With its
RBC Carlin, the unit created from the Jan. 3 buyout of the New York firm, owns a front-end system that lets emerging hedge fund managers, professional traders, and financial institutions trade stocks and options without a broker through a simple interface.
Jeremy Frommer, RBC Carlin's president, said it expects by around midyear to add the ability to trade futures.
"We are moving to an environment where the higher-end firms on the Street must be able to provide a full suite of services to their clients," he said.
In addition to traditional services like brokerage and research, that suite will include direct-market-access (DMA) platforms that provide entry to exchanges, alternative trading systems, and electronic communication networks, said David Easthope, an analyst with Celent LLC.
"RBC, like many investment banks, is seeing clients trying to tap into the market in different ways," Mr. Easthope said. "If I am a small firm wanting to invest across the board in search of return, this gives me one tool to get in and out of asset classes."
Direct-market-access platforms allow customers to execute high-volume, rapid-fire trading that can be based on algorithms. RBC Capital Markets has a library of these algorithms that can be used in conjunction with Carlin's DMA front-end platform, Mr. Frommer said. Carlin has its own algorithms as well.
What also makes DMA trades appealing is that they often cost a fraction of what brokers charge, Mr. Easthope said.
RBC Capital Markets' decision to offer the service is partly defensive. Mr. Easthope said the New York company knew some of its customers were using DMA, so an acquisition was a way to avoid losing business.
In addition, DMA platforms can provide a desktop view of the best prices being offered across a host of destinations, including electronic communication networks and alternative trading systems that have arisen over the past several years.
"New destinations are what's driving all of this," Mr. Easthope said.
Sell-side firms have been buying up independent DMA firms for several years. In 2000, Goldman Sachs Group Inc. acquired the Rediplus platform when it bought the execution and clearing services firm Spear, Leeds & Kellogg. In 2004, Bank of America bought Direct Access Financial, Bank of New York Securities bought Sonic Financial Technologies, and Citigroup Inc. bought Lava Trading.
RBC Capital Markets is somewhat late in the acquisition cycle, but that may not matter much given that its customers differ from those of its larger U.S. rivals, Mr. Easthope said.
Moreover, he said, DMA trading and the use of algorithms are just starting to heat up in Canada, providing RBC Capital Markets, whose parent has headquarters in Toronto and Quebec, with a prime opportunity.
It said when it announced the deal that buying Carlin would increase its monthly trading volume to an average of 3.5 billion shares, though it declined to break out the volume of DMA business.
RBC Capital Markets has been building its profile in the United States, where it is a middle-market player. Last month it bought Daniels & Associates LP of Denver, a mergers and acquisitions adviser to the cable, telecom, broadcast, and Internet services industries. That outfit is now RBC Daniels.
