B-Ds Show Resolve

Terry Flanagan

With trading volume on the decline amid ongoing macroeconomic uncertainty, broker-dealers have used the opportunity to grow.

Equities trading volume has averaged about 6.9 billion shares per day thus far in 2012. This is down from the 8.2 billion seen during the same period last year, which was in turn down from the 9.1 billion in early 2010. This has inevitably put the squeeze on market participants, particularly exchanges and broker-dealers.

“When times are tough, that is the best time to gain market share,” a Wall Street electronic trader told Markets Media.

Exchanges have taken the route of venturing outside the core business of matching trades, so much so that at giants like NYSE Euronext, the trading side is no longer the largest revenue generator. Broker-dealers have had a tougher time, as a significant portion of their business comes from trading activity and investor interest. Many broker-dealers have had to cut costs, consolidate their operations or even shut down. The total number of broker-dealers registered with Finra declined from 4,578 at the end of 2010 to 4,456 at the end of 2011, a drop of nearly 3%.

Ticonderoga Securities, WJB Capital and Kaufman Brothers are the latest brokers to go under, having recently announced that they would be shutting down amid ongoing financial troubles.

For the larger bulge bracket firms, that may come as a matter of course, as investors shift their business from a shuttered broker, such as MF Global, elsewhere. However, other brokers have used the difficult opportunity as an opportunity for growth.

One of the largest holding companies for independent broker-dealers, Cetera Financial Group, has been snatching up smaller competitors in recent months, including those that have been closing up shop. Cetera acquired Genworth Financial Investment Services, which is the broker-dealer subsidiary of Genworth Financial, an insurance provider. Cetera unit Multi-Financial Securities also entered into an agreement with the shut down Pacific West Financial Group to bring over a group of advisors from Pacific West, to effectuate a “seamless transition for clients.

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