Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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October 19, 2006

Second Guessed

By Michael Scotti

Trends ebb and flow in equity trading-in any industry, for that matter. In years past, the normal career progression for an accomplished buyside trader was to move to the sellside. There, greater financial rewards awaited. Not anymore. Today, many sellside traders would take a job on the buyside in an instant. Greater job security is one factor, as margins continue to get squeezed for customer business. But there are other reasons for the change. Buyside traders need to have greater skills, since they've been empowered with new trading tools that allow them to bypass brokers and go direct to market.

Buyside trading is also more complex than just seeking best execution. The buyside needs to pay for brokerage services like research or capital, while it also has an obligation to find liquidity at the cheapest price. This balancing act goes to the core of a buyside trader's fiduciary responsibility to do what's best for clients.

Buyside traders are under a lot of scrutiny these days, and some of it is coming from mutual fund boards. That's the focus of this month's cover story. For years, buyside traders have had trade cost analysis that enables them to measure their performance. This scrutiny has been revved up in recent years. "We're always subject to further review," said one trader, commenting on his board. You can read some specifics of what mutual fund boards are doing, as well as how buyside traders are working with their boards.

Buyside traders aren't the only ones under the gun. Floor brokers are, too. The New York Stock Exchange is going electronic under its hybrid market plan, and as more liquidity gets traded "in the box" electronically, there's less liquidity on the floor. Consequently, more firms on the floor are contemplating launching upstairs agency desks. Managing Editor Gregory Bresiger's story outlines the difficulties a firm faces when changing its business model.

It's hard to imagine an issue of Traders Magazine lately without a crossing network story, and this one is no different. Executive Editor Peter Chapman writes about the latest entrant into the crossing/dark pool space, called Level, which is owned by a handful of brokerage firms. Chapman's story discusses the new system's strategy. You'll also find a related story about an order routing company: Order Execution Services (OES). You can read more about why this company thinks it can replace the ITS, which connects the exchanges. It also has a plan to connect dark pools. Enjoy the story and the issue.

Michael Scotti

Editorial Director