The older generation of traders wouldn’t even recognize the U.S. markets anymore. The past decade has brought so many changes to the trading landscape that even today’s traders need help navigating the new territory. Technology has reduced the number of floor traders because of its ability to speed up an order as well as make the trade more efficient. The arrival of Order Management Systems has allowed traders to place orders in multi-asset classes. While the Reg NMS standards have been put in place to keep a fair and competitive U.S. marketplace, they too have altered the landscape…and we haven’t even gotten into the European markets with its MiFID initiative.
To discuss these and other recent developments, traders and industry professionals gathered at the Security Trader’s Association (STA) 82nd Annual Mid-Winter Event. The conference, which was put together by the Chicago division of STA, was held January 10-13, 2008 at the Chicago Hilton.
The three-day conference had a packed agenda including a panel covering Chicago’s buy side perspective on the marketplace. The discussion touched upon the sometimes volatile relationship between the buy and sell sides. During one heated panel discussion, buy side traders accused the sell side of exaggerating the amount of trades they actually made and the sell side accused the buy side of not making their orders clear enough. After the discussion calmed down, the participants on the panel explained that it was important to have a personal relationship with their sell-side counterparts. The panelists agreed that trust between the two parties is a key factor in successfully executing trades.
Alternative Trading Systems were also a hot topic. Kain Cederberg who sat on the panel from Institutional Capital, explained that, with the emergence of electronic venues, buy side institutions felt that they might be “in it for a while,” with regard to ATS.
Among the buy side speakers, the ominous sounding topic of “dark pools of liquidity” had many participants following the discussion. Joe Buerillo of IronBridge Capital Management, said his problem with these black holes in the marketplace is that you don’t know who is seeing the trades take place. He did admit that dark pools are part of the trading landscape and that the buy-side would have to learn to live with them, for now.
Another panel included one of my favorite people in the industry and big name in Chicago, John Lothian. He moderated a panel on the evolving Options Exchange landscape. His presentation focused on how leaders from the American Stock Exchange, the Chicago Board Options Exchange, Philadelphia Stock Exchange and NYSE Arca Options were adapting to the intense, competitive environment of today’s marketplace.
One of the many changes influencing the options market is Algorithmic Trading. Algorithms are entered through a computer program, sometimes known as a “black box” because of the lack of transparency and the inability of most finance professionals to understand the algorithmic workings. The outputs of these mathematical formulas determine different aspects of an order such as timing, price and quantity before a human trader even knows of the possible trade. Used heavily at hedge funds, the concept has recently been introduced to the futures and options market.
Besides investing in the stock market, Security Traders Association of Chicago (STAC) members also invest in the future of the financial industry. STAC also held a silent auction at the conference to benefit their STAC fund, which was established in 1991 to provide scholarships for college students majoring in business and marketing.
Each year the College of Business Administration at the University of Illinois in Chicago (UIC) selects recipients to receive STAC fund scholarships. The 2007 winners were Jacob Hereford, Zhu Tang and Aleksy Vladimirovich Dolinko. All of the students are finance majors at UIC who will receive scholarships to further their education in the business sector.
As the industry marches boldly into the future of trading, these gatherings are crucial to the unity of the marketplace. With tensions rising between the buy and sell sides, and the ever-present risk of misunderstandings, it is even more important that traders meet and discuss the most recent discoveries in today’s marketplace… because who knows what tomorrow’s technology will bring.