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November 07, 2018  

INTL FCStone Enters Prime-Brokerage Field

Commodity-futures broker INTL FCStone soon will begin offering prime-brokerage services to funds that invest in securities.

The New York firm, which has long catered to commodity-trading advisors, formed a conventional prime-brokerage unit this month by hiring three executives who worked together at Convergex and then Cowen Group: Douglas Nelson, who once headed Convergex’s prime-brokerage business, and brothers Michael DeJarnette and Nicholas DeJarnette. They joined INTL FCStone as unit co-heads on Nov. 1 with a mandate to begin signing up hedge fund clients around the beginning of the new year.

Nelson and the DeJarnettes are based in Atlanta, where they plan to hire 12-18 sales and operations professionals over the next 12 months.

INTL FCStone aims to compete with mid-tier prime brokers such as BTIG and Jefferies by offering a full complement of services including clearing and financing of equity and fixed-income trades. It also will provide capital-introduction services. The offering is aimed at hedge funds running up to $1 billion.

The publicly traded company believes it enjoys several advantages as it enters the prime-brokerage field, including a new cloud-based system for clearing trades. It also has strong cap-intro capabilities thanks in part to INTL FCStone’s 2017 acquisition of broker-dealer Sterne Agee, which has relationships with more than 450 independent financial advisors.

In 2005, Nelson and the DeJarnette brothers founded a prime-brokerage boutique called NorthPoint Trading, which they sold to Convergex in 2009. The three then joined Cowen via its 2017 acquisition of Convergex. They left Cowen in October.

INTL FCStone is entering the prime-brokerage market at a seemingly propitious time, when rising interest rates and increasing market volatility are boosting trading volumes and generating more revenue for brokers. At the same time, major prime brokers including Credit Suisse and Deutsche Bank have been distracted by operational restructurings and management turnover.

Other newcomers to the U.S. prime-brokerage arena include CIBC, which is awaiting regulatory approval to expand from Canada into the States, and Seoul-based Mirae Asset Financial, which began signing up U.S. hedge fund clients earlier this year.

INTL FCStone ranked 18th among futures commission merchants at yearend 2017, with $2.3 billion of client assets, according to aiSource, which guides family offices on investments with commodity trading advisors.