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May 31, 2002

A Supporter of Net Trades

By Tom Taulli

Clarence Woods, a principal and chief equity trader for Allied Investment Advisors (AIA) in Baltimore, Maryland, doesn't follow trends. He isn't convinced yet that the recent changes in the industry in how traders charge is a good thing.

Bucking the trend toward commissions, Woods continues trading on a net basis with dealers. He works with dealers who still make money on the spread. That's even though many dealers are moving to commissions, tacking on a explicit fee each time a trader like Woods wants an order handled.

"The jury is still out," he said. "I think this trend may not necessarily be in the best interest of the customer. This has been a trend that has been around for only nine months or so. I want to see more proof before I go in this direction. But so far, I do not see commissions as a benefit to small to medium sized trades."

Expanding List

In all, Woods deals with about 50 dealers. Moreover, he is continuing to see more expansion of the list and believes boutique firms have a lot to offer.

"The criteria we use to select a dealer is twofold," Woods said. "We want value-add and quality. For example, even though large firms say they provide full service, the fact is that there are holes, especially from a research standpoint."

"There are certain specialized areas that boutiques can do quite well at, such as biotech or small caps," he added.

Woods also says that he tracks each firm. He wants to make sure that everyone is accountable. "I think this is a trend we will see more of," he said. "And if a firm does well, we will reward them."

Woods came to trading just out of college. He worked at the trust department for Equitable Bank. His boss found out that he had computer processing skills, so he had the young Woods help with a major computer conversion. One of the areas he worked on was the trading department.

"I fell in love with the atmosphere," Woods said. "When a trading assistant left, I moved up. I said I would work as many hours as possible."

He got the job - and Woods is still a buyside trader after 18 years. Now, Woods runs a trading operation with three traders on the equity desk.

AIA is the institutional investment advisory subsidiary of Allfirst Bank, which has been in existence since 1806. AIA manages about $11 billion in assets for over 250 institutions. In all, there are 17 institutional funds.

No doubt, Woods has a broad perspective on the industry during the tumultuous decades of the 1980s and 1990s. For example, he says that during the 1980s, there was some tension between the buyside and sellside.

"Basically, the sellside were the old timers from the 1960s and 1970s," Woods said. "But this has changed during the 1990s, as we've seen a new crop come in. As for now, the relationship is much better. I look at it as a partnership. We definitely need each other."

Saving Money

Just like every other trading department, Woods is always looking to save a buck. "We are open minded to new systems on the market to make trading more efficient," Woods said. He also said that it has been helpful to belong to various institutional trading forums. "At industry forums, we can share information about different systems and approaches," Woods said.

Woods can still remember the days when 33 million shares traded on the NYSE was big. But despite all the changes, something important has remained: the people.

"The reason I stay in this business is because of the great people," Woods said. "We may have ECNs and other technologies. But you can't talk to an ECN. It certainly won't talk back to you. In the business of trading, we will always need people."