Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, is considering selling additional stakes in an electronic interest-rates trading unit it set up last year, according to a person briefed on the plan.
The electronic platform, Wake USA LLC, is a joint venture with high-frequency trading firm Tower Research Capital LLC for U.S. Treasuries and other fixed-income products, according to a regulatory filing showing that the unit gained approval to operate earlier this year. Credit Suisse is in the process of moving clients to that unit and may sell part of its majority stake to reduce capital requirements, said the person, asking to remain anonymous because sale talks are preliminary.
Credit Suisse, like many of its biggest rivals, is seeking to adjust its fixed-income trading operations as more of that business is conducted electronically and new capital rules limit the leverage banks can have in those units. The Zurich-based bank generated $1.67 billion in fixed-income trading in the first quarter, down 25 percent from a year earlier.
Credit Suisse has transferred about 25 percent of its electronic rates trading business into Wake, the person said. While the business currently focuses on U.S. Treasuries and related products, it can be expanded into other areas of fixed-income, said Mark Gorton, the managing partner at Tower Research.
“This joint venture will allow Credit Suisse to leverage Tower’s technological capabilities to provide even better pricing and liquidity to their customers,” Gorton said today in an e-mailed statement. “Wake is just getting started, and we still are in the very early stages of this project.”
Risk.net reported earlier this year on Credit Suisse’s development of Wake and the partnership with Tower. The Financial Times reported on Credit Suisse’s interest in selling additional stakes yesterday.
Credit Suisse has held preliminary talks with investors such as Voltaire Capital, said the person. That asset-management firm has arranged more than $300 million of capital from high-net-worth individuals for investments in market-making businesses, Risk.net reported earlier this month.
Krishan Rattan, managing partner at Voltaire Capital, didn’t respond to messages seeking comment.
Wake’s filing with the Financial Industry Regulatory Authority listed its chief executive officer as Ryan Sheftel, who heads e-commerce in the fixed-income division of Credit Suisse.
The venture “will develop, maintain or license pricing algorithms for fixed-income products and will transmit trading communications for fixed-income products produced by such pricing algorithms to Credit Suisse Securities,” according to the Finra records.
While Wake will use Tower’s technology, it will refrain from sharing information on Credit Suisse’s clients with the high-speed trader, Tower’s chief risk officer, Marc Vesecky, told Risk.net in an interview published last month.
The venture “is a way for Tower to get access to new markets and apply our technology to places we couldn’t before,” he told the publication. “We don’t see Credit Suisse’s client information. That all resides at Wake.”
Tower was among firms subpoenaed by New York Attorney General Eric T. Schneiderman in April as part of an examination of potential unfair advantages for high-frequency trading companies, people familiar with the inquiry said at the time.
Credit Suisse American depositary receipts fell 0.2 percent to $30.75 today in New York. Swiss markets were closed for a holiday.
The bank’s macro business, which combines interest rates, foreign-exchange and commodities trading, remained “difficult” in the second quarter, Chief Financial Officer David Mathers said on May 28. Trading revenue in U.S. dollars so far this quarter is down by a “mid-teens” percentage, similar to what other banks are seeing and reflecting the trends in the macro business this year, he said.
Credit Suisse’s main bank subsidiary agreed last month to pay $2.6 billion in penalties and pleaded guilty to helping Americans cheat on their taxes, making it the first global bank in a decade to admit to a crime in a U.S. courtroom.
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