Wednesday, 5 August 2015

ITG update - Gasser gone

Tim Cave reported on August 4th,
"Anyone who dialled into ITG’s hastily-arranged client call on July 31 would have heard the sound of laughter coming down the line. The mic was on shortly before the call was due to start in earnest and whoever was on the other end clearly hadn’t realised. It was hardly the way to begin a mea culpa call and certainly wouldn’t have reassured clients whose faith in ITG had just been shaken."
Bob Gasser in happier times: 2008 - source.
Little did we know, some of those traders
being moulded were in-house prop traders.
Oops.

Robert Gasser has been removed as CEO. Mats Goebels stepped down from GC. ITG market share has dropped 25% but it is early daze given the likely client reliance of some of ITG's tools. Change is not always easy.

Curiously, ITG is trading well above its 52 week low of $14.65.

In my previous ITG note, I had some references to 10-Q's from SEC's Edgar supporting my claim that ITG has participated in prop trading for over a decade. Hidden in plain sight.

Interestingly @ThemisSal tweeted earlier today a reference to a document from the ITG web site [pdf] titled,

"STATEMENT OF ROBERT C. GASSER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
ITG
on
COMPUTERIZED TRADING VENUES:
WHAT SHOULD THE RULES OF THE ROAD BE?
before the
SUBCOMMITTEE ON SECURITIES, INSURANCE, AND INVESTMENT
COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
U.S. SENATE
December 18, 2012
Room 538, Dirksen Senate Office Building"

I'm no expert in US Senate testimony, but it sounds important to tell the truth in that kind of a situation. On page three there is this sentence and a half,
"ITG is not a market maker, and we do not take on proprietary positions. In other words, we do not have “skin in the game...”

You wouldn't lie to the US Senate, would you? It made me think that maybe I was out of date with my previous information. Perhaps ITG may have actually stopped prop trading by 2012? So I checked the ITG 10-Q  for the fiscal period ended September 30, 2014. On page 20 you may read, "Other revenues include: (i) income from principal trading in Canada, including arbitrage trading." And on page 24, "Other revenues increased primarily due to lower client trade accommodations and higher income earned on foreign exchange transactions and principal arbitrage trading." It seems it was not a great quarter for prop trading for ITG with only $2.1M recorded in that "other" column. So, ITG continued prop trading before, through, and after the US Senate testimony of December 2012.

It appears ITG's CEO, Bob Gasser, was telling the truth to the SEC in the 10-Q and was not telling the truth to the US Senate. I don't know how problematic that is. It may add to the legal woes.

I previously noted a hungry pack of law firms, quite rightly, are seeking parties interested in claims as a prospective SEC settlement does nothing for ITG shareholders nor customers. Some clients may have been aware of the prop trading as it was publicly reported each quarter to the SEC. Many in the industry, like myself, clearly have been aware. However the marketing material has long been a little obtuse or even somewhat deceptive. If a client had indeed been misled for a decade about ITG being agency-only, I wonder what a claim for claw-back and damages may conceivably look like?

Not pretty.

It seems hard to envisage a future where ITG survives as in independent listed entity but the removal of Gasser is a step in the right direction. There are many good staff at ITG, so let's hope the firm gets "rescued" soon enough allowing staff to refocus on service to clients instead of this distraction*.

--Matt.


[Update: ITG earnings call transcript via SeekingAlpha]
*Yeah, it's a distraction. My linkedin profile seems to have a lot of hits from ITG staffers for some reason...

4 comments:

  1. they are officially market makers in Canada

    http://www.tsx.com/trading/toronto-stock-exchange/order-types-and-features/market-maker-system/market-makers-list

    ReplyDelete
    Replies
    1. ITG Inc is a listed market makers on Nasdaq as well (ITGI):
      Nasdaq list of market makers for the letter "I"

      Delete
    2. Current ITG companies have Nasdaq MPIDs with types, N, O, & P. This means they can make a market but have no obligation to. (No type M)
      Current MPID file from Nasdaq by FTP

      Delete