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May 31, 2004

Trading Tough Guys for Hire

By Peter Chapman & Gregory Bresiger

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  • Trading Tough Guys for Hire
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In hockey, when the going gets rough and the skill players are being knocked senseless, the coach usually sends out the biggest, meanest guy on the bench. He has only one job: act as an enforcer. Do the dirty work that no one else on his team can or will do.

That's the kind of specialist image that JonesTrading wants to cultivate in the trading world.

It is an odd kind of agency firm. It is known for block trading in thinly-traded issues. It doesn't have a block desk. It certainly likes the tough guy image. Indeed, in an internal publication, it actually brags about the difficult trades that it can execute by roughly elbowing aside market problems that would stop others or lead to pricey executions.

"Our image is: hire an assassin. We do tough things," JonesTrading writes. Since the firm's founding in 1975, it has been dedicated to the creation of liquidity for institutional and corporate accounts through trading big stock orders.

JonesTrading, which is based in Westlake Village, California, has some 700 institutional clients in the United States and Europe. Clients include mutual funds, corporate treasuries, investment advisers, pension and risk arbitrage funds, among others.

Jones likes to depict itself as a kind of paladin of the trading world - almost anyone with an execution problem can hire it and benefit. It is a pure trading play. It has no investment banking or other interests such as a floor brokerage. It has no block desk that "we're shooting against," Jones crows. Those kinds of lines could sully the quality of its trading operations, which the firm emphasizes crosses in the middle and can be flexible.

"We can morph into anything the client wants," Jones says in the internal publication. "OTC, find the other side, access the floor - we're an extension of the desk. Everyone has a different way of using the Jones model." The firm compares itself to the Jefferies of the 1980s.

"Our big message," says Jones, "is we cross a majority of stock on Autex. We go from manager to manager without price fluctuation. We started with an old family business concept and no one has screwed it up."

Generally, this "we're not one of the Big Boys so we won't be tripped up by our own potential conflicts of interests" concept puts Jones in the third market, says an executive who is a Jones marketing consultant. She was pressed to compare JonesTrading with other firms.

"Cantor is somewhat like them," she says. Nevertheless, this executive, who didn't want to be quoted by name, also says she doesn't believe that Jones has a direct competitor.

"Direct access firms sell execution but just on listed securities while Jones provides execution service for tight securities, the not easily tradable stuff, on all types of securities, on all types of exchanges. That's what makes them different," she says.

But the firm argues that the trademarks of its business are block trades and the quality of the execution. It claims that - even in difficult companies, with big numbers of shares -it will complete a trade and generate little market impact.