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FLASHBACK FRIDAY: A Program Trader's Rise
Traders Magazine Online News, August 9, 2019
Enjoy this profile conducted back in August 2013 detailing Jeff Radtke's rise from humble beginnings to head of a trading desk.
Editor note and correction - Radtke no longer works at Barclays.
A Program Trader's Rise
By Alan Rubenfeld
Now one of the top program trading desks on the Street, Barclays Capital's success wasn't guaranteed back in 2008, when the broker-dealer bought Lehman Brothers' U.S. operation. At the same time, Nomura Securities bought Lehman's European business. As part of the deal, they got the entire global program trading infrastructure.
So not only did Barclays' program trading team have to rebuild the front-to-back office processing infrastructure, it also needed to rebuild connectivity and establish new relationships with local brokers and exchanges, especially in emerging markets. It was a massive project, as the firm was left with zero international trading capabilities post-Lehman. It is still an ongoing process, but a new proprietary system went live last year.
The firm has been rewarded by its position in the top three program trading firms, as ranked by the New York Stock Exchange. And recently, Greenwich Associates ranked Barclays No. 1 for domestic portfolio trading quality.
One of the people behind the comeback is Jeff Radtke, a 25-year veteran of the program trading business who was head of program trading at Lehman Brothers and continued in that role at Barclays. Radtke rose from a technology grunt on the program desk at Morgan Stanley in the early 1990s to his current leadership position at Barclays. He runs a 24/7 operation that spans 45 countries. Equally important, he has helped expand Barclays' offerings into ETFs, swaps, index arbitrage and derivatives.
Radtke's background in both trading and technology has helped him become one of Wall Street's most successful and prolific portfolio traders as measured by almost any metric: profitability, transaction size, amount of capital commitment or sheer chutzpah of risk taken.
Radtke has been responsible for some of the largest global equity trades ever executed, including numerous Russell and MSCI index rebalances, as well as several huge pension transactions. Transitions done for the states of Connecticut and Texas remain industry benchmarks.
"Jeff is an airplane pilot, and this is an apt metaphor for his job on the trading desk," said Sean McFarland, director of portfolio trading at Sanford C. Bernstein, who worked on the Deutsche Bank trading desk with Radtke for seven years and watched him battle the markets daily.
"He had the ability to see, process and analyze a situation and then manage the process-execute, delegate, whatever the situation demanded," McFarland said. "In the heat of battle, his impatience and temper could also shine through, but there was an urgency to him that was always relevant to the business at hand, which was always time- and information-sensitive."
People who have worked with Radtke and under his tutelage agree about his passion for the business. While his exterior suggests an individual possessing a down-to-earth, restrained personality reflecting his solid Michigan roots, stories of his mercurial outbursts still remain cult classics at many water coolers across Manhattan.
In the beginning, his knowledge of technology, developed as a student at the University of Michigan, served as both curse and blessing. He got his start in program trading at Morgan Stanley. "I was assigned to what I thought was the worst job ever-plugging cables on the equity floor," Radtke said. "It was awful, setting up workstations and moving boxes." However, working on the equities floor enabled him to work as a trader under David Baker, then Morgan's head of program trading. "David needed an assistant to help with client interfacing, and I was essentially the only person on the floor used to getting yelled at by him."
Morgan was ahead of the curve when it came to program trading technology in the early 1990s. It was the first firm that allowed clients to access their mainframe and use Morgan's program trading applications in real time to execute baskets. These trading tools quickly became popular. Morgan was also able to link additional products and services together: "Not only did we offer client connectivity, we also garnered their prime brokerage and international trading businesses as well. We offered the client a one-stop shopping solution. Morgan was definitely ahead of its time," Radtke told Traders Magazine.
That became clear early on. In 1995, the Connecticut Retirement Plans and Trust Funds decided to simultaneously hire around 15 external portfolio managers, and the fund turned to Morgan Stanley to execute the trade.
See Chart: Top 10 Program Desks
"We executed the trade over several days while simultaneously enabling the fund to remain fully invested in its benchmarks," Radtke said. "This was the first transaction where a broker successfully marketed both its transition management and portfolio trading capabilities into a single product. It was a huge success."
After five years at Morgan Stanley, Radtke's world changed. In late 1996, virtually all of Morgan's senior program trading and derivatives management departed en masse for NatWest Securities. Radtke was soon in demand: "David called me at home, asking me to join him at NatWest. They tripled my pay overnight, and the next morning I was working at NatWest."
"However, this was a big risk," he said. "I was leaving the top program trading team at the premier brokerage firm at the time. I was also leaving a position where all of senior management had resigned, leaving me with significant upside. However, my former Morgan colleagues had big ambitions for NatWest, to immediately become the number-one program trading shop."
Unfortunately, the move to NatWest was not exactly smooth sailing: "We didn't realize we were joining a three-ring circus. The firm had zero infrastructure. We had to go to RadioShack to buy our telephone equipment. We had to literally hijack an ISDN [high-speed communications] line from another building occupant to connect to our main execution server. One time we thought we had a power outage. Turns out it was caused by a maintenance man who tripped over the power chord in the server room. Despite the obstacles, we created one of the top PT desks in less than one year."
When NatWest imploded as a result of a trading scandal in London, the group was sold to Deutsche Bank Securities, another foreign firm trying to establish a beachhead on Wall Street.
Radtke spent about eight years at Deutsche, working next to Baker as his trusted lieutenant. Many consider Baker to have had perhaps the greatest impact on the evolution of program trading over the past two decades. He was fearless in using firm capital to facilitate large trades. He gave institutions the ability to trade billions of dollars of stocks just by making a single phone call. He was almost singlehandedly the catalyst for dramatically lowering transaction costs and permanently changing how the buyside could execute large portfolios.
A prime example would be the Texas Permanent Fund transition in 2001. The Deutsche desk executed a $15 billion transition, involving 40 external asset managers and 2,200 securities in more than 20 markets, and executing more than 500 million shares. Most significantly, 90 percent of the transaction was executed on a blind principal bid basis. The client only revealed a statistical summary of the portfolio without disclosing the individual securities to be traded. Brokers then told the fund what they would charge to execute the portfolio on a principal basis.
The trade was breathtaking in the sheer audacity of what could be accomplished with the right combination of risk management, technology and trading skill. However, Radtke's most lasting memory of that event has little to do with the actual transaction: "We had our junior trader go out and buy us clean underwear because we had to stay overnight to finish booking the trade. It took a little explaining on the expense report."
Radtke readily admits he really owes a huge amount of his success to Baker. "I was able to learn the commitment and passion one needs to bring to the trading desk day after day after day," he said. "He repeated incessantly to me: 'The devil is in the detail.' Everything we did was double-checked. He incessantly reminded us of the operational and execution risks-never mind the hedging risks-that always lurked. One small error or overlooked detail could quickly lead to multimillion-dollar hits."
See Sidebar: Rules to Trade By
Richard Block, who was head of global equity trading at Putnam Investments while Radtke worked at Deutsche, offered a client perspective. "I always enjoyed interacting with the Deutsche desk, as they were always clear as to what type of business they were looking to execute, and we were able to tailor our flow according to their risk appetite and come to a meeting of the minds," Block said. "We had to move merchandise, and Jeff and David enabled us to execute at prices more advantageous than trading in the marketplace."
The Deutsche team remained a powerhouse for many years. They became renowned for their willingness to commit large amounts of capital to facilitate client transitions. "People knew our ability to position firm capital to execute complex trades was unmatched, as was our ability to process the thousands of tickets generated with such a transaction," Radtke said.
Eventually the field became crowded with numerous competitors. Additionally, innovations in technology removed many of the barriers to entry. Along with changes in market structure, the advent of client-directed algorithmic trading and the gradual move of the pension fund transition management business to a more custodial banking and consulting-based model, the program trading business has become a much less profitable-but still important-endeavor for the brokerage community.
Ironically, Radtke's biggest competitors on the Street are many of the traders who learned the art and science of portfolio risk trading under his tutelage. His former colleagues now hold management positions at institutions such as Bank of America Merrill Lynch, Morgan Stanley, Deutsche Bank and Credit Suisse.
It has been a long and difficult road, but Radtke has helped to bring Barclays into the top tier of global portfolio trading brokers. Reflecting on the changes of the past few years, Radtke zeroed in on two. "First, despite the considerable increase in electronic trading, the high-touch business remains the place for brokers to achieve the highest returns and add value to their customers," he said. "From a client perspective, the biggest change has been the increase in order transparency. Today, the customer can control his or her order from start to finish, see where and at what level each execution occurs, and receive real-time P&L updates, as well as comprehensive pre- and post-trade reports.
Looking back over his 25 years on Wall Street, Radtke definitely wishes he had a few mulligans: "My biggest failure has been trying to be a perfectionist. It has always been difficult for me if I did not see everyone else bringing the same level of intensity that I did. But the only people I yelled at were the ones I cared about. You can't take away the intensity of the job, but you have to be able to channel it to achieve a productive result. I am still learning to do that. Sometimes what some perceive as anger is just me focusing and doing the best job of which I am capable."
Editor's note: The author worked with Radtke on Deutsche Bank's program trading desk between 1996 and 2006.
Rules to Trade By
There's no doubt Barclays' Jeff Radtke has learned a thing or two in two decades on the Street's top program trading desks. He shares with us some of his insights and personal rules.
Every trade should always lead to another trade. "Whenever we trade a portfolio rebalance or addition/deletion to an index, I always think about how we want to be positioned coming out of the event. For example, if there is a large buy of an individual name, we would determine whether or not we want to have a short position coming out in order to play the potential reversion and if so, how much risk do we think makes sense. Each trade has its own unique strategy."
Stay on the desk. "You cannot be a manager of risk if you are sitting in a glass office in the corner. It is impossible to understand changes in micro market structure and its impact on daily liquidity if you are not rolling up your sleeves and are part of the action. I regularly slice up and trade baskets - it is the only way to stay in tune with the pulse of the market. As soon as I start delegating all the trading responsibilities, I will start losing the insight as to what clients really care about."
Bring content to the game. "If you are not deeply involved in the market and what is occurring on a continuous basis, you are basically useless to your clients. Today's buyside trader couldn't care less about last night's Yankees game or your next vacation. They need value-added information that is going to make them smarter and better traders. You can't waste their time."
Learn how to fly. "One of the greatest dividends my career has paid me is giving me the resources to learn to fly - a passion I have had since a child. Flying and trading have a lot similarities. Both skills involve incessant checklists and removing operational risks. In both jobs, you need to break tasks down into smaller, manageable components in order to successfully complete the job at hand."
Prepare for "what next?" "This is a crucial rule for any successful trader. What is my next step? What unexpected event could occur? What could go wrong? What are my competitors at Goldman and Morgan thinking and how are they going to react? It is crucial to use any downtime proactively to be prepared to take advantage of the next situation."
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