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January 31, 2008

Spend a Buck

By Michael Scotti

The buyside has the same trading tools as the sellside. Now it has some of the same executives. As this month's cover story explains, top talent from the sellside (sometimes by way of hedge funds) has become a target for money managers searching for new heads of trading. That wouldn't have happened just a few years ago. But as trading-and some of these positions-becomes more complex, there's a need to hire execs with a broad range of experience.

From top to bottom, the job of trading on the buyside has grown in sophistication over a relatively short period. They've got algorithms, pre- and post-trade analytics, crossing nets and on and on. If chain-smoking filmmaker Kevin Smith directed a movie about buyside traders today, you can bet it wouldn't be called, "Clerks," the name of his first independent success. A more appropriate title might be "Chasing Alpha," a variation on the name of a later film of his. Managers today are dead serious about being efficient and wringing costs out of their trading, with the goal of adding basis points to performance. I hope you find the parallel stories of two newcomers to the buyside of interest-Keith Gertsen of AllianceBernstein and Ray Tierney of Morgan Stanley Investment Management.

It's also good to see the return of a familiar face to trading in this issue. Kevin Foley, the former Bloomberg executive who launched the ECN Tradebook a decade ago, is back in action. Foley's new product is a new type of dark pool-called AQUA-that offers maker/taker pricing. Foley thinks the system can make a splash and attract large orders that are currently getting chopped up by algorithms.

There is no question the industry is rife with vibrant new ideas, which is a definite plus. Now the trick is how the industry replaces or replicates the floor of the New York Stock Exchange, where a significant amount of trades got executed. Let's face it: Despite the promise of technology and dark pools, fragmentation and small executions are a real bone of contention for the buyside right now.

Could AQUA-or some other system-be the answer? We shall see. But one thing is certain: Foley is still as open and quotable as ever. Describing the experience of getting the sellside and the buyside on board and hooked up to the system, he compared it to a stakes race. "It's like getting horses into the gate at the start of the Kentucky Derby." This year's derby is May 3, giving us plenty of time to discuss trading until the field in Lexington reaches the paddock before post time.

Michael Scotti

Editorial Director

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