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Storm Copestand
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Conquering Fear in Trading

In this exclusive to Traders Magazine, therapist Storm Copestand examines how traders can manage expectations and conquer their fear during the entire execution process.

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September 2, 2013

Wrap Powerhouse

By Alan Rubenfeld

At least one of his brokers holds Kravitz in high regard. "I can readily see the respect that Scott receives from his portfolio managers and superiors. He has become a critical part of Morgan's investment process. He is always level-headed and not easily rattled," said Mark Morell, managing director in U.S. equity sales trading at Canaccord Genuity, who has covered Kravitz for more than 20 years. "That is not to say he is not a demanding account. He is quick to give me a hard time if he believes it is warranted. Unquestionably, Scott has become a major player in this business and is highly respected by the Street."

 

MODEL CHANGE

Given the number of orders that cross his desk on a normal day, Kravitz says he places a priority on execution. Kravitz and traders Brian Stephens and Frank Viggiano work together as a team and collectively have more than 60 years of trading experience. That experience allows them to expertly work block trades and generate alpha for the client's account, according to Kravitz.

The workload is manageable, but can be challenging when one or more of the managers makes a model change: "Some of our larger managers run over $1 billion on our platform, and when they make wholesale changes to their portfolio, they generate trades that can run into the millions of shares and produce hundreds of thousands of tickets for our back office to process. Before the advent of the UMA platform, this was an incredibly manual process prone to errors. But technology enables our back office to process several hundred thousand tickets, on a daily basis, with virtually no human intervention."

The team looks to automate order flow to the greatest extent possible. Essentially all orders under 5,000 shares are traded in a low-touch facility. The desk uses three different venues: a DMA execution platform, along with an agency-only dark pool and one that commits capital. Depending on the order, they use a variety of algorithmic strategies, including TWAP, VWAP, percent-of-volume, market-on-open and market-on-close.

Again, all trades are executed with a zero commission. "We are considered a top user of each dark pool," Kravitz said. "What helps this relationship is that we are also an important client of each broker's high-touch desk-that and the fact that we don't collect rebates."

The PPG desk also has to face external issues that other desks never have to address. For example, when the PPG desk gets a model change from an outside portfolio manager, it is likely that the manager's internal desk also will be in the market as well. Add to that the fact that the outside manager is also making the same modification at other firms and on many other platforms.

The whole process takes a lot of coordination to ensure that multiple desks are not simultaneously trading the same order and creating unnecessary market impact.

Kravitz and his traders also have an important advantage over their competitors: stealth. PPG's holdings do not appear on the various industry holdings' screens. Therefore, if his desk is trading a large block of stock, he does not have to worry about the manager's holdings being revealed in the marketplace. This added level of anonymity adds an additional layer of security in trade execution.