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.
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.
“This is also a significant cross-selling opportunity. Those Rosenblatt clients who need TMT research, which we do not offer, now have access to Wedge; while if a Wedge client needs trade analytics or market structure advice or has an interest in our macro strategy or other niche research offerings, they can now use us,” Gawronski said. While Rosenblatt can offer TMT research to its clients, those clients will be covered by Rosenblatt research sales staff. Wedge research sales staff will not cover Rosenblatt clients-only their own.
The three traders on Wedge’s trading desk-Ryan Smith, Justin Weil and head trader William Walters-will become dual-registered representatives with both Wedge and Rosenblatt and execute trades solely at Rosenblatt. Gawronski said all trades will go through his firm’s order management system, Fidessa, and trades will clear through his clearing agent, Goldman Sachs Execution and Clearing.
“By partnering with Rosenblatt, an acknowledged leader in delivering quality execution and understanding the complex market structure, we are both expanding and strengthening the execution offering to our clients and can be confident that our clients receive superior execution quality,” Wedge’s Adams said.
This increase in execution capability at Rosenblatt Securities complements its recent expansion into the fundamental research business. The firm has recently hired Jeffrey Campbell, a longtime buyside energy analyst, to launch coverage of the energy sector for institutional clients. Campbell worked at Suffolk Capital Management for 11 years, covering an array of energy subsectors, including exploration and production, oil services, refining, oil field equipment, onshore and offshore drilling, integrated oil companies and utilities.
The firm also added former buysider Akhil Bhatia last year. Bhatia focuses on helping institutional analysts and portfolio managers better understand the global exchange industry and other market-structure-related companies. Prior to joining Rosenblatt, he was a senior analyst for Surveyor Capital, an affiliate of Citadel. He was also an analyst at Diamondback Capital Management and Balyasny Asset Management.
