John C. Giesea is stepping into his post
as STA President with enormous challenges. "It's one of the most difficult jobs on Wall Street," remarked one veteran trader. "You try to please everybody and you end up pleasing nobody. It's full of heartache." That might be an exaggeration, but Giesea is ready to fill the shoes of departing president Lee Korins. Giesea took these questions from Traders Magazine reporter Gregory Bresiger.
Traders: What should the STA be in your opinion? Should it be an organization primarily for market makers and those trading on the Nasdaq?
Giesea: It has expanded its reach from OTC traders to include a broader rank of participation; to include market makers and agency traders. There are now a number of subsets. So I don't want to be viewed as an organization as solely representing the Nasdaq community.
Traders: Is the STA primarily an organization for market makers and those trading on the Nasdaq?
Giesea: In actual fact, our focus seems to be on the Nasdaq area today. But the Nasdaq and the New York Stock Exchange have developed similarities of trading. It used to be the New York Stock Exchange was the agency auction market. Nasdaq was the competing market maker/negotiated market. Market structure has developed to the point where many of the issues facing market makers are similar to the listed community. So we would like to be more inclusive and reach out to the listed community. We want to also reach out to the buyside.
Traders: Why has there been tension in this industry between the buyside and the sellside?
Traders: History? How so?
Giesea: I grew up as a trader, quote unquote. And throughout history, up to and including today, there have always been tensions between a salesman/broker and a trader just as there always been tensions in certain countries in the Middle East over certain perceptions. The perception in the broker community is the trader is trying to serve his purpose at the expense of the broker's purpose. And so it is not terribly dissimilar that, between the buyside and the sellside, there is some tension because mixed objectives are perceived. That creates a natural tension.
Traders: What are the STA's goals for market structure? Are the regulators doing too much or too little?
Giesea: I can't tell you exactly where the board is on all these regulatory issues. However, from my own perspective, my concern is that the regulations that are in place today are overly restrictive. And it substantially reduces the opportunity for risk capital. I believe that market making and risk capital add liquidity to the market. In my theory, liquidity equates to deeper markets and better execution, resulting in better quality of markets.
Traders: What about liquidity problems across different markets?
Giesea: It concerns me that the universe of equities – in listed and non-listed securities – are not all highly liquid. Absent the liquidity factor, many of these equities become more volatile.
Traders: Some people would say these comments come from a market maker's point of view?
Giesea: I don't think we should be painted with the one brush. It is not a selfish thing. I'm talking about balancing a quality of markets with liquidity. And it should not be against the law to make money.
Traders: You believe the order handling rules have been good for the industry.
Traders: But as far as decimalization goes, that, you believe is causing many problems for your members.
Giesea: The outcome of decimalization is far less clear than the order handling rules. The latter has achieved its objective. The customer comes first and that's the way it should be. But decimalization is not achieving its objective. It leads to the issue of sub-penny trading. And it becomes an even more bizarre thing. It offers opportunities to someone who is trying to gain something at the expense of the customer.
Traders: You've indicated that the STA needs more money.
Giesea: In the short term we are not in financial trouble, but we do not have enough in assets to do some of the things that we need to do. We need to examine ways we can increase revenue. We think there's more value [the STA can bring] to members. That doesn't necessarily mean raising dues. The method by which we charge for membership should be totally examined.
Traders: You're going to meet with the new SEC Chairman, Harvey Pitt. Do you expect his administration to be better or worse for the trading industry, than that of his predecessor, Arthur Levitt?
Giesea: I can't be anything but hopeful. We're very optimistic that the backdrop is going to be much more favorable than it was over the past few years.
Traders: The STA had a London presence and it failed. You're getting ready to re-open your London affiliate. Why will it succeed this time?
Giesea: Before it was never a very vibrant or active part of the STA, but it was a part. This is a little different. Over the past year of so, there has been an influx of Americans into the trading community of Britain. And thus the opportunity arose to gain some momentum with the STA. Hopefully, by the end of the year, we should be ready to announce an affiliation with that group.
Traders: Thanks, Mr. Giesea.