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May 11, 2011

Liquidity Trumps Price

By John D'Antona Jr.

Block trading remains a challenge today. So when Craig Jensen, principal and head trader at Armstrong Shaw Associates, in New Canaan, Conn., sees a large contra, he pounces. That's the case even if the block costs him a little more than what he originally wanted to pay. For him, liquidity trumps price. "If I get a good-size block and if it's reasonably priced, I'll take it," Jensen said. "Anytime somebody shows me size, I'll likely trade it."

Craig Jensen

Getting blocks done is an integral part of Armstrong Shaw's active investment strategy in mainly large-cap value stocks. Jensen's goal in trading is to find blocks, wherever he can. However, that is also one of his greatest challenges. When building a position or exiting one, Jensen likes to trade big-preferably six-figure large. Still, the 12-year veteran doesn't shy away from the 10,000-share size, either. It's all good.

Armstrong Shaw's portfolio is very concentrated and usually consists of large-cap names that aren't always the most liquid, which is why blocks are so important, he said. And his stocks' liquidity profile rarely fit the Citi or Ford mold: They can be tricky to trade and can leave a footprint if the wrong call is made or the wrong button pushed. Not that he has anything against dark pools. "From a trading standpoint, with so many different choices in execution venues, it's tough to get a block done," Jensen said.

It doesn't hurt to be at the right place at the right time, whether finding blocks, trading in dark pools or starting a career. Jensen got his break when he house-sat for an executive at his current firm. He was still in college trying to make extra cash.

"I had to pay my way through college, so one of the many things I did was run a house-sitting business," Jensen recalled. "My first customer was someone who worked in the business as a trader/portfolio manager." That person was Todd Crystal.


After graduating from Western Connecticut State, Jensen landed his first job at Ark Asset Management as a portfolio manager assistant. His big break came two years later, when Crystal asked him to join the fledgling Armstrong Shaw.

Today, Jensen sits in Crystal's head trader position-albeit in a much different environment, with greater fragmentation and more electronic trading tools. While he does use algorithms and dark pools to find blocks, he also employs a select handful of upstairs trading desks to help him fill his orders.

Jensen taps the upstairs brokers with whom he has long-standing relationships to work his orders discreetly and prevent any type of market impact. For a trader who values relationships, but yet acknowledges the complexities of today's financial market structure, he often has to find the right balance between the upstairs and electronic markets.

"We participate in a few different crossing networks and continue to use upstairs relationships as well," Jensen said. "I use a handful of desks actively."



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