Following the recent acquisition of TD Cowen by Marex, Jack Seibald and Mike Rosen, who are now global co-heads of Marex’s Prime Brokerage Services and Outsourced Trading, spoke to BEST EXECUTION on the companies’ aligned worldviews, the importance of putting the client first, and wider headwinds and opportunities in the prime brokerage arena.
What led to you departing TD Cowen, and what precipitated the final decision to move?
Mike Rosen: Together with TD Cowen, we determined that our business, our customers, and our global team that supports them would best be served if we moved away from the bank.
Jack Seibald: As we explored merger opportunities, it was critical that we would be able to keep the business intact and sustain the franchise, which we spent many years building with our global team and all of our counterparties and vendors.
Rosen: I give TD Cowen credit, they allowed Jack and I to run the process, looking at entities that we thought would be a good potential fit for our business and allow us to grow and operate the way we had previously.
Why Marex? Why do you think it will be a good fit for both parties?
Rosen: Culturally, the firms are an exceptionally good fit. We view the world in much the same way. We are both very client-centric – the client comes first, and we tailor our offerings to meet the client’s needs. Marex are very strong in the futures and commodities space, and while they had dipped their toe into the equities and fixed income space, they did not have a particularly strong presence in these asset classes. What we bring to the table is an absolute perfect fit in this regard.
Seibald: We are very complementary businesses, but we have minimal overlap in clients. From our perspective, this means there will be opportunities to identify needs among our clients in areas that Marex is very proficient in, and vice versa. Marex also has a broader global footprint with representation in some of the fastest growing financial centres around the globe, such as Singapore and Dubai. This presents an opportunity to leverage our capabilities in those rapidly growing centres.
What will be the biggest challenges in terms of integration?
Rosen: We have no concerns about integration, primarily because the transaction brought with it all our people, systems, service providers, and technologies. While we were fully integrated at Cowen from a business perspective, we operated the business on entirely different trading and client reporting technologies, and utilised bespoke clearing and other vendor relationships. We moved all clearing agreements along with the transaction. All this makes for a very seamless transition, particularly for our clients. For us, it’s been business as usual from day one. There are integrations that obviously have to take place, including financial reporting, compliance, and AML for example. But none of these will really impact our clients or how we run the business.
You’ve always been a very autonomous division, and you kept your independence at TD Cowen – will that independence of decision-making and operations be retained at Marex?
Rosen: Jack and I are coming into Marex as the global co-heads of the Prime Brokerage and Outsourced Trading business and have meaningful management roles. So, are we going to be able to run our business day-to-day? Yes, Marex very much wants us to run our business the way we have run it and grow it from there.
With regard to systems, technologies, and clearing, our business was different from Cowen’s. That’s not because we weren’t fully integrated into Cowen or working with the other businesses at the firm. The reality was that we worked as partners with the heads of the other business lines, meeting regularly and sharing opportunities. We all did everything we could to support each other’s businesses, and we would be expected to do the same at Marex.
Some of our systems are going to always remain separate and distinct from what Marex uses in its other business lines because of the nature of our business, but we have no intention of trying to operate autonomously. We are looking forward to the opportunity to benefit from the products that they trade but we don’t and the clients that they have relationships that we don’t. We’re anxious to introduce our clients that could use some of their services. So, it will be important for our team to become integrated and quickly delve into what they do.
Seibald: I would just add that I think the feeling is mutual on the other side.
How has the outsourced trading and prime brokerage unit performed this year (under challenging global and economic circumstances) and do you expect this performance to continue? What have been your biggest wins/losses?
Rosen: I would say that year-over-year our business is off a little bit from where it was. There were a number of clients we had to off-board because they were in areas of the market TD could not or did not want to participate in. Everything else being equal, our business from a revenue point of view is down in the mid-single digit area at most. It has performed very well relative to other markets-oriented businesses.
I also think that if you consider the degree of uncertainty that we have had to live through as part of the TD acquisition and then this divestiture process, we appreciate the clients and the employees who have stuck with us.
Seibald: The direction of the business is in part driven by macro trends and I think that it’s clear to most that this calendar year has been a tough one in the sense that trading volumes are down year on year. There has been a massive shift in asset allocation out of equities and into fixed income, given the rise in rates and the competitive nature of this relatively lower risk group of securities.
Through a combination of luck or smarts, we made investments in the fixed income outsourced trading business some years ago. Because of that, we were able to capture some of the upswing in trading activity in the fixed income space.
Echoing Mike, we are grateful to our clients, our employees and also our counterparties and vendors who have been great partners for a long period of time.
Outsourced trading is becoming ever more popular and is starting to have an effect on traditional headcount during these challenging times. What trends do you predict for outsourced trading and for prime brokerage over the coming year?
Rosen: Outsourced trading is becoming much more accepted and is ‘going mainstream’. What we are starting to see, and we are likely to continue to see, is larger, more established, more traditional firms go ahead and consider it because of how much more acceptable it has become in the marketplace. I also think that the trend – we have actually invested in front of this trend – is going to move from what was primarily an equity-oriented offering into a multi- asset class offering because there is tremendous value.
Outsourced trading for fixed income managers is probably much more valued than it is for equity managers because the equity markets are screen-based and you can easily see the price, whereas a good portion of the fixed income market is much more opaque. And if you’re not in tune with where things are priced, or where inventory lies, you could be three, four, five, six points off the market and not even know it. We think that this trend is going to accelerate. We have also added FX outsourced trading. FX is the deepest global market and there is a lot of demand for that not only from asset managers but also traditional corporations and producers.
Seibald: In the prime brokerage space there has been an awful lot of change. If you look at the top 10 prime brokers, there are three standout firms at the top. Much of the remaining big banks trail well behind the leaders.
This has created opportunities for what could be described as boutique firms to attract customers from some of the bigger banks. Those of us with bulge bracket capabilities will continue to show our wares to potential customers, and we believe our institutional calibre credentials will help us to bring more of these clients into the fold.
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