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July 31, 2004

The Spirit of Cooperation

By Nina Mehta

Some head traders may pay lip service to team spirit and the value of everyone on the desk pulling together.

But not Robert Shapiro.

At Iridian Asset Management, Shapiro and his three traders each contribute to the desk's overall functions, including trade executions. And Shapiro, who is the director of trading, encourages this team spirit. Courtney McKenna runs the desk's program trading and cash management business; Caroline Keenan manages soft dollars and options trading; and Jennifer Mannella is in charge of commission tracking and performance metrics.

This decentralization gives the traders a personal stake and contributes to an efficient desk, according to Shapiro. And it helps the desk to achieve its best execution obligations, he adds.

Iridian Asset Management specializes in mid-cap and large-cap value stocks. It has $10 billion under management, which includes $1 billion in hedge funds. The Westport, Conn.-based firm was formed in 1996. That's when its two founders left the asset management division of Arnhold and S. Bleichroeder to strike out on their own. The money manager is now 75 percent-owned by Bank of Ireland Asset Management.

For Shapiro, who has been at Iridian five years, changes in the marketplace have drastically altered how best execution is pursued. He points out that the post-bubble market environment led to a focus on trading as a way to generate incremental returns. As a result, execution quality and trade-cost analysis became more important.

Decimalization further changed the trading dynamic, particularly for listed stocks. "Decimalization killed the effectiveness of limit orders," Shapiro says. "That forced everyone to hide their true intent from the floor of the New York Stock Exchange."

The resulting shift in trading styles led to the emergence of algorithmic trading and alternative trading platforms. That spawned even more sophisticated trading styles.

Shapiro said that upgrading skill sets and staying informed about innovations, regulatory trends, and new trading mechanisms are the mandates for today's buyside trader. Indeed, anything that makes a buyside trader "smarter, faster, more competitive" in the pursuit of best execution is critical. "Being a buyside trader is not about getting Yankees and Red Sox tickets," Shapiro adds.

Buyside traders regularly harp about the lack of alternatives to the liquidity of the NYSE. Shapiro points out that Liquidnet "is probably the cleanest solution to the block trading dilemma that every trading desk is faced with, yet the volume is anemic compared to the potential [volume]." He added that complaining about a lack of options without venturing into the struggle is a "profound injustice to the buyside trading community at large."

Iridian, says Shapiro, is an early adopter of new technologies and new trading venues. "We support the niche broker that has the new approach to business," he says, "because we don't know where the next mousetrap is going to spring up and we want to be part of the solution as opposed to being part of the white noise that makes up the buyside's complaints about problems."

The buyside, according to Shapiro, can't afford to simply sit back and wait for liquidity to emerge in one spot or another.

"If there's a chance you can effectively trade a stock in an efficient manner on a new trading platform, best execution mandates that you help establish that venue so that it can become a best execution venue," he says.