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April 3, 2008

Using the New Trading Tools

By Gregory Bresiger

Don't overlook using new electronic trading tools or new venues. But be very careful in the process.

That's the philosophy of Patrick Elias, a trader at BNY Mellon Wealth Management in Pittsburgh. The 35-year-old trader says he's young enough to owe no loyalty to traditional means of execution. So he has adapted his trading techniques-like everyone else. Elias estimates that he will likely do so again. Indeed, change comes as less of a shock to this 10-year veteran than it does for those with more experience, Elias says.

"My feet weren't in the old way of doing things. I now go through electronic avenues first," says Elias, who trades large and small caps for Dreyfus mutual funds, with orders usually between 300,000 and 500,000 shares.

Elias says his decade in the business is actually a benefit. He is not a rookie. But he also has no long history of successful manual trading or of using traditional exchanges.

That's why he's comfortable looking beyond the bulge bracket firms and the "duopoly"-the Big Board and Nasdaq. Stay anonymous to find liquidity is his mantra.

"Algos, ATSs and dark pools have greatly changed how we trade," says Elias, who works under the direction of desk chief Paula Mahoney.

Using electronic tools and finding alternative venues have saved his firm's clients both in implicit and explicit costs-3 to 4 cents a share compared with manual techniques, he says. Elias previously traded for Laurel Capital Advisors, a wrap fee service, before moving to Mellon some seven years ago. How did Elias come to trading?

He started out to become a lawyer, but was enticed by the competiveness of trading. Elias would like to run a desk eventually. However, he stresses that he would always want to trade. The ability to satisfy a client and outdo others, Elias says, is the life he relishes.

Still, Elias' happy world of tomorrow's trading philosophy comes with a future shock caveat: Dark pools, one of his tools, are often a gamble because there are so many. He hopes there will soon be fewer. "That would make things so much easier," he says. He also has been burned by some unnamed dark pools, pools that leave a trader hanging for precious minutes. "I've popped in orders and nothing has happened for 30 minutes and now I'm behind," he says.

So there are times when electronic tools don't measure up or the desk has yet to be sold on a particular method, and it's trial by fire.

Indeed, Elias says that his desk doesn't use an EMS at this point, using Linedata's LongView OMS to stage orders.

Nevertheless, Elias emphasizes that using the latest trading tools are well worth the risk. "You must go down the road even though you're going to hit some potholes," he says.

BNY Mellon Wealth Management

Equity AUM: $35 billion

Desk: 6 traders

Broker List: 25

Avg. Commission: 3 cents

OMS: LineData's LongView

Trade-Cost Analysis: ITG's Plexus

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