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June 30, 1998

Living the Island Life

By Michael L. O'Reilly

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  • Living the Island Life
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It's a popular misconception that island life is always lazy and carefree. David Lunn head of equity and fixed-income trading at Bermuda International Securities in Bermuda argues that because of its exotic location, his desk is forced to work harder than its onshore competitors.

"We have to naturally price our services higher because we're an offshore firm," Lunn said. "But to do that, we have to make sure we provide better services."

About 600 miles off the coast of Virginia in Hamilton Bermuda's capital Bermuda International Securities is the trading subsidiary of the Bank of Bermuda. With 17 international offices, the Bank of Bermuda manages more than $6 billion in assets through its family of mutual funds.

Lunn and his team of four traders provide execution services for the Bank of Bermuda's portfolio managers. The desk also trades for the bank's clients pension funds, insurance companies, corporations and high net-worth individuals.

Because the desk executes orders for all types of international investments from equities and bonds to currencies and commodities Lunn's team of native Bermudans must be disciplined in markets all over the world.

"We spend a lot of time cross training on the desk," he said. "It's not a simple process. It takes a veteran trader about two years to learn this business."

Even after completing the initial cross training, Lunn expects his traders to spend up to two hours every day reading about international market developments. Aside from executing orders, the desk has to understand how different settlement processes work.

"The task here is a lot more involved than your average Wall Street firm," Lunn said. "Our traders are so sharp because they have to learn so many markets inside and out. That adds such a higher level of service to the firm."

Settlement procedures are typically straightforward in countries with developed markets, like the U.S., Japan or the U.K., Lunn said. But when dealing with smaller markets, in countries like Malaysia or Indonesia, settlement issues can get decidedly more complex.

"Because we have to know so much about the markets around the world," Lunn added, "we become a storefront of knowledge at the bank. People direct a lot of questions to us that we have to be able to answer."

Averaging about 100 trades each day, Lunn estimates that 40 percent of his desk's transactions are in equities. The desk structures its workday around the U.S. markets, because a majority of its equity transactions are in U.S. securities. (Bermuda is one hour and thus one time zone ahead of Eastern Standard Time.)

"Our customers are more familiar with the U.S.," Lunn said. "The U.S. has the world's largest and most sophisticated markets, and it's closest to us geographically."

When a client wants to execute an order in a market open at an odd hour, Lunn said his traders have a responsibility to be on the desk to provide that service.