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July 1, 2010

Review: Floor Plan

Who's Who and What's What on the Equities Floor

By Peter Chapman

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As far as books for Wall Street professionals go, there have been several written about investment banking. There are hundreds devoted to trading techniques. Hundreds more have been written about investing. There are even a number of books covering the securities industry's back-office operations. But there are very few that take the reader onto the trading floor.

Alan Rubenfeld did it with his collection of essays titled "The Super Traders." Professor Larry Harris did it with his seminal "Trading & Exchanges." Now Matthew Tagliani, a derivatives trader working for Morgan Stanley in London, has done it.

Tagliani's "The Practical Guide to Wall Street: Equities and Derivatives" is an excellent introduction to life in the equities department of a large investment bank or brokerage.

Written by a trader who has done time on the trading floors of three bulge bracket firms over the past 10 years, the book drills down into both the products and how the trading pros handle orders in them.

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Within its 528 pages, Tagliani covers cash equities, portfolio trades, options, exchange-traded funds, index futures, forwards and equity swaps. He diagrams how trading floors are laid out--who sits next to whom--and the roles of sales traders, traders and research salespeople.

The material should benefit the junior staffer just starting out, as well as the seasoned pro wondering what happens on the other side of the room. It should also appeal to exchange officials and vendors who service the sellside.

Tagliani's strengths are arguably on the program trading and derivatives side of the business. He devotes about 35 pages to program trading; 80 pages to options; 50 pages to forwards and futures; 30 pages to swaps; and about 12 pages to ETFs. (He even devotes 42 pages just to equity indices.) The author is a chartered financial analyst with a master's in applied mathematics who has spent his Wall Street career in swaps, ETFs, futures and program trading.

That's not to say Tagliani shirks his duties when it comes to cash equities. He spends about 50 pages on the core of any sales and trading operation. He digs into ticks, order types, loss ratios, error accounts, book-builds and other trading minutiae. He reviews not-helds, VWAPs, TWAPs, stops, MOCs, MOOs, CODs, etc. He details block bids and principal trades, and spends an entire page explaining how to "beat the close." He translates trading room jargon and what separates a good flow trader from a bad one when working an order.