Deutsche Bank Opens Small-Cap Desk

To get big, sometimes a desk has to start small.

That’s the approach Deutsche Bank is taking, reaching for a greater share of trading volume by concentrating its efforts on the small-cap stocks business. To that end, it has opened a new desk that will specialize in small caps.

Deutsche Bank says that while other firms back off, small-caps is a place where the broker can best assist buyside firms in their search for above-average returns.

Enter the new small-cap desk. Steve Smithers, a nearly seven-year veteran with the firm and former Morgan Stanley alum, is head of the firm’s small-cap product and oversees the new group. There are several other dedicated small-cap traders on the desk. The firm declined to name them or the exact size of the desk.

Joe Spinelli, head of North America cash equity trading, oversees this new small-cap group and Smithers. Spinelli told Traders Magazine the new small-cap team will be a stand-alone business within the firm’s high-touch offering.

The firm provides research coverage on 259 small-cap stocks, or roughly 31 percent of its corporate research offering.

Spinelli added small-cap algos can add value to the execution process, but they often fall short in creating the liquidity that clients seek.

Given the recent inception of the desk, traders will follow the traditional high-touch trading mode: telephony and elbow grease.

-John D’Antona Jr.


LeveL Wins Back Customers

Volume begets volume.

That’s the thinking behind LeveL ATS’s strategy to get more order flow and grow its business. First, build its client book. Then, build the book of orders from each client. That, in turn, will yield more order flow and push trading volumes higher, the alternative trading system operator believes.

Chief executive Whit Conary and his team have been talking to former and potential new clients to get them involved in the dark pool. So much so, that LeveL’s client base is back to 98 percent of the level it had achieved before the firm’s parent company agreed to pay a fine to the Securities and Exchange Commission in a case involving the protection of information about its customers’ unexecuted orders.

Recent data from Rosenblatt Securities reports LeveL’s volumes rose 18.7 percent month-over-month to 24.1 million shares in January from 20.3 million shares in December. Moreover, it has grown its market share to 0.37 percent of all consolidated trading volume compared to 0.26 percent last October, a 29.7 percent gain.

Now with clients returning to LeveL and order routing and flow picking up, Conary told Traders Magazine that average daily trading volume for March is running around 45 million shares a day, double-counted, or roughly 65 percent of what it was pre-announcement.

-John D’Antona Jr.


SEC Delays Action on 10-Second Reporting

The Securities and Exchange Commission put off a decision to approve a request from the Financial Industry Regulatory Authority, which wants to shorten the time broker-dealers have to report trades done away from the exchanges to 10 seconds.

The SEC has delayed its decision from March 29 to May 13.

FINRA first proposed the reduction in February. Since then, the brokerage community has written letters to the SEC requesting it not approve the rule change. They argue that the change would be costly and impossible to comply with when trading large blocks of shares, which can require manual input of details.

In a filing, the SEC said it needed more time to consider the issue, given the pushback and the need to hear a rebuttal from FINRA.

Under the current FINRA rule, brokers must report their trades of both National Market System and over-the-counter securities done outside of the public exchanges within 30 seconds. Under the proposal, firms would have to report these trades within 10 seconds or “as soon as practicable.”

In its February filing, FINRA noted that 99.96 percent of all trades done over the counter were already reported within 10 seconds. Requiring all brokers to report OTC trades within 10 seconds would “enhance market transparency and price discovery,” FINRA told the SEC.

-Peter Chapman


Goldman, Two Sigma Gain Share

Two newcomers to the wholesaling game are moving up in the rankings.

Two Sigma Securities, an affiliate of money manager Two Sigma Investments, and Goldman Sachs have boosted their shares of the retail order flow pie among brokers’ brokers in the past year, according to data aggregated by Thomson Transaction Analytics.

Two Sigma, for instance, saw shares traded during the month of January more than double to 490 million from January 2012. Goldman saw its share volume triple to 288 million in the period.

While the marketplace is still dominated by the five largest wholesalers-Knight Capital, Citadel, UBS, G1 and Citi/ATD-the increases push Two Sigma into the No. 7 position. Goldman remains in ninth place.

Executives at Two Sigma, which bills itself first and foremost as a technology shop, say it is their technology that gives the firm an edge. “Clients see that markets are changing,” Simon Spenser, a principal of Two Sigma Securities, told Traders Magazine. “And technology is in our DNA. We built our technology from the ground up around the client experience.”

-Peter Chapman


SEC to Analyze Order Types by Mid-Year

The director of the Office of Compliance Inspections and Examinations at the Securities and Exchange Commission said at a recent conference that the examiner should be in position to begin analyzing data collected from national exchanges on how new types of orders to buy or sell stocks are created before coming to the regulator for approval.

Director Carlo V. di Florio said the examiners are collecting data from national exchanges and responses could be ready for analysis by mid-year.

The office will be looking for patterns that warrant closer inspection, he said. The Office of Compliance Inspections and Examinations said its Market Oversight unit would conduct inspections of equities exchanges to determine the types of orders available and the internal governance process around how order types are proposed, implemented, and monitored post-implementation.

Among the patterns to be monitored: Whether the same firms originate requests for different order types at more than one exchange.

Assessments are being conducted at all national stock exchanges, including the major three operated by NYSE Euronext; the three operated by Nasdaq OMX Group; the two operated by BATS Global Markets; the two operated by Direct Edge, and NSX.

Each of the exchanges has been sent documents seeking details on how they develop ideas for new order types and responded.

OCIE now is seeking additional information from each exchange. Additional follow-up inquiries likely will include on-site visits.

-Tom Steinert-Threkeld


IEX Bags $10M

IEX Group, which was founded in March of last year, raised $8.4 million in December and $1.5 million earlier in the year, according to filings with the Securities and Exchange Commission. The proceeds came from the issuance of convertible preferred stock.

IEX was founded by a group of electronic trading executives formerly with RBC Capital Markets with a plan to build an electronic block trading system to be owned and used exclusively by money managers. The concept of a buyside-only trading venue is not new-Liquidnet has run an institutional equities trading network for years-but the idea of buyside ownership is new. Liquidnet is a privately owned broker-dealer.

Behind the move are concerns by money managers that existing venues-exchanges and alternative trading systems-are chock full of high frequency traders bent on gaming their large orders. The IEX initiative is a welcome addition to the trading landscape, one head trader at a large money management firm told Traders Magazine.

IEX operates from 7 World Trade Center. The firm is led by Brad Katsuyama, president and chief executive. At RBC, Katsuyama was global head of electronic sales and trading.

-Peter Chapman


ICE Could Sell Off Big Board

Jeffrey Sprecher, chairman of IntercontnentalExchange, will likely focus on reducing costs after acquiring NYSE Euronext, even if that means separating the 220-year-old New York Stock Exchange, according to Bloomberg.

While Sprecher, the ICE chief executive officer who agreed to buy NYSE Euronext in December, has committed to revitalizing the equity venue, he will probably end up selling it to focus on derivatives, according to Diego Perfumo, who advises hedge funds on exchanges at Equity Research Desk LLC.

The NYSE will be expendable, should Sprecher fail to find ways to improve its prospects, said Thomas Caldwell, chairman of Caldwell Securities.

NYSE Euronext’s allure for Sprecher is its London-based derivatives business, where ICE will eliminate millions of dollars in expenses by handling its clearing and expanding in an industry where trading fees are three times as much as stocks.

-Staff Reports

Janney Raids Knight, Picks Up A Dozen

Janney Montgomery Scott brought on 11 sales traders and sector traders, including nine from Knight Capital Group.

The hires come as the firm announced it was expanding its coverage for institutional trading desks and just two months after former Knight executive vice president Greg Voetsch joined Janney.

“As the business continues to grow more competitive, it is critical that we differentiate Janney from our competitors,” Voetsch, now Janney’s head of equities, said in a statement. “By enhancing distribution and trading, we are in a much better position to monetize our research.”

Voetsch spent about 10 years at Knight, the market making firm that recently agreed to be bought by high-speed trading firm and market maker GETCO. When he left in January to join Janney, he was Knight’s head of global equities.

Among those hired from Knight are: Michael Ballan, Robert Jamieson, Andrew Leveen, Jeff Breay, David Hall, Robert Hogan, Joel Kulina, Greg McManus and Brian Scollard.

-Peter Chapman


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