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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December 6, 2006

Sales Traders Adjust to a Low-Touch World

By Hillary Jackson

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  • Sales Traders Adjust to a Low-Touch World

In 1985, maybe the best way to gauge the tone of the market was to close your eyes and listen to the buzz of the trading floor. The noise-and the accompanying vibe-would tell a skilled trader if stocks were rallying or skidding, and whether volumes were high or low. It was that easy to get-and keep-your finger on the pulse of the market. "Trading floors were absolute cacophonous zoos," says Tom Rice, managing director in the equities department at Credit Suisse in New York. Flash forward 20 years to today, and it's a bit more of a challenge.

Sellside trading floors are relatively quiet these days, save for the ubiquitous tap-tapping of keyboards. The traders sit behind three, four or more large computer screens communicating with each other and the wider market via email and instant message.

Picking up the phone to have an actual conversation with a client is the exception, rather than the rule.

This is indicative of the overall change in market structure that has occurred over the past 15 to 20 years with the automation of Wall Street. This new technology-centered market structure calls into question the role of the traditional, high-touch, full-service sales trader, as well as the viability of that role going forward.

People Skills

While many continue to speculate that the sales trader will be a thing of the past by the close of the next decade, several buyside and sellside traders were decidedly more optimistic when interviewed by Traders Magazine.

Indeed, they see a role for sales traders far into the future, maintaining that the business of buying and selling stocks is people-based. "Relationships are still very important. It's the only thing that can't be commoditized," says Lance Lonergan, head of U.S. sales trading at Citigroup in New York.

That said, it is clear that the sales trader of tomorrow will not look like the sales trader of yore. Future sales traders may have to be more holistic in their approach to their jobs, well-versed in global markets and a variety of asset classes, and more sophisticated in general.

Technology that enables buyside traders to execute orders directly in the market, without the assistance of an intermediary, has been the single biggest driver behind the changes in market structure and behavior, traders on both sides of the Street agree.

"I feel like the contact with the sales trader has decreased due to the electronic connectivity via FIX and the shift in trading from verbal to algorithmic or electronic DMA. There's less of a reliance on sales traders now for market color as more of the order flow is executed through electronic tools," says Mark Kuzminskas, director of equity trading at Robeco Investment Management in Boston, which manages $25 billion in equities.

Using a sales trader is just one of many ways for Kuzminskas to execute orders, given the number of electronic execution tools available to the buyside these days. When he does turn to a full-service sales trader, it's usually for capital commitment, or sector intelligence or for cap-specific stocks. "There is recognition that there is still some expertise," he says.