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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

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? All of these variables are what makes a sales trader more value-added. If he understands these variables he can make an informed decision as to how to guide his clients.

The role of the sales trader is becoming stronger and more important. Sales traders are information conduits. With the coming market structure changes and decimalization, sales traders have the ability to interpret supply and demand and can seek out sources of liquidity. The fragmentation of the marketplace has caused the role of the sales trader to become more important.

Sales traders should provide best execution on behalf of their clients. Best execution is accessing all systems when appropriate to get the best price for your client.

Best execution is our job. If you are a flexible and a creative brokerage shop you should be accessing every liquidity source that is out there. Follow your client's instructions, reduce market impact as you enter the marketplace, find the other side discretely. These are some of the tools that provide best execution.

Is there a particular measurement? No. Because every client's objective is different. Some strategies are momentum style and price is not a concern at the time.

Valentina (Valeria) Gabela,

Director of institutional trading,

Spears, Leeds & Kellogg

The Market Maker

I was a Nasdaq market maker [before becoming a sales trader]. I believe that you have to understand how to trade before you can become a successful sales trader. Without that knowledge, you will never be as successful as you can if you don't understand the trading world. The top ten sales traders at my firm were all market makers.

If you are a people person and you enjoy talking to people, the transition from trading to sales trading is very easy.

The ECNs are very easy to use, they are relatively inexpensive, and they do provide quick liquidity. But when you want to get into a stock that's not part of the Nasdaq 100, where there is less liquidity, you need a sales trader that will try to find you the other side. We call this a "natural." So you can put on larger trades without disturbing the marketplace.

We had a stock that trades on a typical day about 100,000 shares. In August we started buying it for our customer. It was a challenge because he didn't want us to move it, he wanted to own it. There were other buyers out there and the stock went from 23 to 63 in just a few weeks. It wasn't liquid. Everyday I tried to buy 20,000. I tried to do it at the volume weighted average price (VWAP). Every day I had to try to beat or at least meet the VWAP. It was so volatile with seven or eight point swings in the stock. But we got it done pretty close to the VWAP.