Reinventing the Status Quo

Top traders today must be perpetual learners. They need to learn more about other asset classes. In short, they need to keep reinventing themselves.

Chris Hynes, former head trader at State Street Global Advisors, has spent his Wall Street career doing that.

And now, after 30 years on Wall Street, Hynes will be relocating to Vail, Colo. from Boston. His career has at times put him at the center of change, often with him leading the charge.

“I’ve always tried to keep reinventing myself,” Hynes says, “and maybe that’s because I’m never satisfied with the status quo.” Interestingly, Jim Leman, an industry consultant who sat on the original FIX Committee with Hynes in the mid-’90s, described Hynes with almost the exact same words.

FIX was a major communications breakthrough for Wall Street. It established a common messaging language that ushered in the electronic trading era.

Hynes’ trading career began in the early days of options, in 1975. “I went into derivatives because I needed to go into a young man’s business that the older guys with the fat Rolodexes didn’t want to learn-or understand,” he says.

In retrospect, his options training paved the way for his career, Hynes says. It not only exposed him to management at a young age, but it also forced him to analyze the trade-offs between risk and reward. His ability to weigh risk became invaluable in later years when he headed lines of business.

“Your career is the biggest investment you’ll ever make,” Hynes says. “People said to me, You’re going into the options business? That’s so risky.’ And I thought it was risky to stay in the bank, where raises didn’t even cover inflation.”

Hynes wrote a market letter, traded options and covered accounts at various times before moving on to launch the institutional options business at Morgan Stanley in 1980. Opportunity then called at Jefferies & Co., where he went to run the options unit in New York in ’83.

All of the options investors then had a quantitative bent, Hynes explains. It was his group at Jefferies that devised the idea to create a matching system that would lessen market impact and make trading more efficient.

So the creation of Posit, the matching engine that’s now the cornerstone of ITG, started in the options group at Jefferies. Posit was the brainchild of Hynes, Josh Rose and Don Luskin, with Michael Rosen handling operations.

But it took some doing to get buy-in from Jefferies management.

Indeed, Jefferies was then wrestling with some major issues. Long considered a maverick third-market firm, Jefferies had forged close relationships with many of the takeover specialists during the 1980s’ leveraged buyout frenzy, including the infamous Ivan F. Boesky. Several months before Posit’s first trade, Jefferies chairman, Boyd L. Jefferies, resigned from the firm after settling government charges that he had participated in illegal stock parking for Boesky. It’s safe to say there were bigger things on management’s plate than launching an untried matching engine.

Enter Ray Killian, who became the management sponsor that Posit needed to gain acceptance internally, Hynes says. Killian, of course, would later become ITG’s president and chairman. Jefferies & Co. would later spin off Posit via ITG. “Ray was the godfather of Posit,” Hynes says. “We couldn’t have done it without his support.”

The timing of Posit’s launch was remarkable-at least for Posit. The system’s first trade came after the October 1987 crash. “After the crash, people really questioned their business models,” Hynes says. Dealers were less willing to commit capital and institutional orders continued to get bigger. These factors made an alternative-trading venue like Posit more attractive.

But the ’87 correction also caused Hynes to reevaluate his career. Compensation could be fickle on the sellside, given the ebb and flow of commissions. And the power shift, as Hynes saw it, had begun to move to the money management side.

He moved to State Street Global Advisors, where he spent three years running $6 billion in an international index fund. He welcomed the new experience of having his performance measured every day.

“That’s the ultimate challenge,” Hynes says. He thought his derivatives background gave him an edge. It was also during this time that he got involved-at the invitation of colleague Doug Holmes-in helping the American Stock Exchange develop its first exchange-traded fund. Based on the S&P 500, the derivative instrument he worked on is the now-famous Spyder (SPY).

But once a trader, always a trader. Hynes saw ways in which State Street could improve its trading desk, and he went on to run trading there for four years. This occurred at the advent of FIX connectivity.

“FIX just enriched traders’ jobs and allowed them to spend more time on the fun stuff-trading,” Hynes says. Because FIX captured information from a trader’s blotter, it alleviated errors stemming from the need to re-key information. Consequently, trades would match electronically. The benefit was that traders no longer had to spend hours on the phone after the close on busy days comparing trades with brokers. From a trading perspective, FIX also allowed a desk to store brokers’ indications of interest. “So much valuable information got lost in the system before FIX,” Hynes says.

It was during his time on the trading desk that Hynes saw that State Street would have a built-in advantage if it entered the transition management business. It already had lots of flow from its huge index business-which would cross for clients at zero commissions and avoid market impact. Plus, it understood portfolio management. That also gave it an edge. Up until that point, transition management was viewed as a trading business and not as a business that had risks relating to portfolios’ market exposures, Hynes says. “We decided to go out and pitch the business in a totally different way, and it was hard for the competitors to match,” he says. State Street later purchased Lattice Trading, an early electronic routing system, to aid its transition business. Today, State Street is a giant in transition management.

Hynes later went on to run State Street’s trust business, which he describes as the toughest task of his career. It’s easier to start a new business than to inherit a pre-existing one that already has a culture, he maintains. Still, during Hynes five-year tenure-courtesy of the baby boomers and some new products-a reinvigorated State Street Trust tripled its assets to $18 billion.

Since 2003, Hynes has been involved in private equity firm Hastings Equity Partners, which targets businesses with between $1 million and $6 million in earnings. From Vail, Hynes expects to be less active with Hastings. But he still has his sights set on other ventures, which he declined to discuss in detail, except to say that one involves Wall Street research.

Mark Hoffman, who worked at State Street Brokerage after selling Lattice Trading to the firm, says Hynes’ creativity and his ability to find new ways to look at a business are his strongest suits. “He had so many ideas, sometimes we couldn’t keep up with him,” says Hoffman, currently the CEO and president of Upstream Technologies, which offers portfolio management tools.

Hynes acknowledges the traits and points to his father, saying, “It’s somehow embedded in my DNA.” But he only realized this after his father’s death. Hynes’ father was a professional billiard player and a former national champ-essentially a professional gambler. In a conversation with the man who made his father’s cues, Hynes was told how his dad had a way of looking at a shot eight different ways-shots even the best players would have trouble seeing. “I then realized,” Hynes says, “I was my father’s son.”