Reports of a substantial broker-dealer shutting down in New York raise the question of the health of the balance sheets of small players in the industry as liquidity in some asset classes dries up again.
Ticonderoga Securities was a reasonably sized trading firm that ended 2010 with almost $8 million more net capital than it needed under existing rules.
So why the reports that management is telling the firm's roughly 75 employees that they're shutting down?
Word is that the firm needed a big capital infusion in a hurry but failed to raise the cash.
Bloomberg notes that trading volume is down 20% over the last two years, so that was undoubtedly weighing on Ticonderoga's revenue stream.
But while it's possible that the firm simply burned through its capital since its most recent SEC filing, two other prospects are more ominous.
First, Ticonderoga was carrying 45% of its assets in receivables from other brokerage firms. That $13 million went a long way toward boosting the company's paper heft, but if one or more big trading partners is having trouble paying, the resulting cash crunch shouldn't surprise anyone.
A more remote possibility stems from the fact that another 40% of the firm's assets was in the in-house portfolio. At the end of 2010, nearly all of this was in relatively liquid "level 1" securities, while only 6% was tied up in what were then considered hard-to-trade assets.
Neither scenario bodes well for firms in a similar position. If Ticonderoga choked on assets that it is no longer able to sell -- due to the euro crisis, the MF Global implosion, or anything else -- then there are certainly lots of other brokerage firms in a similar position.
And that cash crunch, in itself, could easily cause their trading partners more than a little distress.
What's suddenly killing all these little brokerage firms?