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November 1, 2000

Non-Stop World of Sales Trading: Liaison to the Buyside Must Know His Customer

By John A. Byrne & Sanford Wexler

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The equity sales trader's life is not all beer and skittles.

Institutional customers are demanding more value-added' for their commission dollars. There is fragmentation and market impact costs. There are soft-dollar arrangements.

Still, the savvy sales trader knows how the game is won.

The mission begins at the morning research meeting where the sales trader finds out what positions the firm is carrying. And the day may not end until he has finished wining and dining his clients late into the evening.

Some say sales traders never stop working. "Bringing in new business is a 24-hour job," said Jim Whipple, head of institutional sales and trading at C.E. Unterberg Towbin in New York. "There are thousands of accounts out there that we want to cover."

Compensation Structure

Some sales traders earn a salary and a bonus while others receive a straight percentage of the commissions generated. By one estimate, sales traders at Jefferies & Co. take home just over 25 percent of the commissions generated by trading in equity and other instruments. That means the average sales trader at the firm took home about $3 million last year, according to one analyst. Tom Tarrant, a spokesman for Jefferies, said some sales traders make "over a million" dollars annually while others make a "reasonable living."

Covering accounts calls for an unflappable nature and a good sense of timing. Consider, for instance, a buy-side trader who informs his sales trader covering him at a Nasdaq firm that he wants the desk to bid for his buy-side firm's 500,000 shares of stock.

The smart sales trader might turn to his account and ask permission to check potential buyers - the natural liquidity - among his client list.

If the sales trader can uncover the natural liquidity to get his account out of the 500,000-share position, the chances are that the account will save money too. The dealer can probably price the block at a superior price for the customer because it does not have to carry the entire 500,000 shares on its books.

"The customer is changing dramatically as he looks for liquidity," noted Dennis Leddy, a sales trader and managing director of equities at ABN-AMRO in Boston.

Christopher Mahler, who oversees a team of about 14 sales traders at Weeden & Co. in Greenwich, Conn., said a good sales trader must fully understand his client's portfolios. "If you don't know the decision-making process behind the portfolio, then you won't know the intensity of the order: is it a fast order, a slow order, do you have time, is it passive or aggressive," he explained.

Inform Customer

Richard Holway, a veteran who has worked on both sides of the Street, said the successful sales trader must inform his customer of market activity that affects his firm's holdings.

One expert explained, "If a print hits the tape and I know my client is a major holder of [the stock], then it is my responsibility to call the trader that I cover at the [buy-side firm] and say, did you see the print in XYZ?'"