as the buyside continued to cut lists. Add the trading slowdown into the mix, and the announcement to Ticonderoga employees this morning "came as no surprise."
And much of Soleil's business was paid with a check through commission sharing arrangements. There were too few "rain makers" in trading and research at either firm, according to one source. But the handful or so that did bring in the business won't have any problem finding work, the source added.
"It's expensive to keep a research staff and it got harder and harder to get paid," the source explained. After the Soleil deal was announced, the two trading firms were stationed in separate areas on the same floor in Ticonderoga's office. This went on for two or three months until the merger and made for an uneasy transition. "Little by little, they let people go," the source said. "They went down the line and started whacking people."
Before the Soleil deal, though, there were indications that not everything was rosy at Ticonderoga. An options group of five people left Newedge in Jan. 2010 for what Ticonderoga offered: the promise of working for an employee-owned firm and a piece of the action. But the group returned to Newedge a little more than a year later in March 2011.
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