Change is difficult. Change can be disturbing. Change is necessary.
Change seems to be everywhere in the trading business these days. "The whole universe of trading is changing and we have to keep up with its constant changes," according to Michael Santucci, the new president of the Security Traders Association of New York (STANY).
STANY, the Security Traders Association's largest chapter, has been going through some dramatic changes the last few years. The group previously had an almost exclusively over-the-counter, sellside membership.That is quickly changing. STANY, in the 1990s, once had a strong wholesaler representation in its ranks. That has dramatically changed.
"I think wholesalers as we knew them are no longer in this trading environment," says Santucci, who entered the industry some 23 years ago and has had stints as an over-the-counter trader and as a reporter at the American Stock Exchange.
Santucci is today a senior vice president of sales trading for Vandham Securities, a firm he joined last year.
"Speaking for myself, I think many people don't even want to be considered a wholesaler anymore. That's not a part of the business that they're looking to do anything with."
Flexible
The losses in wholesaling have meant dramatic change at STANY and the rest of the trading industry. More change, STANY officials believe, will probably lead to the loss of more jobs, but many pros will be able to muddle through who take a flexible approach to the business. They must adapt themselves to new trading models and different kinds of trading, executives say.
Indeed, wholesalers, STANY officials privately concede, aren't the only ones at risk. And that could have a destructive effect on the organization, one that a few years ago did something that was previously unthinkable: It set up a job referral service to help newly unemployed members.
"We are concerned about our membership," Santucci adds. "With the new black box techniques, a desk can trade hundreds of stocks with one person. Things have really changed. When I used to trade over the counter stocks, you maybe had thirty or forty stocks on your panel," Santucci adds. But today, many STANY officials say, traders should be prepared for a time when desks are shrinking and technology is taking over many human functions.
"Traders," Santucci noted, "will have to be multi-operational." These industry changes, along with the sour markets of 2000-2002, have been felt in his trade organization, which is down about 35 percent from its peak numbers.
Today STANY has some 1,400 members. About 800 of them are sellside traders, with most of the rest of the membership coming from the buyside and compliance professionals. There are also some listed traders and some retired members.
Although Santucci emphasizes that the membership has been rising recently, the 1,400 membership is still quite a change from the high point at the turn of the century. That's when STANY had some 2,200.
"I think the trading industry will consolidate some more," he predicts. The consolidation will happen because firms are frequently seeking new models because of regulatory, technological and competitive pressures.
Living in the Past
Nevertheless, Santucci warns that trading professionals can't worry about the many pressures that could destroy so many jobs. A believer in self-motivational texts, he likes to quote the former UCLA basketball coach John Wooden.
"You can't live in the past. You can't live in the future. You can only live in the present and what you do in the present has a great deal to do with the future," according to Wooden.
Santucci concedes that many of his members are worried about their jobs. But the smartest among them, he says, are already looking to "reinvent themselves on a daily basis. We must find new ways to make ourselves useful."
That means trading pros will have to conduct more than one kind of business. Besides listed and over-the-counter trading, many pros must consider options and futures trading, according to Santucci, who is pushing this trader survival strategy as a way to expand his group.
Santucci says the membership is up 10 percent from last fall. He says STANY's goal is to increase the membership by another 10 percent over the next year. One way to accomplish that, he adds, is by seeking new members from places in which STANY previously had no representation.
"We are now looking to expand our membership with derivative and option professionals. Some have most recently come from the American Stock Exchange." He says that's because many dealers are looking at putting options and derivatives products on the same platform as other products.
"I think the term OTC trader will change as we now trade listed and OTC stocks on the same panel. In the future, I could see equity traders trading options and derivative instruments on one panel."
And Santucci adds that, "to get in front of the options business, I believe, is going to be key for us." He added that STANY members must be ready to adapt to a multi-use trading model.
Consolidation of trading functions will be inevitable, he predicts. Once there might have been 100 people on a typical desk. Soon there probably will be half of that or maybe a third, Santucci cautions.
The Reg NMS Factor
Another key for STANY membership will be the massive changes in market structure that will come once Reg NMS becomes effective. It is scheduled to be implemented this summer. However, several trading officials have been asking the SEC to put on hold the most dramatic changes in market structure since the 1970s. That's because they are said to be confusing.
"There obviously needs to be a lot more guidance on Reg NMS," according to Santucci. So, given the confusion of some trading players over the new regs, should Reg NMS's implementation be delayed?
"Unless they, (the regulators) can get something ironed out very quickly, I would say that Reg NMS will likely be delayed," Santucci says.
Another major issue for much of Santucci's membership is the compliance costs of Reg NMS. These include millions of dollars in new codes that must be written for trading platforms. Potentially, he warns, this could be a financial disaster for small firms.
"You don't want to put in a whole new system and spend several millions of dollars, then the changes are implemented and you can use part of it or, in the worst case, you need a new system." Santucci said regulation will inevitably result in dramatically higher costs, especially for smaller firms like Vandham Securities.
"How can we increase our revenues under these conditions?" Santucci asked. He said that these days his firm seems to be adding more compliance people than traders, which along with greater technology needs, is "putting a great strain" on businesses like Vandham.
"The profitability of small firms is very much in question at this point. There's a lot of people asking if is it worth putting in this amount of money to get back this kind of return?"
Still, Santucci was careful about pointing fingers at the various professional groups clashing over NMS and the NYSE hybrid market plan. He noted that some problems go beyond the controversial set of regulations; that traders woes can also stem from the competitive nature of the trading business.
"People are protecting their interests to a certain degree, but I'm not going to go into who and what. But the biggest problem is no one is sure how this thing is going to fall out," Santucci says.
Santucci has had a career full of changes. He began as a reporter for the Amex in the early 1980s. He moved on as a specialist for Merrill Lynch Specialist from 1986 to 1994. He worked on the floor of the NYSE in the 1990s as a floor broker trading stocks. He was hired by Pershing in 1998, working on the OTC desk, later starting a broker-dealer desk in 2002. He came to Vandham Securities as a sales trading executive in part because of the changes around him.
He said that many of the changes in his career were triggered by what happened to his firms and the trends that he has seen. One example is when the New York sold its options business to the Chicago Board Options Exchange (CBOE), a sale that led Santucci to re-examine his career path.
"I wanted to leave the trading floor and trade upstairs because I felt the business was moving that way," Santucci says.
The 45-year old Santucci is a career New Yorker. He grew up on Long Island. He has been married to his wife, Kathy, for some 12 years and has a five-year-old daughter, Julia. They live in Locust Valley, Long Island.
