Compliance

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Ivy Schmerken
Ivy Schmerken
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Boutique Agency Broker Offers Lessons in Diversification

Direct Access Trading Partners juggles multi-asset execution with alternative capital group, while complying with new trade reporting regs.

With the U.S. equity trading volumes in a slump this year, some brokers may be struggling to eke out a decent profit to support the myriad of regulations coming out.

However, boutique agency brokerage firm Direct Access Partners is an example of a firm that has diversified its lines of business. When I met with Direct Access Partners in April, I was amazed by how many projects the agency broker-dealer is juggling.

Founded nine years ago, DAP has diversified its business into multi-asset execution – equities, fixed income and options —both domestic and international. In fixed income, CEO Ben Chinea says the firm has become a sizable player globally in the sovereign debt space.

“We’re exceptionally strong in Argentina, Brazil, Chile and Peru.” It also offers a soft dollar research platform, and multi-prime brokerage with a choice of three clearing firms —Bank of America Merrill Lynch, Pershing/Bank of New York and Goldman Sachs.

In June of 2010, DAP moved into a new trading floor in Wall Street’s Trump Building, where it has 54 workstations, while it also operates a floor brokerage operation in one of the NYSE’s new trading pods. [You can check out DAP’s new trading floor in Advanced Trading’s photo gallery].

According to Chinea, the firm’s goal is to be “a creative problem solver” to support its clients. DAP serves a mix of institutional clients from pension funds to registered investment advisors, to hedge funds and family offices. When I asked Chinea where he sees the firm’s business growing the most, he told me, “All of our new clients are foreign banks and institutions. That’s been the pattern.”

But what I found to be most interesting is DAP’s capital raising group which pairs investors – family offices or pension funds – with its portfolio manager/hedge fund clients. Last year, it placed $400 million from investors with its portfolio manager clients.

As part of its alternative capital group, the capital intro group focuses on the emerging manager with more than $100 million, while the capital raising group is for managers with $500 million and above in assets. It also advises hedge fund managers on how to present themselves properly with the large investors. Quite often, it’s making sure they have the proper risk controls in place or helping them with marketing materials. Often the hedge funds are clients of DAP, but sometimes they’re not. “An investor may be looking for a certain strategy so we try to put together the best of breed managers so it’s a proper match, so it’s not a mismatch,” says Chinea.

In terms of coping with new regulations, DAP has been proactive in developing applications to make the firm operate more efficiently. The firm has a total of six proprietary technology projects underway, mainly focusing alll around compliance, operations, enhancing trade communications, explains Chinea.

When I was there, the agency broker was gearing up for an expansion of the OATS trade reporting rules required by FINRA as of July 10th. “Now we’re going to have to report everything we do domestically” by the next day, says the CEO. Chinea anticipated that once the rule takes effect the workload was going to become too labor intensive to identify and fix problems. To prepare for high volumes of reporting, DAP developed an application that allows it to quickly search and fix an OATS issue in less than 30 minutes. Before, it could take half a day, Chinea recalls.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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