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July 1, 2012

FX Coverage: Ex-Trader Tai Talks Tactics

Former Trader Rolls Up Sleeves on FX Study

By Michael Scotti

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Howard Tai, a longtime trader turned consultant, believes that if a money manager is vigilant with its FX trading, it will do its clients right with higher returns.

Howard Tai

"FX is very integral once a firm has assets beyond its borders, because exchange-rate fluctuations will affect the value of its portfolios," said Tai, a 25-year trading veteran who joined the consultancy Aite Group one year ago. "A reasonably active hedging strategy has the potential to add 1 percent-plus in returns on the fund level."

That's significant, said Tai, who joined Aite from mutual fund giant American Century, which he joined in 1995 as a senior FX trader. There, he implemented the firm's hedging strategy for equities and fixed income. By the time he landed there in Kansas City, Mo., he already had nine years under his belt working at banks, trading currency options and futures. At American Century, Tai would trade FX, as well as equities and convertibles for 16 years.

Through his research reports, Tai hopes to shed light on an industry that is dealer-dominated and not known for its transparency. In March, he completed a survey of 30 buyside firms that highlights their FX trading attitudes and practices. Titled "Buyside FX Outlook: In Search of Best Practices," the report offers his first glimpse of how the business is evolving.

The buyside survey was important to Tai because he wanted to examine trading practices for the asset class that he spent most of his career trading, he explained. "FX is something that the buyside has historically treated as an afterthought, and until recently, has been looked at from more of an operational standpoint than from a markets perspective."

During Tai's tenure at American Century, the mutual fund was among the most vocal critics of the market structure of the U.S. equities market. Under the leadership of Harold Bradley, who headed trading in the 1990s, American Century was one of the biggest proponents of electronic trading and fair dealing. Although he was influenced by his former firm's philosophy, Tai says he doesn't plan on being as vocal about changing the industry as his former firm was. But he doesn't plan on biting his tongue, either.

"I won't be afraid to voice my opinion and offer my honest observations of where I think the industry is headed," said Tai, who plans to continue speaking on industry panels, something he's done over the last 10 years. "I want to be part of the discussion to find new solutions for the industry."

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