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Brokers End Talks to Acquire Cogent Consulting's Commission Management Software Firm

The parties were unable to reach an agreement over terms of the transaction, terminating a plan for an industry-wide commission aggregation portal.

Cogent Consulting LLC and a group of large broker-dealers have called off their negotiations to finalize a potential sale of Cogent's commission management software company to the consortium.

“All the parties have agreed to end the discussions about acquiring Cogent which is too bad in some ways and understandable in others,” said Robin Hodgkins, President, CEO and founder of Cogent Consulting of Summit, New Jersey, in an interview with Advanced Trading.

In May, Cogent said the broker dealers were acquiring a majority stake in the company, and had signed a non-binding letter of intent. Hodgkins said he expected the transaction to close around July 4th.

The goal behind the sale was for the brokers to offer an industry-wide commission management service that would eliminate counterparty risk, which occurred during the Lehman Brothers bankruptcy last September when certain buy-side commission pools were frozen.

The brokers were potentially going to use Cogent’s broker-neutral portal to virtually aggregate commission balances held at multiple brokers. But today, Hodgkins said the parties were unable to reach agreement over the details of the transaction.

Hodgkins was contacted by the brokers around Thanksgiving (2008) and has been in discussions since then. “They approached us and it was great to be invited to the dance and sometimes it’s hard to get all the parties to figure out what you’re going to wear and what dance step you’ll use,” said Hodgkins.

He called the discussions very positive and said he had learned a lot about large global firms and from the teams of very smart lawyers and business development professionals, but in the end they couldn’t reach a final agreements and close the transaction. Though Hodgkins said the parting was amicable, he also called it a "distraction,” and said he was glad to get back to his business. The talks involved over 100 people from the brokers' side and entailed thousands of hours, he said.

“It sometimes takes a lot of time for such a huge group of very regulated large money center banks to go through all the dotting of Is and crossing of Ts, especially with a slightly smaller and more entrepreneurial firm,” said Hodgkins. As the group realized more time and questions were necessary, they decided to wind talks down and move onto focus on their businesses, he said.

While Hodgkins said he was disappointed by the outcome, he said he is eager to focus on the business and the growth in demand that his company was seeing in the second and third quarter.

“The appeal of the multi-broker, multi-client portal is very clear and very strong and has received just tremendous support and one that we’re seeing huge interest in,” said Hodgkins, who said that he has many prospects on both the buy and sell-side of the street that have contacted his firm about solutions in the second and third quarters. "Right now, we are the only broker-neutral place where one can aggregate their CSAs while leaving the multiple balances at the brokers," he said.

However, Hodgkins said the brokers are very concerned about their clients and the need for CSA solutions. As for the future, Hodgkins said the industry brokers will need to decide whether they want to continue with their own standalone solutions, or whether they want to have further discussions on some common platform or each out to some other providers.

In the meantime, the buy-side is looking to work with multiple sell-side firms to spread their CSA balances across multiple brokers, and to pay those balances down more quickly, to provide some kind of defacto way of protecting their exposures against failures, said Hodgkins.

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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