Jones Trading-Conifer merger on hold, sources say

InvestorsOperational RiskPrime Brokerage
12 Oct, 2012

The planned merger between Jones Trading Institutional Services, the Los Angeles-based pure execution equity trading firm, and Conifer Securities, the prime brokerage business owned by the Conifer Group, is on hold although a possible compromise is still possible, it has been said.

A source familiar with the situation said disagreements over price had led to the deal stalling, although added further talks could not be ruled out. “Price was something which the two parties unfortunately became unstuck on. However, it would not be right to say ‘never say never’ in regards to a future deal,” said the source.

The deal, which was announced in August 2012, was supposed to close in this quarter. The source rejected claims Jones Trading’s due diligence team had raised concerns about Conifer. The source also disputed rumours that Conifer’s profits were not as substantial as was once assumed, adding the firm was a solid business.

The abortive merger is not the first to afflict mini rimes such as Jones Trading and Conifer. The planned merger between I.A Englander, the derivatives brokerage, and Alaris, collapsed in 2011 with the latter subsequently being acquired by Concept Capital.

Mini primes have been under severe strain over the last few years with many industry pundits openly predicting their demise. Countless firms have struggled amid market volatility, low trading volumes and a decline in hedge fund start-ups.

Furthermore, bulge bracket investment banks are chasing after smaller clients, which normally would have parked business at mini primes. Institutional investors, concerned about counterparty risk, have also piled pressure on these firms demanding their hedge funds utilise brand-name, bulge bracket prime brokers.

To cap it off, several banks, having been forced to rein in their risk exposures, have ceased providing custody and clearing services to mini-primes.

Predictably, there have been a series of closures and mergers in the mini prime space. In August 2012, Momentum Trading Partners, a New York mini prime shuttered following a decline in trading volumes among its European clients.

Earlier this year, Merlin Securities, a mid-prime, was sold to Wells Fargo as the San Francisco-based bank seeks to expand its service offering to hedge funds, having acquired LaCrosse Global Fund Services in September 2011.

Concept CapitalConifer Securitiescounterparty riskhedge fund start-upsI.A EnglanderJones TradingLaCrosse Global Fund ServicesM&AMerlin Securitiesmini primesMomentum Trading PartnersWells Fargo