The Traders Who Double as Technology Pros
The story goes that most market makers and floor specialists wouldn't know the difference between a PC and a Mac. The story is wildly exaggerated of course. But it is told to emphasize the very human, intuitive, sometimes rough-and-tumble character of the traders life compared with the often dry, rational world of technology.
Traders Magazine met four traders who have gone beyond the fringe, taking special responsibility for trading technology at their firms.
Profiles by Peter Chapman….
Aairam Thomas
Sales Trader With T+ Skills
Dain Rauscher Wessels decided to make peace with technology. Critical to the plan was the creation of a new position: vice-president of strategic trading technology. Aairam Thomas, a sales trader with two years experience, jumped at the opening.
"It's an area of expanding opportunity," he said. "A trader becomes specialized. This will allow me to learn more skills and take on more responsibility."
Thomas, 29, manages the integration of new technologies on the trading floor. Among his projects is a merchandising system that markets order flow to both buy-side institutions and also the firm's four regional trading desks. His top priority is finding a new trade management system that will allow straight-through-processing.
He is also the firm's point man for OptiMark, operated by Durango, Co.-based OptiMark Trading Systems.
"I am responsible for marketing our ability to broker OptiMark transactions," he explained. "I am instituting procedures for how we would add value to the OptiMark trading process."
OptiMark has largely marketed itself to the buyside. But due to the complexities of the system Dain Rauscher is betting that some institutions will need help in using it. The challenge for Thomas is to convince his clients they won't lose anonymity if they work through him.
"We've set up procedures to protect our customer's anonymity," Thomas explained. "We put in a direct line to the OptiMark trader. We don't advertise fills until the whole piece is complete. If the order is cancelled we'll forget it was ever here-no wake-up' calls or solicitations unless they make the request."
Thomas had no prior experience with technology and is largely self-taught. Conferences, industry literature, the web and his dealings with vendors have been his education. He reads industry publications to stay tuned.
As for the vendors: "I hear hunger and I hear confidence," he said. "Hunger" from those desperate to sell something that won't work; and "confidence" from "those with technology that takes you where you need to go."
He says his biggest frustration is finding technology that works. "Everything is so new," he lamented. "It's not tried and true. The reality is that you end up getting into a partnership with the vendor in order to make the system do what you want it to do."
Chandler Paris
Former High School Computer Buff
As co-captain of the Computer Squad at Lincoln High School in Brooklyn, Chandler Paris oversaw eight to twelve students doing statistical projects. Using COBOL and FORTRAN, team members wrote programs that counted their classmates and calculated grade point averages.
Those days are long gone, but the Bank of America Securities trading technologist never lost his interest in computers. In 1988, when it was still Montgomery Securities and he was still a trader, Paris started playing around with the broker dealer's AS 400.
"I couldn't stand it," said Paris of the IBM mainframe that housed the trading system. "The AS 400 is in the block format. It uses a dumb terminal which has no flexibility at all." Paris spent several weeks with an Applications Development Manager explaining what traders needed. Eventually he got pop-up windows, dynamic screens and free-format trade entry lines.
Paris, 39, started out at San Francisco's Montgomery in 1983. He left briefly in the mid-80s for Citibank and once again in 1995 for Montgomery's cross-town rival Robertson Stephens. While there, he built its trading system.
He hasn't traded in about two years and says he probably won't go back. "It doesn't do it for me anymore," Paris said. "It's changed so much. It's all Pac-man now. Traders respond to the machine. You can't talk on the phone. The orders all come across electronically."
His title is principal, trading technology, which means he is responsible for 15 systems including a Fidessa order management system and the machines for Nasdaq, Instinet, Bloomberg, Bridge, and AutEx. He has learned everything on the job and has taken no classes.
Paris says his biggest challenge is time. It can be frustratingly slow to get something up and running. Recently assigned to set up an Internet trading mechanism, he had to tell the director of equity trading it would take three months.
His biggest satisfaction?
"It's exciting putting together a system that works," he said. "The traders won't tell you when they like a system; only when they're having problems. But when I walk around the room and the only complaint I hear is that the system is too slow I know I've done my job. Because then it's a Nasdaq or an Instinet problem. I can send 200 messages per second, but Nasdaq can only interpret twelve."
Rick Holway
The Pro Who Conceived @Harborside
Rick Holway was a buy-side trader for 12 years before joining Jefferies & Company on the sellside in 1998 to create and run @Harborside, a new web-based electronic matching system. His career was influenced by well-known listed floor broker Norman "Big Bear" Lind who showed him how equities trade on the floor of the New York Stock Exchange.
As a sales trader at BT Brokerage in New York, he led the team that built one of the early basket execution systems, the precursor to program trading systems. Bankers Trust. BT Brokerage's parent, ran a passive equity (index) fund that would often send Holway lists of stocks to trade through the machine.
"We didn't really know what the heck we were doing. This was all new stuff," Holway recalled. "We hooked 286s together on a rudimentary Novell network, plugged in multiplexers, modems, telco lines and with some outside custom programming got it to work." (A multiplexer increases bandwidth over a line by separating, segmenting and reassembling signals. "Telco" lines were ordinary, but dedicated telephone lines.)
Holway was a natural for the assignment as he was the only trader at BT with any computer experience. "I had been messing around with computers since junior high," said the 42-year-old Jefferies' executive. "Our programs in those days were saved on one-inch paper strips with holes punched in them."
Holway switched to the buyside in 1990 when he joined Minneapolis-based money manager Investment Advisors. "I signed on with them as a buy-side trader because they agreed to pay me like a sellsider," Holway reminisced.
Those early years were the "dark ages" as far as buyside technology was concerned, according to Holway. "I had an old-fashioned rotary phone and there was actually a Bunker Ramo connection still hanging on the wall." (A Bunker Ramo was an old-fashioned small-screen quotation machine.)
Holway started the upgrade process by bringing in order management technology from the former Merrin Financial (now part of Boston's MacGregor Group). By the time he left the place was fully automated. "We created our own version of what is now called straight-through-processing," he said.
@Harborside was something that had been "cogitating" about for years, according to Holway. "I wanted a more efficient way to find a natural," Holway said. "And I wanted to find that liquidity without having to broadcast my trading interests up front."
Around this time "secure networking" was taking root. These technologies involve weapons-grade encryption and "secure socket layer" (SSL) and allowed @Harborside to be developed. Holway took his idea to Jefferies and the rest is (recent) history.
Does he miss trading?
"I miss the banter on the desk," Holway admitted. "But I'm not sure I'll go back to it. I have a commitment to fulfill. I have a vision I want to see through to reality."
Chris Morstatt
The Founding Father of FIX
When Germany's Commerzbank decided to set up the New York leg of its global equities business it knew it needed a top notch trading infrastructure. To that end it plucked Chris Morstatt from the equities desk of Salomon Smith Barney.
Morstatt is best known as the "founding father" of FIX (Financial Information Exchange), the computer protocol used by institutions, brokerages and exchanges to communicate real time trade-related data.
But he's also a trader of stocks and a developer of trading systems. He moved to Commerzbank in 1997 after seven years at Salomon and built up its internal and external trading systems.
"I haven't quit the trading desk," Morstatt said. "I am completing the development of Commerzbank's trading infrastructure which has to be in place before we can offer electronic trading services."
Morstatt, 40, expects to be on the desk later this year where he will be part of a group of 23 traders and 11 salespeople specializing in pan-European stocks. He himself will specialize in electronic connectivity services as he did at Salomon.
Contrary to the others profiled for this piece, Morstatt was a technologist first. A graduate of Hoboken, N.J.'s Stevens Institute of Technology, he started out with McDonnell Douglas Information Systems and New Jersey's Public Service Electric & Gas.
At Salomon he managed the development and support of both a block and a program trading system. "These experiences gave me a solid background in the problem we were trying to solve with FIX," Morstatt explained. "If you look at FIX you will see it is very business oriented. Once the business problem was defined it was fairly straightforward to write a paper suggesting a technology solution."
Morstatt wrote the first draft of the protocol, but the efforts of many others went into the current version. It all started in 1993 when investment house Fidelity Management & Research asked Salomon to help it integrate the electronic messages (indications and execution reporting) it received from brokers into its desktop trading applications.
"Almost all of the data that institutions and brokers previously relied on for vendors to transmit can now be exchanged directly between the trading desks more securely and at no incremental cost," Morstatt explained.
"When Commerzbank decided to launch its global equities business one of their first priorities was to define their connectivity strategy," he added. "Any firm which aspires to be a full-service broker has to provide FIX for their clients."
Morstatt seems to get the same thrill from his job as does Paris.
"My biggest satisfaction comes from seeing the systems in use," he said. "When our traders and salespeople see it as one of the essential tools, we know we've done well. After nine months of pure development we were able to experience that feeling early this year."
