Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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March 1, 2004

A Big, Global Program Trader

By Staff Reports

For Barclay's Mike Sobel, mastering a difficult foreign language, persistence and luck finally paid off. Today, working out of San Francisco, he is running Barclay Global Investor's (BGI) equity trading operations. This includes all BGI's stock and listed derivative trading that originates in the United States, and also covers all international index and active portfolios managed on behalf of American clients.

But it wasn't a straight road to success for Sobel. He was attending the State University of New York (Binghamton) in the late 1980s, with the hope of going into trading, when he made an important decision. "My studies and continued interest in Japan led me to spend a semester overseas at Kansai Gaidai in Osaka, Japan -focusing on Japanese language and business skills," said Sobel, who lived with a Japanese family.

When Sobel returned to the U.S., he was ready to become a trader. However, his luck wasn't so good. He ended up working for Morgan Stanley's financial controllers group, figuring p&l and risk levels for the equity derivatives desk in Tokyo. It was a good job for someone just out of college, but not what Sobel wanted. That's because Sobel, who had served an apprenticeship with a Big Six accounting firm, found that crunching numbers wasn't his goal in life.

Sobel yearned to get on the firing line - three times he asked for a transfer to trading. Three times his application was rejected. Trading jobs, Sobel came to learn, "are difficult to come by." That frustrated him. Indeed, it led him to make a potentially foolish decision. Sobel handed in his resignation to Morgan Stanley. But, on the way to a new job as a clerk at the Pacific Stock Exchange, Sobel's luck turned.

"The head trader was so impressed with my ambition and desire to trade that he offered me a position on the portfolio trading desk," Sobel said.

Nevertheless, Sobel now concedes that the move to the Pacific would have been "a big mistake." His Morgan trading experience finally led him, some four years ago, to the BGI desk.

Program trading, which accounts for about 70 percent of its activity, is at the heart of Barclay's trading approach. The desk has 10 full-time traders and seven research analysts. BGI has some one trillion dollars in assets under management. About $713 billion of that is in equities. About 70 percent of his business is with the Big Board and the rest goes to Nasdaq and other venues.

BGI, a full-service investment manager and quant shop, tries to achieve what Sobel describes as a healthy balance between passive and active styles.

"BGI has an intense focus on forecasting, measuring and management of transaction costs," Sobel said.

Traders manage a list of some 300 names a day. And there are up to 5,000 passive strategies that can be employed. Soft dollars are not used at BGI, but program and automatic trading techniques are widely employed. Sobel's traders have much leeway. He says that they "have full discretion for trade allocation, tactic selection and execution quality."

BGI's crossing rates, during peak periods, can be as high as 50 percent, Sobel noted. Index rebalances tend to be some of the more difficult trades. "Index research has become more prevalent in the market," he said. "More speculative money is chasing these opportunities and more fundamental asset managers are using these rebalances as liquidity events."

Still, despite the excitement of trading, which is his dream job, Sobel says he'd likely also have found job satisfaction in two other fields: financial journalism or consultancy.