Market Participants Seek Transparency
With the markets still feeling the effects of the MF Global collapse, investors are looking for more transparency and clarity.
The relationship between investors and the brokers who execute their trades has become more important than ever as the incidents at Lehman Brothers, Pipeline Trading and MF Global put a damper on market sentiment.
“Starting back in 2008 with Lehman going down, the counterparty risk is something that clients want addressed,” said Lionel Mellul, co-founder of Momentum Trading Partners. “The MF Global occurred with the segregation of accounts. Clients are looking for transparency and are very sensitive as to the relationship they can have with the broker. ”
New York-based Momentum Trading Partners is a high-touch agency-only broker-dealer. Contrary to most brokers in the marketplace, it has about 1.5 times the amount of execution traders to sales traders, which it asserts is the highest such ratio in the industry. Rather than focus on long-short asset managers, Momentum has a diverse customer base trading different strategies. This allows them to have significant trading activity regardless of the market conditions.
Being agency only is also a show of transparency at a broker. Not taking a position on any trades from clients removes all chance of potential front-running activity.
After the scandal at Pipeline, the company found it necessary to effectuate a name change in order to better reflect its new mission statement. Its name change from Pipeline to Aritas Securities reflects what the company says is a new focus on innovation, transparency and integrity.
The ongoing macroeconomic issues have certainly affected equities trading volume, which has averaged about 7 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.
Broker-dealers have had a particularly tough 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%.