Expanding BTIG predicts agency brokerage to grow in Asia

Execution-focused broker-dealer BTIG Hong Kong has made a number of senior appointments as part of its efforts to grow the firm's share of institutional business in Asia.
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Execution-focused broker-dealer BTIG Hong Kong has made a number of senior appointments as part of its efforts to grow the firm's share of institutional business in Asia.

Jesse Lentchner, BTIG's Asia-Pacific CEO, said he expects the market for agency brokerage services to grow in Asia despite the slow adoption of unbundling by investment institutions in the region.

“Because fund management firms are less unbundled in Asia than elsewhere, we don't yet know the full potential of this market for unconflicted agency brokerage,” he said. “But even without further unbundling, there is still room for this market to grow. The only firms that have failed to make this model work in Asia are those that built up unsustainable fixed costs.”

Lentchner joined BTIG in June 2010 having previously held senior positions at Goldman Sachs, including co-head of execution services for Asia, head of securities for India, and co-head of equity sales trading in Tokyo, having worked as an equity sales trader in Tokyo at Nomura and in Hong Kong and New York at W.I. Carr before that.

He says that his firm's new hires will be pivotal to its growth ambitions in Asia. Eddie Li, appointed director of sales trading, will be responsible for sales trading in Hong Kong and China B shares. He has more than 20 years' experience in Asian equity markets including a period at SG Securities. Mark Yetman, director of equity sales, has more than 17 years' experience as both an analyst and in research sales and was formerly with the institutional equity sales division of CLSA in Taiwan.

John Chang, also director of equity sales, has worked for 18 years in the securities industry, primarily in Korea and Hong Kong, including a stint with DBS Vickers Securities in Hong Kong. Ken Gordon joins BTIG as a fundamental quantitative analyst. Gordon has provided clients with quantitative analysis and intuitive graphic representations of fundamental data on Japanese and other Asian securities for 18 years.

Founded in 2002, US-headquartered BTIG has approximately 400 employees worldwide. It has been trading in Asia for the last three years; as well as Hong Kong, the firm's Asia-Pacific offices include Singapore and Sydney.

BTIG is one of a number of US firms to have established execution-focused operations in Asia in recent years, including Knight Capital and Louis Capital Management. Such firms have joined established agency brokers ITG and Instinet in offering buy-side traders in the region an alternative to bulge-bracket investment banks.

BTIG's Asian business differs from many other brokers in that it has chosen not to mirror the structure of its institutional investment clients. For example, the firm has deliberately decided not to establish a formal research department to feed information to portfolio managers and analysts separately from the dialogue between BTIG sales traders and their buy-side counterparts.

“If I don't have a research department, it's much easier to do old-fashioned sales trading and stock broking,” explained Lentchner. “Building a research department would impose constraints on how we put information at the clients' disposal. We hire people because they can add value to our clients during the investment process, whether or not they are sales traders in the accepted sense.” Lentchner acknowledges that this model may face not be as scalable as some, but argues that all organisations lose flexibility once they grow beyond a certain size.

According to a recent estimate by research consultancy Greenwich Associates, only around 30% of institutional investment firms use commission sharing agreements, but while some market participants have grown frustrated with the lack of regulatory support for unbundling, Lentchner is sympathetic to the need for Asia's rule-makers to strike a balance between stability and reform.

“Good regulation takes time. The worst rules are often those passed in reaction to a crisis. Many market participants would agree, for example, that short-selling restrictions imposed in response to the financial crisis were very disruptive. Asian regulators are on the whole thoughtful and intelligent,” he said. “In India, I have been very impressed with their level of market knowledge and I think the current pace of change is deliberate.”