Stephen W. O'Neil was born with trading in his genes. His father, Don, was an over-the-counter trader, and both of his uncles were also traders. As a youngster and later as a college student he was fascinated with Wall Street and trading equities.
"I'd be in the office and watching them trade," O'Neil recalled. "It always seemed like a very exciting business with a lot of action and a lot of money being thrown around. That always made it real interesting to me."
O'Neil's family tree also has strong roots in the Security Traders Association. His uncle Bert was the founder and first president of the STA of Los Angeles (STALA) when it began in 1935. His other uncle, Dick, was STALA president in the mid-1950s. Today, his son, Tim, is keeping up the O'Neil family tradition. He is a sales trader at Jones & Associates in Fort Worth, Texas.
Born and raised in Los Angeles, Stephen O'Neil, head trader at Mitchell Hutchins Asset Management and the incoming chairman of the Security Traders Association, is a tall, thin and handsome figure who could easily be cast as a leading man in a Hollywood movie.
Early Career
O'Neil started his trading career while attending the University of Southern California. In 1964, he took off a year from college to work at Blyth & Co. in Los Angeles, which at the time was one of the largest OTC trading firms.
Like many aspiring OTC traders, O'Neil learned the ropes of the business by doing basic chores. Back in the 1960s, OTC trading desks were far from computerized like they are today. Stock quotes were listed on chalk boards. O'Neil's job was to mark up the boards with the latest quotes.
"In those days they used telegraph machines," O'Neil recalled. "Most of the markets were made in New York, but they would telegraph the quote changes during the day and you would mark the board."
After spending a year soaking in the OTC trading environment, O'Neil knew exactly what he was going to do after graduation – follow in his father's footsteps and become a full-fledged trader. Upon earning a degree in business administration from USC in 1969, he returned to the OTC trading desk at Blyth & Co. This time he was no longer marking up the chalk board, but buying and selling OTC stocks.
Shortly after Nasdaq was created in 1971, O'Neil moved over to the institutional sales side after Blyth & Co. became Blyth Eastman Dillon & Co. through a merger. "I thought moving into the institutional area would be a good move," O'Neil said. "It turned out to be a good move because that was when institutions were really starting to take hold."
Then in 1975, O'Neil made another big switch. He became a buy-side equity and bond trader in the trust department at Lloyds Bank in Los Angeles. "It was an interesting spot," O'Neil said. "I was not only trading equities, but I was also trading municipal bonds and cash [money market funds]."
Four years later, in 1979, he landed a top post as senior equity trader at ARCO Investment Management Co. O'Neil was charged with handling trades for the company's pension fund, which had assets of about 1.5 billion dollars.
Two years ago, O'Neil left Los Angeles to become senior vice president of equity trading for Mitchell Hutchins Asset Management, the mutual fund and financial asset arm of PaineWebber, in New York. The trading desk comprises three traders, including O'Neil, and handles transactions for about $7 billion in equity assets.
"Working at Mitchell Hutchins is a round-trip for me in a way," O'Neil said. "I started out at Blyth & Co. and PaineWebber had bought Blyth Eastman Dillon."
O'Neil believes in giving something back to the trading community. His involvement with the STA began in 1987, when the then president of the STA, Arthur Rowsell, asked him to chair the organization's institutional advisory committee, a post which he currently holds. O'Neil has been an officer and director of the STALA and the same as his two uncles, served as its president. A chartered financial analyst, O'Neil is also director of the National Organization of Investment Professionals and a member of Nasdaq's Institution Traders Advisory Committee.
Buyside Leadership
This year marks only the second time a buy-side trader has become chairman of the STA. (The first buy-side trader to chair the STA was Austin George of T. Rowe Price). O'Neil plans to draw upon his vast buy-side trading background to foster greater involvement in the STA from the buyside. He pointed out that the buyside is more involved with the New York Stock Exchange and Nasdaq than it is with the STA.
Unlike the NYSE or Nasdaq advisory committees, noted O'Neil, the STA is an association at liberty to publicly comment on market issues to regulators and lawmakers, including the Securities and Exchange Commission and the National Association of Securities Dealers.
"Unfortunately," O'Neil said, "the involvement of the institutional trader hasn't been as good as it should be with the STA." His top goal as chairman of the STA is to reach out to the buyside to participate in various STA committees and activities.
Robert C. King, the current chairman of the STA and head of Nasdaq and OTC trading at Robinson Humphrey in Atlanta, said O'Neil's experience on the buyside "will be very beneficial for the association and its membership." He added, "Steve's insights will be refreshing and good for the organization."
Although the buyside comprises a small part of the national STA membership, O'Neil said, it does play a large role in many of the organization's local affiliates, such as Chicago, Los Angeles, and San Francisco. "I'd like to see the buy-side representation increase on the national level," he said.
According to O'Neil, the institutional buy-side trading community is fragmented. "They don't have one place to come together," he said. "The STA is a way for them to do that."
STA Critic
Last year Harold Bradley, a former head trader and now president of American Century Ventures at American Century in Kansas City, said that "the buyside should think about dropping out of the STA. We can't get our ideas through. The STA is a sell-side organization."
To this scorching criticism of the STA, O'Neil responded that the STA is very active in projecting its views to the regulators in Washington. "STA has the mechanics in place to do that," he said. "If the buyside were to form its own organization from scratch, that would be a tough battle."
But O'Neil does agree somewhat with Bradley's observation that buy-side traders do not have an organization that caters exclusively to their concerns. The incoming chairman is determined to dramatically improve the disconnect between the buyside and the STA.
How does O'Neil plan to enlist greater participation from the buyside? "Lee Korins [president and chief executive of the STA] and I are going to knock on some doors," he said. Also, like a sophisticated politician, O'Neil plans to undertake a national listening tour. "I am going to find out why the STA does not seem to be important to the buyside," he said. "I am going to listen to the buyside and then figure out what the STA can do to change their perceptions."
O'Neil's background as a buy-side trader, said Korins, will undoubtedly bring a different perspective to the organization. "While the buyside and sellside may be antagonistic at times to each other during the trading day," Korins said, "the interests of both [groups] are not that dissimilar. They both want strong marketplaces. Because without strong marketplaces neither one of them can function effectively."
Alice Davis, who was the first woman president of the Security Traders Association of New York (STANY) in 1992 and is currently a sales trader at Prudential Securities, echoes Korins sentiments: The sellside and buyside have a lot more in common than major differences. "I think we [sell side and buyside] have become much more in tune with one another and we all want the same things," she said. "I think Steve will help bring that along."
One year from now, O'Neil said, he would like to see every institutional buyside trader involved with STA through their local affiliates. "And I would like the ones who want to become more involved," he added, "to participate in a committee made up of just buy-side traders."
O'Neil believes there will always be differences of opinion between the buyside and the sellside. For example, he indicated that institutional traders are for the most part in favor of implementing a central limit order book, while the dealer community is generally opposed to this type of centralized market structure.
Big Tent
Despite the differences between the buyside and the sellside, O'Neil said, the STA is a big enough organization that can encompass all points of view. These disparate views can be expressed through the STA's various committees. "This is the only association I know that has a lot of history and can be used to get to these people [regulators] together," O'Neil said. "The SEC and the NASD certainly know of the Security Traders Association."
He added that legislative people are also becoming more aware of the STA. O'Neil cited the STA as instrumental in bringing to the forefront the controversial issue relating to Section 31 transaction fees (a tax of three-hundredths of one percent of the sale price of stock)."It's been a long agonizing battle," he said. "The SEC is making millions of dollars from these fees." The SEC's annual budget is $370 million, but it collects subtantially more than that from Section 31 fees. O'Neil pointed out that individual dealers do not have the wherewithal to undertake this fight. "If it [Section 31 fees] gets reduced," O'Neil observed, "it will be because of the STA."
Besides focusing on enlisting greater involvement from the buyside, O'Neil also plans to reach out across the 49th parallel to Canadian traders. "I'd like to get more interchange about market structure issues from Canadian traders," he said.
As far as market structure in the U.S., O'Neil foresees the move to decimalization will be as huge as the demise of fixed commissions in 1975. "Volume is going to become much larger," he predicted. "Institutional traders may have to change the way they handle their orders because people can step ahead of them for a penny."
The question for institutional traders, O'Neil suggested, is how are they going to expose their orders and how much of their orders are they willing to expose in this penny-conscious environment. If institutional traders are less willing to disclose their orders, he asked, what does that do to transparency and liquidity? "Anonymity of orders will become more and more important," O'Neil emphasized. "An institution will most likely be more comfortable exposing a big order to an ECN rather than going to the floor."
Like negotiated commissions, O'Neil is convinced that the Street will eventually work out all of the bugs that emanate from decimalization. The big unknown, he noted, is precisely how buyside and sellside firms will cope with these momentous changes that will inevitably alter market structure.
O'Neil and his wife, Julia, both transplanted Angelenos, who are accustomed to basking in the California sunshine, have had no problem in adjusting to the hustle and bustle of the Big Apple. "I love New York," he said. "In Los Angeles I commuted by car all my life. Now, I walk to work and walk home."
