Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

Traders Poll

Would you feel better if the Chicago Stock Exchange were purchased by U.S. firm or consortium rather than a foreign one?

Yes

73%

No

4%

Doesn't matter to me

23%

Free Site Registration

June 30, 1999

Safeharbor

By Shailaja Neelakantan & John A. Byrne

Also in this article

  • Safeharbor

What Jefferies lacked in serious blue-blood heritage, it made up for in inventiveness and human-trading acumen. Boyd Jefferies, who launched the outfit with about $30,000 - now grown to $350 million - was imbued with a strong work ethic.

An early riser, he often arrived at his desk in Los Angeles at 3 a.m., staying late into the night as he worked his fat Rolodex. Constantly hitting the telephone made it possible for him to match up buyers and sellers quickly in blocks of stock. His style of trading, replicated by dozens of sales traders at Jefferies, caught many competitors by surprise.

The same work ethic which propelled Boyd Jefferies is still evident. Jefferies' 120 sales traders, roughly 10 percent of the firm's headcount, don't sit on the fence. A turbo-charged group, they are called account executives at Jefferies.

Despite the dry-sounding name, these sales traders are in the big leagues, taking home roughly 27 percent of the commissions generated by trading in equity and other instruments, according to Russell Keene, a brokerage-industry analyst at San Francisco-based Putnam, Lovell, deGuardiola & Thornton.

That means the average sales trader nabs $3 million in annual compensation, Keene estimates. (A Jefferies insider, however, claimed the average is somewhat lower.) About 100 sales traders are assigned to equities, the rest to fixed income.

Overall, the sales traders are directly responsible for most of the revenues earned by Jefferies' equity activities, which pull in about 65 percent of the firm's revenue. (For the 12 months ending March 31, Jefferies reported net revenues of $494.6 million, posting profits of $36.2 million. That's not a large return, roughly 7 percent, but analysts' forecasts show Jefferies' vital energy investments picking up steam.)

Closest Rivals

It is unlikely that any other Wall Street firm ever deputized a higher proportion of sales traders to the business of matching buyers and sellers on block equity trades. The closest rivals are Cantor Fitzgerald & Co. in New York and Los Angeles-based Jones & Associates.

The result for Jefferies is a distinctly swashbuckling and scrappy equity-trading culture. In the period from January through May 31, according to AutEx/BlockDATA, Jefferies was ranked among the top 20 listed and Nasdaq block- trading desks, crossing 20 percent and 2 percent of the volume respectively.

"Jefferies is really the holding company for 120 small businesses because each sales trader runs his own book of business," Keene said. "The sales trader knows he won't have a job if he doesn't bring in the business. Jefferies is a fiery, competitive, entrepreneurial firm."

The go-go 1980s was probably Jefferies' most difficult period. In 1987, the hard-driven Boyd Jefferies did what was euphemistically described as a favor for a client, arbitrageur Ivan Boesky. Boyd illegally parked stock for Boesky, and was later indicted for securities fraud. The founder of Jefferies was also barred from the securities industry.

Far from running the firm into the ground, however, Jefferies survived the founder's departure. Under a new commander, Frank Baxter, a third-generation Californian, the firm moved on from Boyd Jefferies' criminal past.

Today, still under Baxter, 61, an outdoors man who loves running marathons and is a follower of spiritualist Deepak Chopra, Jefferies is on the move. The firm is a diversified institutional brokerage and investment bank, supporting Nasdaq as well as its cherished institutional third-market business.