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August 11, 2008

Shoreline Goes Abroad

Go west (and east), young man

By Gregory Bresiger

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Small and midsize hedge funds increasingly want help in executing and clearing trades abroad, say officials of Shoreline Trading, which recently announced new overseas alliances. Shoreline, offering mini-prime brokerage and agency execution services, will now have new connections in Asian, African, European and Australian markets through its Global

Prime Services operation. The alliances, or connections, will be through Goldman Sachs Execution & Clearing, JPMorgan and Credit Suisse Securities.

Shoreline Trading Group, with offices in New York, Los Angeles and Santa Monica, was founded in January 1997 in New York (see sidebar for more). The firm has numerous former Spear, Leeds & Kellogg and Goldman Sachs officials. It still has strong ties to Goldman. Shoreline officials say they refer big prospective clients to Goldman, which refers smaller clients to Shoreline.

Shoreline officials say the overseas initiative resulted from client needs. The client is typically an emerging market manager. Many of these managers face difficult times. They must invest in relatively new markets at a time when markets are volatile. So managers wonder about the quality of the trading and execution services and are still spooked by the Bear Stearns disaster. Their typical manager, Shoreline officials explain, is someone who didn't just start a fund, but has 10 years or less of experience. But they also concede that domestic factors are partly pushing them to diversify abroad. In announcing the expansion, Shoreline officials also said they were doing so because of the "ongoing contraction and volatility in the domestic markets."

But a Shoreline prime brokerage official, in a recent conversation with Traders Magazine, agreed that there are also many hazards in trading and clearing in diverse European, Asian and African markets. Almost every market has different rules and customs.

What are the most common trading and clearing problems? And how will Shoreline reassure clients that post-trade problems won't ruin what seemed to be a good trade? Recently, Shoreline trading partner Michael Murray, who runs prime brokerage services from the New York office, discussed these issues with Traders Magazine.

TM: Why did you do this now?

Murray: It started with our clients. For the kind of clients we have, access to trading in global markets is an underserved area right now. Just getting access to trade on those markets can be difficult.

TM: An example?

Murray: For example, buying 10,000 shares of Microsoft in the U.S. is easy. Our clients are saying just the ability to trade in the U.S. is no longer their only focus. The opportunity to trade shares of Angang Steel (347.HK) in Hong Kong can be a valuable opportunity for our clients.

TM: You say that you are doing this because the clients have been asking for it?

Murray: Yes, clients want the access to places like Hong Kong and they also want a top-tier custodian like Goldman Sachs.

TM: Your clients are the smaller hedge funds, those with $200 million or less of assets. You're betting that they're going to be very interested in your overseas connections. Who are these typical clients?

Murray: There's a segment of the asset management business-hedge funds, registered investment advisers-that don't fit the platforms of the big bulge bracket firms. And that's where we come in, offering the prime brokerage services of our custodians.

TM: Your typical emerging manager employs what strategy?