Browne, Team to Leave KCG’s Exchange-Traded Funds Desk
Reggie Browne, a prominent gatekeeper to the market for exchange-traded funds, is leaving KCG (KCG) Holdings Inc. with at least two senior managers.
KCG, formed after Getco LLC took over Knight Capital Group Inc. this year, said in a regulatory filing today that it had ended its employment agreement with managers of its “listed derivatives group.” The managers leaving included Browne, Darren Taube and Eric Lichtenstein, according to Sophie Sohn, a spokeswoman for Jersey City, New Jersey-based KCG.
Browne, Taube and Lichtenstein joined Knight from Newedge Group in June 2009, where they had been co-heads of ETF trading, bringing 10 colleagues with them. The team built Knight’s desk into the biggest contracted market maker for ETFs, acting as lead market maker for a third of all ETFs listed on the New York Stock Exchange as of June 2013, according to Laura Morrison, head of trading and listing services for ETFs at NYSE Euronext. (NYX)
“Reggie is very supportive of new and innovative products coming to the market,” Morrison said in an interview. “He’s often willing to step up first” to back a proposed ETF, she said.
KCG said it will pay $15 million in severance costs related to the departure in the third quarter, according to the filing.
Browne’s team and KCG were unable to come to terms on a renegotiated employment contract, said two people familiar with the situation who asked not to be identified because they’re not authorized to discuss the matter publicly. Browne didn’t respond to a request for comment.
Knight agreed in December to be purchased by Chicago-based Getco in a deal valued at $1.4 billion at the time, ending a four-month saga in which it almost went bankrupt. Closely held Getco, founded in 1999, was among six financial firms that bailed out Knight Capital in August 2012, after a software malfunction caused more than $450 million in trading losses.
John Dibacco and Joseph Mazzella will take over the ETF operation on an interim basis, Sohn said. Browne, Taube and Lichtenstein will remain at KCG until Sept. 13 “to provide for a smooth and orderly transition,” according to the filing.
ETFs are baskets of securities, typically tracking an index, that trade on an exchange like stocks. Assets in U.S. ETFs have grown to about $1.5 trillion since their introduction in 1993. The biggest ETFs, including the $135 billion SPDR S&P 500 ETF Trust, are regularly among the most traded equity securities by volume.
Unlike stocks, ETFs require a lead market maker, hired by the exchange, to guarantee liquidity for buyers and sellers of their shares on the secondary market. Knight and other trading firms also enable big investors to create and redeem bundles of ETF shares directly with the funds, a function that helps share prices track the funds’ indexes.
“The plumbers behind ETFs are so critical to the success and evolution and explosion of ETFs, but they don’t always get credit, and they should,” Tom Lydon, editor of ETF Trends in Irvine, California, said in an interview. “Reggie is one of the pillars of the industry.”
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