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December 6, 2006

Sales Traders Adjust to a Low-Touch World

By Hillary Jackson

The most important service a sales trader can provide to Stuart George, senior vice president and head of equity trading at Delaware Investments in Philadelphia, is information flow. Delaware Investments has some $25 billion under management.

"When I first started in the business [in 1991], sales traders that covered me were people that a lot of the buyside looked up to, and the sales traders often cared about the smallest orders as much as they cared about the largest orders," George says.

Stretched Thin

The difference now, he says, is that sales traders are stretched too thin. They are victims of downsizing who are covering 30 accounts-rather than the 10 for which they were responsible a decade or more ago-and simply not able to provide the kind of high-touch, personalized service they could in the past.

Credit Suisse's Rice maintains that the fundamentals of the sales trading job remain largely the same as they've always been, though he admits that his typical day is much different now than it was when he started in the business 21 years ago.

"Before, we used to have the corner on information, and clients had no other alternative as an information source. They had no choice but to use us as an intermediary to execute a trade," Rice says.

"When I got out [of college], one person did everything. Then it was the era of specialization," he says, noting that the "exponential" increase in volumes meant that one person couldn't cover the whole market. Instead, sales traders specialized in convertibles, Nasdaq stocks, or another market niche.

"Now the pendulum has swung the other way. Sales traders have to understand far more products today than they ever had to in the past," he says.

When Citigroup's Lonergan was a Nasdaq trader at Smith Barney 15 years ago, he spent most days working as part of a collective trading group, bidding and offering stocks all day long. The group consisted of 10 to 15 people, who worked the phones from before the opening bell until beyond the close to obtain a fair price and get a trade done.

Now, it takes one person to do that job-and all he has to do is click a button.

Big Difference

Another sales trader, at the tail end of his more-than-40-year career on Wall Street, says the technology and resources available to the buyside have made a tremendous difference in how he does his job-and how useful he feels in the process.

"Years ago I would go home and say I had a good day because I created business, I made somebody do business when they didn't intend to. My services were necessary," he says. "The [buyside] traders now seem to be better equipped than I am. They are every bit as sophisticated as the brokers that are serving them."

Is paying research bills the main motivator for using a full-service sales trader?

Rice says no. He maintains that Credit Suisse does far too much business-beyond the tab for any research bill-for that to be the case.

Lonergan agrees, citing capital commitment, finding natural crosses, and market intelligence that helps generate alpha as reasons the buyside continues-and will continue-to seek human interaction on certain trades.