“There are obviously the differences between people you get in any other business, a few subtle differences in the systems, but the core divide is whether they are a broker-dealer, transacting exclusively via their affiliated network and occasionally negotiating a principal trade, or the guys under the ‘pure agency’ umbrella who have a panel of brokers and farm out the transition trades depending on where they can get the best execution.” These broker-dealers are the names we all know. Always near the top of the tree in terms of market share is Citi, which was put there by Mark Levinson and seems to have maintained the position since his understudy, Michael Jackett- Simpson, took the helm when Levinson jumped to Goldman Sachs JBWere last year.

Citi’s seven-man UK transitions team (lead by Tim Wilkinson, the man who hired both Levinson and Jackett- Simpson) might have walked across the divide to ‘pure agency’ player Mellon back in March, but in Australia Jackett- Simpson’s team are reputed to have performed transitions for seven of the 10 largest super funds during 2009. A clear differentiator for Citi is that it is the only transition manager active in the Australian market to have become a member of the Liquidnet ‘dark pool’ crossing network. Most brokers prefer to rely exclusively on their own electronic crossing networks (ECNs) and dark pools, but in 2008 Citi wasn’t too proud to join up “as an acknowledgment that we operate in a competitive field”, Jackett-Simpson says.

A sweet spot for Liquidnet is in crossing institutional quantities of mid and small-cap stocks, whose spreads can be ravaged by market impact if a lid is not kept on information leakage. Liquidnet co-head in Australia, Steve Zilioli, says that while the average ASX trade is about $10,000, on Liquidnet it’s $1.2 million. And yet, 60 per cent of its trades happen at the ‘mid’ between the buy and sell spreads, while virtually 100 per cent happen within those spreads. He is in discussions with other broker-dealer transition managers about becoming members, and is confident others will follow Citi’s “brave” decision. Transition management is by definition a business where discretion rules, so it’s impossible to know how much market share Mark Levinson has attracted from Citi over to Goldman Sachs JBWere.

However, Levinson can talk confidently of fee trends in the market, indicating his new shop – whose dealing desk is number four for Australian equities so far in 2009 – is also near the top of the transitions game. Increased competition has pushed fees to the edge of zero or even over, but Levinson says recently client focus has been more on the additional services clients can gain, particularly through more complex transitions, such as access to ESG research and analysis. Other broker players include Deutsche Bank under David Foodey, who at seven years is the longest tenured chief of any of the investment bank-owned shops, and whose three-person team can plug into a trading desk that has

Value of Australian equities traded, Jan 1-Nov 16, 2009
Broker Value Trades ($bn) Market share (%)
1. UBS 212 10.1
2. Macquarie Insto 198 9.4
3. Deutsche 182 8.7
4. GSJBWere 173 8.3
5. Citi 169 8.1
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