Twenty years ago, a book titled “The Super Traders” set out to capture the “secrets and successes of Wall Street’s best and brightest” minds. Then, there were three national markets and 407.3 million shares traded a day. In today’s Part V of the April cover story are the perspectives of two more of those “best and brightest” minds on how trading has changed.
Here are the stories of Stephen Bodurtha and Evan Schulman, two more Super Traders.
The Program Trader
Stephen G. Bodurtha
Then: Vice president, Merrill Lynch, Pierce, Fenner & Smith
Program trading at first was handled just like any other form of stock trading: on paper. It just involved scores or hundreds of tickets. Then, computers allowed the manager of an index fund or a quantitative portfolio to hit a few buttons and send a list of orders to the appropriate exchanges for execution.
Now: Managing director, head of investments for North America, Citi Private Bank
I had a pretty significant role at Merrill Lynch with others in launching Sector SPDRs (an early form of exchange-traded funds). We worked with State Street Bank and Trust, in partnership, and we were a key driver. We created nine sector SPDRs on the same day and raised close to half a billion dollars for clients. It was a great example of giving financial advisers the kind of tools they needed to run better, more diversified portfolios for clients.
I thought the vehicle, exchange-traded funds-as time has gone on to prove-had tremendous potential, as it related to delivering diversified, potentially low-cost portfolio building blocks for clients.
In 2009, I decided to take on a new role at Citigroup and was named head of investments for Citi Private Bank for North America. The mission we continue to pursue here at Citi Private Bank is to be the unquestioned leading private bank, globally and in North America. In North America, one particular opportunity has been, with the separation from Smith Barney, to make investments a very prominent and successful part of the private bank business.
Clients had been through a rough time in the markets and also with their financial providers, while professionals in our industry had been going through a rough time as well.
Technology [in this time] has become the dominant mechanism by which markets conduct their business. Today, it is less of a face-to-face business, and the specialist system has essentially given way.
Today you have a complex network of markets. I would also say it is freer.
In my opinion, having things like circuit breakers and the like are not a bad thing. With markets now dependent on technology in a fundamental way, it’s very important that we maintain our security, because the stakes are larger, the dependency is greater.
But I think largely speaking, the evolution we’ve seen was inevitable, and probably the best thing at the end of the day. For example, when we’re investing on behalf of our clients, using our electronic systems to execute in a brokerage capacity is fast and cost-effective.
The Electronic Trader
Evan Schulman
Then: President, Lattice Trading
Lattice allowed institutional fund managers to get access through a single terminal to most electronic markets. Tools provided the managers gave them the ability to make orders conditional on other market events.
Now: Founder, Tykhe LLC
When I started in the late 1960s, New York Stock Exchange volume was about 20 million shares a day and the floor was crowded with traders. It was incredibly inefficient, having to physically move from post to post to drop off tickets. Now we trade billions of shares daily and there is nobody on the floor! The increase in productivity is unimaginable.
Technology had to change trading simply because there was no alternative. With the massive institutional buildup of assets, you just could not keep hiring more traders. But I am surprised as to how far the transformation went, to where today where you have computers doing virtually all the trading. Once it started, people got on board pretty quickly. But from someone who was there at the beginning, the process seemed to take forever to start.
Today, because of the narrowing of the spread, putting in an institutional-size limit order to the market is a fool’s errand. People will front run your order for a penny or less. Algorithmic trading and dark pools had to occur, because otherwise you would be picked off all day. At Lattice, we did use dark pools, unadvertised orders sitting between the bid/ask. I joked that the NYSE also had dark pools-they were just called “price improvement.”
Institutions should behave as information-less traders because of their size. But continuous markets make that difficult and leave one open to meeting traders with information. I would have thought that by now, institutions would be doing most of their business on call markets, such as exchange openings and closings or on venues such as POSIT. Markets which, because one has to wait until the “call,” are inconvenient for traders trying to exploit fast-moving information.
Today at Tykhe, we have patents on a new type of security: sales certificates, where their return is based on a percentage of the issuing firm’s revenues for a fixed period of time, say 10 years. We think this a solution for the federal government. GDP certificates, where the government pays a set percentage of GDP to investors, is not debt, so the debt ceiling problem goes away. Also, because they expire in, say, 30 years, and do not need to be rolled over, we are no longer saddling our children and grandchildren with the debt of our profligate ways. I hope they’ll listen.
