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July 31, 2002

Can Traders Survive A Bear Market? Prosperity in the Middle of Depression

By Gregory Bresiger

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A brutal history of cutbacks and firms shutting down is repeating itself in the trading industry. Many trading firms, that previously thought they were invulnerable, are once again learning the hard lessons of the 1970s and early 1980s.

More than 40,000 securities industry jobs have disappeared over the last two years, according to the Securities Industry Association.

But there's hope, even amidst the worst bloodletting in three decades. That's the message of many trading executives who spoke with Traders Magazine about this difficult time.

The bad news is that many veteran executives say this has been the worst time they have ever lived through.

"I'm seeing an industry under siege. This isn't a recession. It's a depression for our business," said one executive. "It's not only the impact of the market, but also the impact of decimalization at the same time that is hurting all of us," said another executive, who did not want to be quoted for attribution because his firm has been damaged.

"We have seen a 30 percent cutback in the business of the entire trading industry," added Rob Grapin, a managing director at New York-based trading firm Carlin Equities, which over the past 12 months, has suffered a 10 percent reduction in its revenues. Grapin said the bear market came at a bad time for traders. They were already bloodied by big changes in the business: among them are the order handling rules and decimal pricing.

"I believe that the trading business was hurt primarily by the entry of decimalization. A lot of traders have had an extremely difficult time adapting to that change," Grapin said. And decimalization combined with a market in a free fall have meant disaster, executives say.

Still, there is some good news for the trading industry. Trading firms now can recruit better people because so many firms are closing.

"With the number of firms disappearing or merging, such as Alex.Brown or Robertson Stephens, there are fewer places for traders to go right now," said Tim Heekin, director of trading for Thomas Weisel Partners.

Robertson Stephens is possibly the most conspicious example of what has gone wrong in the trading industry. It was part of a gung ho investment banking/technology trading firm. The firm that typified a 1990s market that was living in the so-called New Economy. The firm, along with large parts of the trading industry, forgot history, which is always a risky thing.

At the Funeral

Despite the bad times of the last two and a half years, employees and the rest of the industry were shocked when the firm announced it was closing. "We did everything we could, but the firm is going to be shut down," CEO John Conlin told his troops at the firm's funeral in June. Even though Robertson was obviously a high-flying firm, it was a surprise that it went down because it had been around for more than three decades.

Heekin says, for example, that Weisel is now the last growth boutique shop that doesn't have corporate ownership.