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Why Is ConvergEx Buying NorthPoint To Go Mini-Prime?

I spoke with Tom Galvin, CEO of Eze Castle Software and Douglas Nelson, CEO of NorthPoint, yesterday, to find out what motivated the transaction and how ConvergEx expects to leverage Northpoint's offering to expanding into the hedge fund space.

Eyeing the boutique prime brokerage space as an attractive business, ConvergEx is acquiring NorthPoint Trading Partners LLC of Atlanta, Georgia, for an undisclosed price.The NorthPoint transaction is the third deal that ConvergEx has announced in the last six weeks. Obviously ConvergEx has been on a shopping spree lately, buying up Cogent Consulting LLC, the supplier of commission management software in October, then signing an agreement in November , including the Millennium Alternative Trading System (ATS), its direct market access and algorithmic products.

I spoke with Tom Galvin, CEO of Eze Castle Software and Douglas Nelson, CEO of NorthPoint, yesterday, to find out what motivated the transaction and how ConvergEx expects to leverage Northpoint's offering to expanding into the prime brokerage/hedge fund space.

"This is a business in the boutique prime brokerage space that we've had a keen interest in for a while now," explained Galvin in the interview with Advanced Trading. NorthPoint's relationships with hedge funds around the world appealed to ConvergEx. "You have a business that has relationships with hedge funds around the globe that has a lot of technology and service offerings with hedge fund expertise and an agency model," said Galvin in the interview. "This allows us to tap into a growing market segment and to leverage what is a premier brand name in the space... to become a boutique player in the prime brokerage space," said Galvin.

NorthPoint provides clients with an integrated prime brokerage platform including trading, reporting and risk management with high -touch service combined into one piece, said Nelson. "Many hedge funds in the small-to-mid-size $5 million-to-$250 million were not able to get technology without a high cost to them. We're able to act as an aggregator and wrap all of that into a very lost cost package," said Nelson.

Though ConvergEx is not currently in the prime brokerage business, this is something it's been looking at for some time. "It's a great fit for the agency model for ConvergEx, but it's something we haven't done to date and this is a fantastic way to add the offering to the platform," said Galvin.

NorthPoint currently clears transactions through Goldman Sachs Execution and Clearing (GSEC), JP Morgan and Jefferies. "Those relationships will remain in tact," said Nelson.

NorthPoint's clients execute directly on various execution platforms mainly through GSEC's REDIPlus as well as Real Tick and Neovest. But after the acquisition, ConvergEx will offer Eze Castle as an OMS and probably offer access to its LiquidPoint platform for options execution.

While NorthPoint will continue to operate as the standalone subsidiary, withNelson as CEO and Michael Dejarnette as NorthPoint's president continuing in their respective roles at ConvergEx, it will have complete access to all the pieces and parts of the ConvergEx platform, said Galvin.

Going forward ConvergEx expects to leverage its commission management and soft-dollar offering, independent research, options execution platform and the Eze Castle OMS/EMS platform. "There are a lot of things that are unique in terms of their scope and depth to ConvergEx that can now be brought to the NorthPoint clients," said Galvin.

As a larger firm bringing out boutique prime brokerage services, Galvin says that ConvergEx will have a unique offering. "This is the first of the mini primes coming from a large company and not that many will be able to compete with that offering," contends Galvin.I spoke with Tom Galvin, CEO of Eze Castle Software and Douglas Nelson, CEO of NorthPoint, yesterday, to find out what motivated the transaction and how ConvergEx expects to leverage Northpoint's offering to expanding into the hedge fund space. 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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