Momentum Trading Partners, the New York brokerage that serviced hedge funds, traded for the final time last night. Yesterday the Wall Street Journal reported that the brokerage "is closing, hurt by low trading volumes among hedge funds, mutual funds and banks that pay it fees to handle stock-market orders."
In an interview with a person close to the situation, Advanced Trading learned that although the brokerage was breaking even its managers decided to wind down operations to determine its future. The source told Advanced Trading that there's a general reduction in liquidity in the markets and brokerages are closing. Unlike other firms that have been cutting checks out of pocket to clients to stay afloat, our source says that the brokerage decided to regroup.
"Let's stand back, see what the opportunities are and there are people looking at us. We had structure costs and wanted to have a clean plate. How many (hedge fund) firms have accounts to stick by them through the dark of night?" our source says.
Other financial services firms are interested in Momentum Trading Partners, according to the anonymous person. "We want to keep things organized for the month we are shut. I'm not sure if it will be longer or less. It's unusual for a firm to stop while we're ahead. There are suitors out there."
When asked what suitors might acquire a portion or all of Momentum Trading Partners, our source declined to speculate.
According to the WSJ:
[Lionel Mellul, a co-founder of the brokerage, said] that some of Momentum's business, including some executives and senior employees, could be absorbed into a bigger firm. Senior executives are in discussions with other brokerage firms and a European asset-management firm about a deal that could keep a dozen or so of Momentum's executives and employees together, and continue operating what has been Momentum's core business, he said. He declined to name the firms that Momentum is negotiating with, citing confidentiality of talks.
Momentum's key business is in helping institutional money managers buy and sell large blocks of stocks while avoiding detection by rivals in the market. Momentum doesn't have a proprietary-trading arm and doesn't sell company research. It focuses on helping clients trade big orders -- typically tens of thousands of shares -- in ways that avoid so-called information leakage that can allow other traders to jump ahead of the orders.
Reducing information leakage has been a primary mission for the go-slow brokerage and our source says that there is still a case to be made for their philosophy despite its sudden closure yesterday.
"Absolutely, there is a case to be made. Doing large blocks quietly? Without advertising them? It makes a difference and that's why clients say, "we're with you. If someone takes you over, we're with you. We like your style." We have a unique model but unfortunately we have to move our structure around a bit to improve costs due to the new economy."
Momentum Trading Partners may have news about its Second Chapter in the coming month. "Usually summer months are quiet times anyway so it's an opportune time to regroup," the person close to the situation says.
Advanced Trading will be covering the next phase of Momentum Trading Partner. Stay tuned.Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio