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March 7, 2008

Height of High Touch

By Michael Scotti

Institutional interest in options continues to grow. The same goes for the amount of news coverage Traders Magazine gives options each month. You'll notice this month's cover story addresses the growing efforts of brokers to provide electronic direct-market-access tools to big shops, now that more options are quoted in pennies. Word is that these DMA products still have a long way to go, but brokers are feverishly looking to improve their electronic trading capabilities for institutional clients. Although high-touch trading still rules the roost in options for institutional clients in a big way, many in the story predict that options will go the way of equities in due time and trade more electronically. We shall see. The story does a nice job of explaining the dynamics of where options trading-high touch vs. low touch-is at this point in time.

Besides increased options coverage, our readers can also get original news sent via two separate e-newsletters-breaking news stories come under the heading TMXtra and our weekly newsletter is called TM Weekly.

These aren't rewritten press releases. Our TMXtra and TM Weekly e-newsletters contain original news with insightful analysis that only an experienced staff can provide. One news blast last month reported that the New York Stock Exchange is opening up its reserve function to upstairs brokers. Go to to sign up, if you haven't already.

Buyside coverage has always been an important component of Traders Magazine. One feature in this issue takes a look at the communication between the portfolio manager and the trader. The story gives examples of how good communication can help performance.

This month's Buyside Snapshot revisits last month's cover story, "Old Dogs, New Tricks." That feature paralleled the stories of two former sellsiders-Keith Gertsen at AllianceBernstein and Ray Tierney at Morgan Stanley Investment Management-who have reorganized their respective global trading desks. Their use of trade-cost analysis, I later realized, confirmed the findings of a Traders Magazine survey on TCA conducted a year earlier. That survey pointed to TCA's growing role on the buyside to lessen trading costs.

Both firms have created new quantitative positions on the trading desk-essentially their own in-house TCA specialists. It was gratifying to see two examples of what our survey said would happen actually occur. Surveys, we hope, can sometimes be as predictive as TCA. Wayne Wagner, the Methuselah of trade-cost analysis who started Plexus Group, has his own prediction: Other firms will follow suit. "Managers that don't go that route will be at a disadvantage," said the recently retired Wagner.

Michael Scotti

Editorial Director

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