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January 30, 2008

GE Asset Looks to Close the Information Loop

By James Ramage

After 21 years at GE Asset Management, Damian Maroun has developed a good sense of what's expected from the trading desk. The senior vice president of global equity trading says his desk must provide information that gives portfolio managers an edge in today's marketplace.

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To that end, his team of three domestic and five international traders-and one junior trader-created a system called IHub to better manage information flow and generate discussions between PMs and traders about the market. "We're considered a part of the investment process," Maroun says. "We really understand how a manager's portfolio changes."

The IHub system lets the desk share information with PMs about various global markets and specific stocks, as well as news that could affect their holdings.

"It's a repository of data, with a front end that allows traders to input the information and a back end that allows us to aggregate that data in many different ways," he says. "Now, we're trying to get a PM or an analyst to put his spin on that information." The next step is to share the PM's thoughts with the rest of the stock-picking team.

Commissions and electronic trading are other areas that continue to evolve. GE benefits from client commission arrangements. It has been able to pare its list of 200 mostly research brokerage relationships down to about 140, with 70 brokers in the U.S. and another 70 abroad. But of those, it trades with only about 20 firms.

"Because we're a large-cap-driven firm, we lean more toward the large-cap brokers," Maroun says. Still, GE trades with a "core stable of specialty brokers."

High-touch trading still lives at GE. The desk executes about 70 percent of its orders through traditional means via high-touch brokers. That means the other 30 percent are done electronically, but Maroun expects that to grow. "Electronic trading will become a bigger part of our business," he says. That's already a huge increase from the 5 percent it executed electronically five years ago.

He is particularly high on block trading's electronic future-especially with BIDS Trading, the broker consortium that's half-owned by NYSE Euronext. Maroun sees BIDS as one of a few key players going forward in the crossing space. "If (BIDS) provides liquidity in the process of being able to do larger blocks, with more anonymity," he says, "I think it would be a positive thing."

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The GE trading desk has about 100 algorithms to choose from. About 10 percent of the list gets most of the business, Maroun says, particularly those algos that are adaptable, can react to the market and can aggregate displayed and non-displayed liquidity.

Maroun likes the desk's new tools a lot. But whether he's talking about his OMS or algos, all trading tools are fortified by experience. "In the old days, if you had 10 orders coming to your desk," Maroun says, "your algorithm was a strong relationship with a broker."

 

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