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.

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December 1, 2001

Intelligence and Liquidity

By Sanford Wexler

Every six months the research and trading departments at Liberty Capital Management cast a vote: They select the firm's list of execution brokers.

"That's where we focus most of our commissions," said Bob Durante, the head trader at the Chicago-based firm.

While Liberty has a master list of about 40 broker dealers, it uses only a handful on a regular basis. That's typical of other buyside desks.

Durante's advice to the sellside: Quality service is the name of the game. "You want your brokers to provide you with market intelligence and liquidity when it is necessary," he said. "You want them to treat your order like it's the only order that they have."

Aside from providing liquidity and research services, the veteran buyside trader says trading with the sellside is also a relationship business.

"The key is to build relationships and trust," Durante said. "If you are on the sellside, treat customers like they really are customers. And, if you are on the buyside, prove your value to management and it will be recognized."

Durante has some two decades of trading experience. However, he originally wanted to enter the accounting trade. One year after graduating in 1979 with a B.S. degree in accounting and finance from the University of Illinois, he found that number crunching was not for him.

Thanks to a notice that was posted on a bulletin board at the university, Durante landed a spot as a trader/assistant portfolio manager at Sears Bank & Trust Company in Chicago.

In 1981, he joined Stein, Roe & Farnham in Chicago as an equity trader. Durante, now 45, spent the next 17 years at the firm, where he worked his way up to heading its trading desk and managing four traders.

In 1998, he joined Liberty Capital. Today, he oversees a two-man trading desk that handles both Nasdaq and listed stocks. It performs 30 trades a day. The firm has two portfolio managers and about 10 research analysts.

Founded in 1967, Liberty Capital has some $40 billion in assets under management. Around $10 billion is in equities, about 40 percent in Nasdaq issues and 60 percent in listed stocks. The remaining $30 billion is in fixed income.

The firm's clients include public and private sector pension funds, endowments, foundations, and insurance companies.

Liberty Capital prides itself on being a privately held money management firm. The firm is 100 percent owned by employees, who are active in managing and servicing its clients' portfolios.

Nearly 40 out of the firm's roughly 100 employees are shareholders. Liberty believes this arrangement helps align the clients' and the firm's best interests.

"You have got your skin in the game in a big way," Durante said. "Everybody works as hard as they can. Everybody from the traders to the portfolio managers feels the same urgency to do well and to create the best product."

Although over the past year a large number of buyside as well as sellside traders have griped about the switchover to decimalization, Durante does not find it a big problem.

"You do get pennied' occasionally," he said. "But I haven't got jumped ahead anymore than I was previously getting before decimals."

He added, "In fact, I feel decimalization has reduced trading costs, especially in the large cap and growth names that we heavily trade."

With tighter spreads, Durante explained, trades for hundreds of thousands of shares can be executed more quickly. "These trades can come within a nickel [increment]," he said. "I don't think decimalization has caused any big issues from where I sit."

However, Durante is aware of the frustrations that many on the sellside are facing because of decimalization. "I know a lot of the brokers are getting hurt pretty badly because of the tighter spreads, especially in Nasdaq stocks," he said.

Like an increasing number of those on the sellside, he feels straight agency trading for Nasdaq issues is the answer to shrinking trading profits on dealers' desks.

"We have been doing some trading on an agency basis," Durante said. "The broker executes the trades and gives you an average price at the end of the day plus a commission."