FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
This week has seen its share of 15-year retrospectives on the collapse of Lehman Brothers.
The Commercial Observer, a commercial real estate news publication, ran an excellent “Lessons Learned From Those Who Were There” article. Fast Money traders weighed in on CNBC. And here on Traders Magazine, Joe Midmore of OpenGamma wrote that margin rules have reduced risk, but increased complexity.
Most people in the financial industry (or at least those folks of a certain age) have specific recollections of where they were and what they were doing around when Lehman filed for bankruptcy on Monday, September 15, 2008.
Your friendly Traders Magazine Editor was driving on the Pulaski Skyway to his old apartment in Hoboken, NJ on the evening of Sunday, September 14, when Bloomberg Radio reported that Lehman was ready to file for bankruptcy the next morning. The announcement wasn’t a huge shocker given the highly volatile days, weeks and months that led up to that moment, but at the same time, it was an incredible, I-can’t-believe-this-is-happening car ride.
Traders Magazine wrote about trading and markets in the week Lehman filed. In the Sept. 19, 2008 article, “Traders Weather Record Volumes and Volatility,” a trio of institutional traders commented on market conditions.
From the article:
“ “It’s been easier to buy, no question about that,” says Kurt Kujawa, head trader at Cortina Asset Management, in Milwaukee, Wis. “But we’ve been able to make some decent sells, as well.”
Asset managers at Cortina have been using the market swings as an opportunity to re-assess their positions. They’ve been able to smooth out their portfolios by buying some stocks that have gotten cheaper and selling others, Kujawa says.
For John Despotopulos, head trader at Lee Munder Capital Group, the volatility has been a time to make sure the lines of communication are open between portfolio managers and traders. He adds that Lee Munder has been using more direct market access to control its orders more.
“One of the important things to remember during times like this is making sure that we’re all on the same page, and knowing exactly what we’re trying to do,” Despotopulos says. “We’ve had that in place and it’s very helpful in times like this.”
At Thomas Weisel Partners, electronic trading head Stephen Blatney says his desk has seen a substantial increase in flow over the last week or so. He’s also seen more activity in both portfolios and its algo business.
Blatney has been advising his clients on strategies. These include using strict limits on the names they’re trading, trying to minimize downside risk, as well as being vigilant and diligent, and reaching out to clients when something looks a little skewed.”
Importantly, the article offered a broad takeaway: “market structure improvements and technology upgrades over the last 20 years have provided the backbone to support the type of dramatic increase in volume and volatility today…the markets are functioning… and liquidity is available in one form or another.”
While there were several well-publicized glitches, outages and snafus in market structure in the early 2010s, recent years have seen a notable absence of negative headlines, even through volatile markets such as the onset of COVID-19 in early 2020 and the mini-banking crisis of early 2013.
Hopefully, market structure improvements and technology upgrades made over the past 15 years will be the backstop to the next black swan event.
