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August 14, 2007

Taking Change in Stride

By James Ramage

After 35 years in any business, one can be excused for facing dramatic change with anxiety. But when one's tenure has been in trading and asset management, as Robert O'Brien's has been, skepticism should be a foregone conclusion.

That's not O'Brien's outlook, however, despite witnessing his desk's transformation over the last year or so as managing director and head of trading at Boston-based asset management firm Evergreen Investment Management Company. O'Brien expects Evergreen's trading desk to implement numerous major changes: They include transitioning to a new order management system; putting into place its first commission sharing arrangement (CSA); cutting its broker list by more than half next year, compared to 2005's broker count; and continuing to see a rise in algorithmic and electronic trading. While individually none of these challenges is unique, collectively they could be overwhelming.

O'Brien still sees his desk's job as one of accessing best execution in a changing and fragmented trading environment. In 2008, Evergreen will have shifted its OMS from Macgregor to Charles River. Making the decision was a team effort: Technology, legal and compliance departments, as well as other asset management teams, decided that Macgregor came up short with its fixed income offering, O'Brien says. "Although the decision was made to look for a service that worked for each trading desk and each team, it was determined that overall the Charles River platform suited the needs of the various Evergreen trading teams the best," he adds.

The company successfully tried the new OMS on its London fixed-income trading desk, and will have converted its U.S. fixed income and equities trading desks and departments in 2008. Although O'Brien describes the decision as "major" and "significant" for the firm, he's hoping for a smooth transition, a process often described as a complex endeavor.

O'Brien also sees benefits in respect to the firm's pending use of CSAs. O'Brien anticipates Evergreen will use a hybrid model that would involve trading directly with those midsize and smaller firms that are useful sources of liquidity, particularly in small caps. Evergreen would use CSAs to compensate those firms for research in cases where commissions weren't parceled out through direct trading or stepouts. "CSAs are not totally painless," he says, "as they involve additional levels of tracking and administration."

O'Brien expects the number of firms trading with Evergreen to shrink, but those firms providing research may increase. Two years ago, Evergreen counted more than 100 firms on its broker list. By next year it anticipates having roughly 50 trading partners.

Evergreen now does 55 percent of its trading electronically with roughly 15 percent done in the crossing networks, which he expects to increase. Accordingly, its algo usage has also risen dramatically. To O'Brien, though, an increase in self-trading isn't a cause for worry.

Evergreen Investments Equity AUM: $312 billion Desk: 9 traders (2 international) Broker List: 70 Avg. Commission: 3 cents Trade-Cost Analysis: Abel/Noser