Two executives, with backing from interdealer broker ICAP, are set to transform a 30-year-old New York-based broker into a bigger player in the equities and derivatives space.
That’s the task at hand for former Collins Stewart execs Shawn McLoughlin and Joel Plasco, who last month acquired Reynders, Gray & Co., a firm that started as a floor brokerage in 1979 at the New York Stock Exchange. It later launched an upstairs desk and currently has 11 traders.
At Collins Stewart, McLoughlin was chief executive for the London-based firm’s U.S. arm in New York. Plasco was group chief executive. The two left to start their own firm, they said, because their vision of how to build a U.S. brokerage clashed with those of Collins Stewart. Consequently, they targeted Reynders, Gray and closed the deal.
"They’ve had a nice, clean equities business for 30 years," said McLoughlin, the brokerage’s co-owner and manager. "We thought it’d be a great platform to build out, instead of starting one from scratch. It comes as a great opportunity."
The two intend to add about 10 traders to the 11 already there by the end of the year and eventually fill out their new trading floor, which accommodates 150 workstations. They also plan to expand the firm’s services by adding research, program trading and risk-arbitrage desks and will expand its algorithmic trading offering over the next half year, McLoughlin said.
Reynders, Gray’s ambitions square with the trend over the past year where smaller agency brokerages have taken advantage of the displacement at the larger bulge bracket firms to grow in staff and services. They’ve hired traders who have either left investment banks or have been downsized. These firms have tried to increase their market share through the relationships the new traders have brought with them and the services the firms are launching, such as research, derivatives and overseas trading.
But with so many of these agency-only shops staffing up–each with their own strong connections on the Street–is there room for another player to gain traction? It’s possible, but will be a difficult undertaking, said Sang Lee, a managing partner at Aite Group.
"We’ve certainly seen a slew of smaller firms raise their profiles," Lee said. "They are probably seeing increased opportunities, especially earlier this year. But I’m not convinced that it’s actually sustainable, unless they have something that’s so dramatically different that it can make a difference moving forward."
Reynders may have that something: a well-capitalized backer. On June 18, the giant English interdealer broker ICAP acquired a minority stake in Reynders, Gray as part of its effort to expand its own equities business, the firm said. McLoughlin, though, declined to say how much the stake was or what role ICAP will play with the firm. ICAP did not respond to either question by deadline.
Still, the backing should help Reynders, Gray attract talent to fill its research and trading openings, McLoughlin said. It should also help bring in and reassure new customers, said Plasco, Reynders, Gray co-owner and manager.
"We have an investor with a market capitalization of over 3 billion Sterling, or close to $5 billion," he said. "That will make our comfort level for the institutional clients that we’re pursuing significantly higher than most boutiques on the Street. And all of those things link together in the ability to hire the best staff, because they want to go somewhere where they can do the business that they want to do."
Aite’s Lee agrees. "Investments certainly help," he added, "not only in terms of hiring the right people as a result of it, but perhaps going down the path of refreshing or updating their overall infrastructure."
Reynders, Gray’s customer base is in for a change. The firm has a predominantly long-only base, with some hedge fund coverage, Plasco said. But it will target a more diverse client base as more services come online and more staff climbs aboard, he added.
By the end of the year, McLoughlin said he anticipates Reynders, Gray having 60 people. There would be at least 20 on the cash equities side and about eight analysts.
Currently, there are 24 employees. This number breaks down into three traders on the New York Stock Exchange floor and eight upstairs. The rest are back-office and support staff, McLoughlin said.
In the future, the firm will look to launch an equities derivatives service, Plasco added. And Reynders, Gray also wants to start an international equities desk, based in London.
As the firm builds up its algorithmic offering, its executions should slant more toward low-touch, McLoughlin added. Half of the firm’s volume is executed high-touch currently. But that number should climb to 60 percent, McLoughlin said.
Plasco started out in the securities industry as an attorney in the early-90s. He left to set up a venture capital firm that invested in technology businesses in the U.K. Plasco returned to the securities industry as a chief operating officer at the English interdealer broker Tullett Prebon, before joining Collins Stewart.
McLoughlin got into the securities industry in 1982. He worked for Cantor Fitzgerald and Tullett Prebon as a fixed income broker. For the past two years, he was at Collins Stewart.
