Ramirez & Co., the nation's largest and oldest Hispanic-owned investment bank, has turned to algorithm trading technology via a joint venture with a young, Hispanic-owned proprietary algorithm trading services provider. Together, they aim to:
• Compete against larger brokerages,
• Maintain an edge over minority-owned competitors, and
• Increase the bank's more than $2 billion under management.
A Client Service Unit
New York-based Ramirez & Co. signed a joint venture with Algorithm Trading Solutions (ATS), a division – and the primary business – of Newark, New Jersey-based Tradetrek Sec-urities, a broker-dealer and algorithm developer/trading-services provider for institutional investors. The joint venture creates Ramirez Trading Solutions (RTS), offering the latest algorithm trading services to individual institutional investors, money managers, and pension funds.
Ramirez & Co. and ATS have a revenue sharing agreement in RTS. "We have certain clients we bring to the table, they have certain resources they bring to the table, and we look at an equitable split," says Sam Ramirez Jr., managing director of Ramirez & Co. The companies declined to discuss details.
Algorithms are software- and computer-driven mathematical models that run trading decisions and executions according to preset numerical strategies and goals. Use of algorithms helps Ramirez & Co. court clients that demand the most sophisticated trading technology, says Mr. Ramirez. "We compete with big brokerages as well as other minority-owned firms, and it comes down to showing the marketplace that we are unique," he says.
Under terms of the joint venture agreement, Ramirez & Co. is the only minority-owned brokerage that can use ATS algorithms. The deal gives the firm, which has about 90 employees and seven offices nationwide, an edge in the minority and small brokerage niches.
"Institutional investors are realizing that a good amount of their clients or constituents are Hispanic or other minorities, and they're trying to diversify the firms they do business with," says Mr. Ramirez. "We try to stay on the cutting edge of technology to put us ahead of our competition."
Sang Lee, managing partner at Aite Group, a Boston-based financial services research and consulting firm, agrees. "A lot of small brokers may not have a trading execution service, or have one that is heavily manual, which means it costs more to provide support services for clients," he explains. "One way around that is to introduce automated execution services."
ATS talked with other minority brokerages before signing the deal with Ramirez & Co. "We had been in contact with five or six other Hispanic brokers and another five or six minority brokers," recalls ATS managing partner George Rodriguez.
ATS struck the deal with Ramirez & Co. primarily because it is stable, with a strong capital base and a good reputa-tion. The firm's Hispanic-owned status was also a factor. "Both sides recognized there was a need to have small and mid-sized brokerage firms, that also happen to be Hispanic-owned, able to provide this type of sophisticated trading," says Mr. Rodriguez.
What Algorithms Do and Don't
Algorithms control the volume and timing of trade orders, and make it easier to buy and sell large quantities of equities by breaking them into smaller units to be sold electronically. Without algorithms, brokerages selling large blocks of stocks would have to seek the best prices on stock exchanges and through brokers.
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