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Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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December 18, 2007

New Desk, Familiar World

By James Ramage

When Mark Schlarbaum became Global Capital Management's sole trader in April, he knew some things about his job would be different. "You can get a cup of coffee," he says. "And if you have to go out to lunch, you can."

But he knew a lot of what he'd be doing for Global Capital would be familiar-and that's trading small-cap stocks, his specialty. Schlarbaum had spent most of his career doing that at investment giant T. Rowe Price, sometimes handling 50 orders a day and constantly interacting with a platoon of portfolio managers and analysts. His days at Global Capital, in Conshohocken, Pa., aren't as hectic-he could find as few as five orders on his desk on a given day. But he still has clients and analysts who demand his A-game.

Despite 16 years in the business, the past seven months have nevertheless been a learning experience. From the outset, Schlarbaum had to become familiar with Global Capital's execution platforms, set up its trade-cost analysis and get a handle on communicating with portfolio managers about order flow.

"I'm just getting a handle on the characteristics and the styles of the stocks we hold and trade," he says. "Even though you've traded all these stocks before, some portfolio managers want to be very aggressive, some want to be more passive."

Schlarbaum has also spent his time looking for ways to get the firm's trading technology up to speed. "When you're new somewhere, you need to get an accurate survey of where you are, and then find areas where technology can make you more efficient," he says. "I'm still in the phase of discovery."

He already has some ideas. Schlarbaum wants Global Capital's trade settlement and order management to be more automated. "We don't run a huge amount of assets," Schlarbaum says. "As small-cap investors, we run a concentrated portfolio of 40 or so names." Still, Global Capital requires some trading expertise to move in and out of its concentrated positions. Global Capital executes about 95 percent of its orders itself, using ECNs or dark pools, or through ITG's execution management system, Triton.

Global Capital hasn't gotten into client commission arrangements much. Schlarbaum says the firm gets its ideas mostly from three in-house portfolio managers who also serve as analysts. "Since we don't own a tremendous number of stocks," he says, "people are able to follow stocks fairly in-depth."

Relationships with sales traders have become noticeably more infrequent. But Schlarbaum has filled that space by cultivating relationships with programmers, so that he can offer his input on how they can design algos that work best with his trading approach.

Looking back, he measures success by the firm's efficiency in setting up and executing trades, as well as by the fact that dispersion among its accounts and platforms is tight. "That," he says, "is when I feel like I know we're doing a good job."