Doreen Mogavero, founder, president and chief executive of New York Stock Exchange floor broker Mogavero, Lee & Co., spoke with Traders Magazine recently about August’s trading volume and volatility, what the buyside wants in a broker and how new regulations have affected her firm.
Traders Magazine: How did the firm fare during the turbulent month of August?
Doreen Mogavero: The volatility generated more volume for us, which, when you are a commission-based broker, is a good thing. It was a good month for us. However, I will say the volatility has been a bit disconcerting for my clients. My first concern is always about the effects such volatility will have on my clients. It’s been a very hard market to trade.
TM: Do you expect the heightened level of volatility and subsequent increase in trading volume to continue through the fall?
Mogavero: I do expect the volatility and volume to stay with us for awhile. However, I think the volatility might not be as high or the swings as large going forward as they were during those first weeks in August.
The bottom line on volatility is that it will continue to be extraordinary versus what we saw through the earlier part of the year until the investing public is more convinced the U.S. is on the road to economic recovery. Investors are suffering from a crisis of confidence – not in the market per se, but rather in the political system and its ability to function. Until that confidence returns, things could be rocky. Retail investors need to feel confident to return to the market.
TM: Has being a woman or minority-owned business benefited your firm during the recent uptick in volatility? Or has it hurt?
Mogavero: Being a woman-owned business has been a foot in the door in some instances and with some clients. But the reality is that we retain very little business from our status. The minority-owned broker space has gotten crowded. As a firm, we have to be very good at what we do and very competitive to get and maintain business. While the minority status is definitely advantageous for us to get in to see a client for the first time, it does not guarantee us any order flow or business.
TM: What does the buyside want from a floor broker?
Mogavero: They obviously want best execution. While we attempt to trade on the floor as much as we can, we do go off-floor when we have to in order to get the best price for our clients. I’ve also seen the buyside moving back towards looking to the floor broker as a source of intelligence. This holds true especially in more volatile trading sessions. That’s when where things get uncertain and the buyside looks for us to go to where the trading is and get market information and relay it back to them. The markets have gone very dark, so it’s important for the buyside to get quality information from their trusted relationships with brokers like us. This has been especially true over the last few weeks, where they have come to us looking for information and we’ve been able to give it to them.
TM: Are you saying market fragmentation is a problem?
Mogavero: I think fragmentation is the downside to all the new technology that has come into the market. Technology has given birth to a darker marketplace, which has created a greater need for market color and has made it harder to find block liquidity.
We spend too much time searching for liquidity. It would be preferable if we were to consolidate volume to a few highly competitive venues. We would then get more accurate pricing leading to less volatility under normal circumstances. We’d also have greater certainty of execution, better chances of block transactions and faster executions while still having enough venues to foster competition at a very high level. We need to make internalized volume accessible to everyone. That volume is a big portion of business that has been taken out of the public market place.
TM: How do new regulations, such as limit up/limit down or large trader, affect your firm?
Mogavero: I think that the overall regulatory environment has become very complex. And while a lot of the new regulations needed to be put into place to keep the marketplace fair and investors safe, it has been more of a burden for smaller firms like mine. While larger firms have larger staffs that can focus more on regulatory issues, for a smaller firm like ours it is a larger portion of our operating costs to have to continually update our processes and meet with lawyers and accountants.
I want regulation to be efficient, but the process of regulating the Street is very inefficient. I think that regulators should consider tiering the process to appropriately fit the size of the firm.