Tag Archives: cantor fitzgerald


Bank Trading Desks Merge Bonds and ETFs

Corporate Bonds and exchange-traded funds is a combination that first seemed counter-intuitive to the select universe of traders who are actually fluent in both corporate bond trading and equity trading; two practice areas that are distinctively different. “Stocks are bought and bonds are sold” as they used to say, and the nuances of trading these distinctive asset classes in the secondary marketplace have long been at odds with each other.

This explains why fixed income traders from both the buy-side and sell-side rarely even knew their equity-trading counterparts, no less engaged in cross-asset trading. But thanks to shrinking trading profit margins, Wall Street trading desks now ‘get the joke’, and per story below, are bolstering their business models.

(REUTERS) Feb 18 Wall Street banks are ramping up businesses that trade exchange-traded funds full of bonds, a bright spot of growth at an otherwise bleak time for trading but one that may carry unappreciated risk.

Barclays PLC, Credit Suisse Group AG and Goldman Sachs Group Inc have all created special teams to make markets in bond ETFs. The teams include staff across stock and bond markets, since the ETFs trade like stocks on stock exchanges, but their underlying securities are bonds.

All told, 12 to 15 banks now have a presence in the business, whereas a few years ago almost none did, said Anthony Perrotta, global head of research and consulting at TABB Group.

“There are a lot of institutions that, even though they might be retrenching in fixed-income trading, are looking at ETFs as a way to galvanize their business,” said Martin Small, who oversees U.S. operations for BlackRock Inc’s iShares unit, which is the largest ETF issuer.

Although these businesses are sprouting up across Wall Street, they are unlikely to make up for huge profits banks earned during the glory days of bond trading, at least not anytime soon.

Investors pay banks 0.01 percent to 0.03 percent to trade a bond ETF, according to TABB Group, compared with 1.03 percent for an individual bond. Traders say they are hoping to make up for piddling margins by selling more of the product, since the ETF business is a bulk-volume one that is rapidly growing.

The sales push comes after years of pressure from leading ETF creators like BlackRock and State Street Corp to make markets for the bond ETFs. Those firms rake in billions of dollars’ worth of revenue from ETFs each year, and view bond ETFs as a way to grow their own businesses.

Firms that create ETFs need banks to act as intermediaries for sales, and also to ensure that prices are in sync with underlying securities. Before banks entered the market, trades were handled by market-makers like KCG Holdings Inc, Cantor Fitzgerald and Susquehanna Capital Group, who have been in the business for years.

As Wall Street has warmed to bond ETFs, the market has quickly grown. Assets under management in the U.S. rose 44 percent to $372 billion at the end of January from $258 billion a year earlier, according to fund research service Lipper. That represents about 19 percent of the broader $2 trillion U.S. ETF market.

While the bond-ETF boom may be good for Wall Street, it is not without risk.

It comes at a time when liquidity in the corporate bond market has shriveled due to new rules that require banks to hold a lot of capital against those securities. As a result, banks avoid buying bonds from investors unless they can resell them quickly, and do not maintain much inventory for interested buyers.

Despite their holdings, bond ETFs trade more like stocks, on stock exchanges, so they are not facing the same type of liquidity issue. But it is unclear how they will perform if investors rush for the exit all at once, or if markets come under serious stress. During the Aug. 24 “flash crash,” for instance, some ETFs failed to trade properly.

The full story from Reuters is here

cantor fitzgerald finra

Cantor Fitzgerald Gets $7.3mil Spanking From FINRA

(BrokerDealer.com)- The Financial Industry Regulatory Authority (FINRA) has given a $7.3mil spanking to broker Cantor Fitzgerald  consisting of a $6 million fine and an order to pay $1.3 million for commissions, plus interest, it received from selling billions of unregistered microcap shares in violation of federal law in 2011 and 2012. In addition to its role broking a broad assortment of securities, Cantor is one of the securities industry’s leading ETF brokers.

jarred kessler
Frmr Head of Equities Jarred Kessler

In addition to the monetary fines, FINRA suspended Jarred Kessler, executive managing director of equity capital markets, for three months in his principal role at the firm and fined him $35,000 for supervisory failures, while equity trader Joseph Ludovico was suspended for two months and fined $25,000. The regulator also sanctioned Cantor for not having adequate supervisory or anti-money laundering programs to detect “red flags” or suspicious activity tied to its microcap activity. The suspension of Kessler from serving in a principal role for Cantor has proven to be an exercise, as the 5-year Cantor employee resigned from the firm last week.

“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses. This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement.

“FINRA has no tolerance for firms and business executives who choose to engage in this business without robust systems designed to ensure that they do not become participants in illegal, unregistered distributions,” Bennett said.

Kessler resigned from the firm last week to pursue “a significant opportunity,” according to his lawyer, Ross Intelisano, of Rich, Intelisano & Katz LLP.In settling this matter, Cantor Fitzgerald neither admitted nor denied the charges, though it did consent to FINRA’s findings.

For the full story, please visit BrokerDealer.com


“Agency-Only Execution Firm” To Seed Hedge Fund Clients

Cantor Fitzgerald, the “broker’s broker” that literally rose from the ashes of 9/11 to rebuild its business trafficking in multiple product types, including ETFs and options, and positions itself as an “agency-only” aka “conflict-free” broker, today announced the second phase of its plan to expand into the [often-conflicted] territory of hedge-fund seeding.

As reported by FINAlternatives,

Cantor hopes to raise $1.25 billion for their hedge fund seeding business, and the first tranche could provide between $25 million and $50 million to upwards of 25 emerging managers.

Cantor, which by virtue of its gargantuan global footprint, often finds itself not only standing in between captive buyers and sellers, but has occasionally been embroiled in issues that strike at the epicenter of the famous  Chinese Wall.  However much the strategy of a broker providing trading capital to its customers might seem to present potential conflicts with regard to the firm’s  “agency-only execution” model, one source who is not authorized by his firm to publicly comment, suggested “..industry watchers are confident that Cantor will always do the right thing..” Link to the full story by clicking on the FINAlternatives log.