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July 31, 1999

Salomon Smith Barney Tops With Buy-Side Institutions

By Peter Chapman

Agroup of buy-side trading desks responding to the annual Reuters Survey of US Larger Companies has voted Salomon Smith Barney as the best broker dealer in the overall quality of its institutional equity executions.

But Salomon rivals Goldman Sachs, Morgan Stanley Dean Witter and Merrill Lynch & Co. swept the boards in all but two of the 28 separate categories - evenly divided between Nasdaq and listed trading - in the fifth annual Wall Street beauty contest conducted by the U.K.'s Tempest Consultants.

"The[top] award is somewhat misleading," admitted Michael Fidance, a vice president at Tempest, referring to the seeming contradiction between awarding the big prize to Salomon while top votes in most of the other categories went to competitors. (Salomon took first place in only two categories, each related to Nasdaq trading).

Mike Molnar, managing director, head of global retail sales and trading at Salomon, who accepted the award at a ceremony in New York, was gracious in victory. "Our trading department doesn't deserve all the credit," he said. "It's really due to the combined efforts of the firm. Research, sales, trading and banking all played a part."

The survey, sent to 150 of the largest institutional investors in U.S. large-cap stocks, ranks sell-side and buy-side trading performance in seven disciplines: research; sales; executions; investment banking; sector analysis teams; individual fund managers; and fund management groups.

A total of 71 fund managers and 37 buy-side trading desks responded. Traders were asked to rank broker dealers in 14 elements of execution services in listed and Nasdaq trading. The categories included: market knowledge, trading and intelligence; frequency of updates on orders; and day-to-day capital commitment.

Salomon emerged as the overall winner based on the simple question, Who is the best?' Molnar cited a deep capital base and "old-fashioned interpersonal relationships" at Salomon as contributing factors to its prize-winning trade-execution performance.

Separately, more fund managers are giving their trading desks, rather than their research and investment banking people, the main responsibility for liasing with broker dealers, the Reuters Survey revealed.

Tempest's Fidance attributed this in part to the drive for best execution. "Portfolio managers and directors of research have a fiduciary responsibility to execute at the best price," he said.

Meanwhile, Tempest noted that an increasing number of stock trades are not sent to brokers who initiate the research in the stocks but routed to an electronic communications network. "Fund managers are being told to trade more through the firm or risk losing their access to research," said Stephen Parker, a managing director at Tempest.