Commentary

Joanna Fields
Traders Magazine Online News

Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

Traders Poll

Would you feel better if the Chicago Stock Exchange were purchased by U.S. firm or consortium rather than a foreign one?

Yes

73%

No

4%

Doesn't matter to me

23%

Free Site Registration

July 5, 2006

Jefferies Revamps-Bets on Sectors and Algos

By Peter Chapman

Jefferies & Company, as part of a stepped-up drive to reenergize its slumping equities trading operation, has made a key management change.

Ron Hammer, who previously ran Jefferies' over-the-counter and international businesses, is now head of all equity trading.

With his hire come the departures of the former heads of Nasdaq and listed trading, Bill Greene and Tony Sanfilippo, respectively.

Hammer, who reports to Scott Jones, global head of equities, is now charged with merging Jefferies' disparate trading operations into a single, centralized sector-based operation.

The exec will also work with Jefferies' newly beefed-up electronic trading department to introduce algorithms into Jefferies' largely manual trading operation.

Hammer's appointment is one of several that have taken place since last fall in the wake of flagging trading revenues.

Located in New York, the consolidated trading group will focus on nine sectors in support of Jefferies already sectorized banking and research departments. Hammer oversees a crew of about 80 traders and assistants in New York as well as another 120 sales traders spread around the country.

Better communication between traders and others in the organization was a major consideration in combining the desks.

"If we are truly sectorized," Hammer explains, "we can't have the Nasdaq trader in Dallas and the listed trader in Jersey City."

Until recently, Jefferies maintained four trading desks across the country: Nasdaq trading was in Dallas. Listed and over-the-counter trading was in Jersey City. Smaller desks also operated in Los Angeles and Stamford, Conn.

Hammer's appointment and the consolidation of the desks coincide with a slew of new initiatives in Jefferies' equities trading department.

Since last fall, the mid-sized broker has been on a hiring spree, snapping up high-profile names from major firms to jump start new businesses.

The rush began last November with the hiring of Ross Stevens from Banc of America Securities to run electronic trading for Jefferies. Stevens is now head of equity product sales at Jefferies, which encompasses electronic trading, derivatives and prime brokerage.

His group was augmented recently with the hire of seven financial engineers led by Vlad Portnoy from Banc of America. The move into electronics is part of a push by Jefferies to apply algorithmic trading to the small- and mid-cap stocks in which it specializes.

The firm now boasts it has the largest quant team on the street 15 executives devoted to small-and mid-cap names.

The quants aren't the only team Jefferies has poached from Banc of America. It has also lured away from BofA a six-person team to put it on the prime brokerage map. Jefferies expects to offer a full-blown prime brokerage service to small hedge funds later this year.

All the new spending being lavished on equities comes as Jefferies has found it increasingly tough to make money in this core business.

The firm took in only about $390 million last year from equities, its lowest level in at least six years. Revenues in this space have been mostly flat in the new century.

Management places blame for the soggy revenues on the industry-wide decline in block trades. Data published by the New York Stock Exchange and Nasdaq have continually showed declines in block trading of 5 and 10 percent per quarter, according to Jefferies.

The broker is betting algos will take its numbers higher. "Ross [Stevens] is working with the rest of our management team to identify opportunities to enhance our cash equity business and build out electronic and other solutions that we believe can fuel our growth," Richard Handler, Jefferies chief executive, told analysts recently.

Hammer is equally upbeat about the new venture. "We have a good understanding of the way stocks trade in the small- and mid-cap area," he says. "Plus there is client demand for us to get into that space, so we should be there."