A slew of veteran sales traders and staff from Saratoga Capital, an agency only institutional broker-dealer, have landed at New York-based Vertical Group.
Vertical Group, with trading desks in Boston, New York and Richmond, Va., specializes in research and market making in over-the-counter stocks and those that trade on the OTCQX, OTCQB and OTC Pink marketplaces.
.The new hires are charged with bulking up the firm’s institutional domestic equity trading desk. The combination of the two will position the firm to trade take advantage of upcoming market structure and trading legislation changes associated with the with the Jumpstart Our Business (JOBS) Act of 2012.
The Boston crew is being led by Gus Phelps, who joined Vertical just a few weeks ago. He reports to co-founders Rob Schaffer and Tom Martin. Saratoga shuttered its equities trading desk in late 2011. Saratoga still exists as a FINRA registered broker-dealer, according to the regulator’s website.
Phelps declined to say why Saratoga shuttered its equity operations but several brokers that Traders Magazine spoke with said the firm simply wasn’t making enough money to support equity trading operations in the current low commission environment. This was case for many firms over the last two years such as WJB Capital, ThinkEquity and Ticonderoga Securities – all who couldn’t cope with the trading downturn. Finra’s BrokerCheck service reported no criminal wrongdoing by the firm.
Phelps is no stranger to the over-the-counter business and managed Saratoga’s Boston office up until last summer. Besides working on its trading desk, Phelps was also charged with expanding Saratoga’s affiliate Forefront Capital, a service provider to money managers and hedge funds. Prior to this, he helped found Seacoast Partners in 2004.
Prior to Seacoast, he worked in the institutional equity units at Wachovia, Sherwood Securities, which was bought by Deutsche Bank, and Tucker Anthony. He currently sits on the board of directors for the Boston Securities Traders Association where he was the 2012 President.
After arriving at Saratoga, he immediately began to staff his desk. Phelps surrounded himself with familiar faces and recruited a bunch of his former colleagues he worked with at Seacoast, where he ran the institutional sales and trading desk. He was joined by Joe Ranieri and Pat Morrissey, both 20-year veterans, and Steffen Kondi, formerly of Moors and Cabot and a ten-year pro. By bringing on seasoned traders, Vertical and Phelps can leverage these existing books of business and begin trading immediately.
Jon Lopez has also joined the Vertical Group as director of research. Lopez formerly worked with the team in Boston at Saratoga covering technology stocks.
“We are very happy to be working with Jon again,” Phelps said. “The addition of Ranieri, Morrissey and Kondi will aid in the further distribution of the firm’s research offering and bring in more commissions and business.”
With all the requisite staff in place, the desk can now get on with the business of trading, Phelps said. Given the unique nature of over-the-counter and bulletin board stocks, almost all of the trading is done with a high-touch slant.
“While we have all of the technological tools available, the core of our business is still more high touch,” he told Traders Magazine. With the personalized service high-touch traders bring, Vertical is trying to grow its client base of Boston-based hedge funds and other institutional accounts. And this is not just in domestic equities, but in other securities such as American Depository Receipts and international stocks.
“What I’m doing is the more traditional listed and Nasdaq names, not the more exotic products,” he said. “But the bottom line is that everyone here has an established book of business.”
Phelps added his goal was to expand firm’s domestic equity business among institutional clients and diversify Vertical’s income stream.
“We’re looking at the firm’s equity research and institutional business to complement the existing market making businesses,” he said. “Those synergies coupled with our expansion into international and ADR trading can provide a solid platform for growth ahead.”
Despite the types of stocks Vertical specializes in, it does offer clients algorithms that it white-labels for other more liquid names.
The firm now has 25 traders and support staff and Phelps hopes to grow that number to 35 as the business grows.
