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February 1, 1999

Attorney Turned Trader

By Michael L. O'Reilly

Also in this article

  • Attorney Turned Trader

It's usually not a good thing when a Securities and Exchange Commission attorney gets to know everything about a desk.

But at Barrow, Hanley, Mewhinney & Strauss in Dallas, a former SEC attorney is the firm's head trader.

Barrow Hanley hired Carrie C. Canter from the SEC in 1994 to run its trading department. For Canter, who had spent the previous three years investigating securities fraud for the SEC's Fort Worth office, it was a welcome change.

"The law is a patient profession. Building a case. Deposing participants. It's a slow process, and I don't have the patience," Canter said. "I want results, or I lose focus. The move to trading has been perfect. Now I'm an adrenaline junkie. I love watching the tape and seeing a trade develop."

Barrow Hanley manages $36 billion in assets for mutual funds, pension plans and state funds. Most of Barrow Hanley's assets are invested in large-cap equities, spread across 160 accounts. The firm owns only 40 stocks, and it is a top shareholder in every stock it owns.

Canter's three-person desk usually trades very large positions in as many as ten stocks a day. "A small trade for us is 100,000 shares," she said. "That's not difficult because our holdings are so liquid. It's not unusual to do a million shares in one name. Once we did 23 million shares one day in one stock."

Canter's SEC experience has been invaluable in corresponding with Barrow Hanley clients. With 70 percent of the firm's clients using directed brokerage, Canter helps educate clients, making sure they understand how direction can affect execution.

Canter tries to keep a client's direction below 30 percent of its order flow. But some clients push it to more than 50 percent.

"That's a big issue," Canter said. "Trading is hard to quantify. When a client exceeds 30 percent, they can burden management. We have to make sure they don't hurt execution. That's why it's important to educate clients."

While some clients are knowledgeable, Canter said most don't understand trading.

She advises clients to provide her desk with a wide range of brokers, and not to direct their orders to just one or two.

"We want as many avenues as possible to get trades done," Canter said. "Most clients are open, and they place a priority on best execution."

Barrow Hanley was audited in the SEC's recent sweep of the soft-dollar industry.

As a former SEC attorney, she knew how to help the auditors observing the firm. "They were relieved when they came in and saw me," Canter added.

Canter said her firm, like much of the industry, was given a clean bill of health by the SEC. "Most firms weren't doing anything wrong," she added. "A few people have abused the situation. But it's not a real problem. We'll see more disclosure in the industry, and clients will be made aware of how things work."