The role of the agency broker is evolving as they are able to select best-of-breed technologies, broader sets of liquidity pools and multiple markets to function more like a direct extension of the buy-side trading desk for their clients, in order to optimise liquidity access.
Cabrera Capital Markets has seen 37% growth year-on-year with international activity making up two-thirds of activity; Dave Mishoe and James Morrison of Cabrera Capital Markets cite an innovative approach as the key driver of increased agency broker use, with the development of a crossing network and ‘wheel of wheels’ approach to algorithmic selection proving notably successful.
Transcript
Dan Barnes Welcome to Trader TV, your insights into institutional trading. I’m Dan Barnes. With me today in the studio are Cabrera Capital Markets Dave Mishoe and James Morrison to discuss dealer support for the buy side. Dave, James, welcome to the show.
David Mishoe and James Morrison Thanks again. Great to be here.
Dan Barnes Tell us, how is your liquidity offering being shaped by client demands this year?
David Mishoe Well, it’s had to expand. Our client demands are increasing. We’re up 37% year over year, and that’s coming off of five consecutive years of record growth. But where we’re really seeing that manifest itself is in the international markets. So X US, making up about two thirds of volumes and revenues at the moment. Europe is up 70% year over year. We’ve seen huge growth in Asia driven by Japan and India specifically, some of that being cyclical in nature, but really a lot of our existing global US-based clients realize that they can utilize a boutique agency broker dealer like ourselves outside of the US has really benefited us.
Dan Barnes So James, what does that mean in practical terms for your clients?
James Morrison I think client concerns still revolve largely around sourcing liquidity, finding liquidity. We all know the kind of overall backdrop in Europe has been one of declining liquidity over time. Sources of liquidity also changing rapidly. We have the emergence of the ELP / SI (electronic liquidity providers / systematic internalisers) community, the Jane Street, Citadels, etc. In addition to the bulge brackets. Cabrera is an agency-only broker, so we’re able to access multiple sources of liquidity, be that via algorithmic providers or via high touch desks. And on the algorithmic side, we are almost like a wheel of wheels. Because we are able to access multiple providers we know where the best in breed strategies lay. So there might be a compelling pairs algo from one offering we can use if that’s your desired outcome, intelligent dark strategies, for example, or even AI-enabled strategies from certain providers that would best fit your execution needs. And also we’re trying to build out with our institutional clients an old fashioned crossing network where we match buyers and sellers who want to execute quietly, cleanly through the middle in that way. For Buy-side clients that don’t have the bandwidth, capability or appetite to onboard multiple new brokers for their needs, we can act as the aggregator, the one stop shop to get them to the brokers they need without the hassle on their side.
Dan Barnes Well, that’s very good. Thank you. So, Dave, coming back then, how has the growth that you’re seeing this year played out in terms of your client servicing and how will that change over the next year?
David Mishoe Not many folks outside the US will know the concept of MWBE, which is minority or women owned business enterprise. But it’s the reason that most of our institutional clients do business with us in the first place. That is a mandate issued by one of the state or regional pension funds in the US, that mandates a certain percentage of their assets need to be brokered by a woman or minority owned firm. We happen to be the largest Hispanic owned firm. But about 70% of our growth over the last two years are not related at all to those minority mandates. So why we have been servicing our traditional clients because of that initial mandate, what they’re now asking us to do is become part of an algo wheel and compete specifically on performance against the bulge brackets, regardless of the region. We’re being asked to handle other asset classes, so ETFs (exchange-traded funds) and ADRs (American deposit receipts), in addition to our core equity offering and USIP RFQ platforms. So going out and getting the requests for quotes, really focusing on best execution. As we grow, clients are doing more volume with us and larger in size trades, as James was referencing, that what a mini-crossing network [is[. Specifically in the small and mid-cap names, we’re seeing clients realizing that because of our unique workflow, their flows anonymized when it goes into the market so they can do larger and size trades within these small and mid-cap names with less market impact, which then leads to better performance, which then creates a virtuous circle. We’re continuing to invest internationally, so we’re building out an office here in London to service Europe. The idea there, investing in markets that are out of favor at the moment. We did similar strategy three, four years ago in Asia and now it’s our largest international region. We’re looking to have a focus in LatAm, and we’re doing everything in our power to really try to anticipate where we expect our clients needs are going to be, not only today but in the next 12 to 24 months.
Dan Barnes I’d like to thank Dave and James for their insights today and of course you for watching. To catch all other shows, including Trader TV this week at 6:45 a.m. UK time every Monday morning. go to Tradertv.net.
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