Armed with two years of strong results, Northern Trust Corp. is looking to add more emerging minority or women-owned broker-dealers to use as preferred-equity trading partners at Northern Trust Global Investments.
Lyle Logan, an executive vice president and managing director of client servicing and sales at Northern Trust Global Investments, said the Chicago company issued a request for information Monday to attract these broker-dealers. It was the second time Northern Trust has sought emerging broker-dealers owned by minorities and women to add to its equity trading platform.
An emerging broker-dealer is one that has been licensed by the National Association of Securities Dealers for less than five years.
In 2006 Northern Trust selected seven emerging brokers — six were minority-owned and one was owned by a woman — from a pool of 34 applicants
Last year Northern Trust traded approximately $40 billion worth of equity and fixed-income securities with broker-dealers in the program, 11% more than in 2006 despite tougher economic conditions. (The data is compiled every two years.)
Of the seven emerging broker-dealers selected in 2006, four were based in Illinois and the rest in California, Florida and New York.
"All of these firms have been extremely effective for us in terms of executing trades," Logan said in an interview last week. "Secondarily, they have been helpful in terms of generating new ideas and new opportunities in different markets and concepts."
Northern Trust, which had $2.8 trillion of assets under custody and $522.3 billion under management through March 31, wants to work with more "boutique" investment managers in its effort to diversify its customer base and attract more assets, Logan said.
"I think you are going to see more and more large providers using emerging firms," he said. "As the markets evolve, the barriers for entry are coming down and everyone is keeping an eye out for new talent."
Analysts said that with banking companies, asset managers and wire houses consolidating, it is becoming increasingly difficult for smaller broker-dealers to generate assets and revenue.
"In most cases, these smaller firms have a very small window of time to generate assets or be swallowed up," said Burton Greenwald, of BJ Greenwald Associates in Philadelphia. "The larger firms have such scale that they can quickly price a smaller company out of business."
Logan said "scale has a place in certain markets, but nimbleness has its place too."
"There is significant consolidation going on in the banking industry, but for every big consolidation, a new community bank pops up," he said. "These smaller firms offer unique levels of service. Among the emerging broker-dealers, these firms are important to target markets and, assuming their technological capabilities are the same, their service will be their distinguishing characteristic."
Requests for information responses are due to Northern Trust by June 30. Before that date the company will host a public forum to take questions and comments on the selection process. The final selections are expected to be made by Sept. 30.
To be approved, firms must meet requirements for execution capability, technology platforms, capital commitment and performance.