Trading is sometimes compared to competitive sports like football and baseball.
Leo J. Smith, Jr., 41, a managing director and head of equity trading at Putnam Investments in Boston, Mass., knows what it takes to compete on the gridiron and the baseball diamond.
Twenty-three years ago he was considered to be the best two-sport high school athlete in his home state of Massachusetts. Smith was a star baseball and football player at Boston College High School. While attending Boston College, he was a leading rusher for the school's football team, the Eagles.
Today, Smith runs a desk that is staffed with 17 traders, including seven domestic and six international traders. His sporting background has helped him with the ups and downs that every trader must face.
"There are a lot of things that you learn as an athlete," Smith said. "You learn to take hard-knocks, to dust yourself off and to get back in the game. You don't ever stay on top of a sport or anything else unless you continue to work at it."
Putnam manages some $350 billion in assets, with some $300 billion in equities and about $50 billion in fixed income. Smith's desk handles from one thousand to two thousand trades each day.
Born in Boston and raised on the city's South Shore, Smith graduated with a marketing degree from Boston College's Wallace E. Carroll School of Management in 1982. He started out his career at Fidelity Investments as a registered representative. After six months, Smith jumped at the opportunity in 1984 to join the trading desk at Putnam.
"I was fortunate enough to join Putnam even though I had no trading experience," Smith said. "I was brought up the Putnam way. Here, your word is your bond and we are straight shooters. The best way to assess dealing with us is that we are tough but fair."
Smith said that Putnam provides a very challenging environment for the hundreds of broker dealers that work with it.
"But we are also very easy to cover," he added, "because what you see is what you get. We look at the overall relationship that we have with firms and it transcends just an individual trade."
In recent months, the switchover to decimals has irritated many on the buyside. But Smith thinks that decimalization "was the right thing do." The issues that have come to the forefront as a result of decimalization, noted Smith, are nothing new. "They have just been exasperated by decimalization," he said. "Now, it is just more difficult from an institutional standpoint to best determine where institutional size and demand is on a stock."
The former football player complained that the buyside is faced with unfair rules. However, Smith does think there is a way to achieve a fairer marketplace.
"The solution is to have a market structure that has a fully transparent marketplace with some kind of price-time priority built into it," he said. "So that when you are executing an order there is some kind of environment that allows natural buyers and sellers to come together without having to invoke a middleman or a broker's capital to bring your deal together. The buyers and sellers should dictate the price of a stock, not necessarily a market maker or a specialist who has inside knowledge that we don't have."
SuperMontage is a step in the right direction for creating greater transparency, Smith said, but he is "extremely disappointed" with the final version. "It was very watered down," he said. "The NASD is trying to satisfy a lot of different constituents. The version we [the buyside] got is not what we originally hoped for."
Liquidnet, the recently launched New York-based alternative trading system co-founded by Seth Merrin, the pioneer of the Merrin Financial Trading System, is a vehicle that Smith thinks will alleviate some of the transparency problems on the buyside.
"The ability for the buyside to deal directly with each other without a middleman offers much promise," he said. "I fully expect it [Liquidnet] to continue to grow and add more [buyside] firms."
Smith, who is married and the father of four young children, has traded in his baseball mitt and football helmet for running shoes. This past April he completed the 26-mile Boston Marathon. "The elite runners of the world should have no worries about me being part of their pack," he quipped.
