Vision for the Future
The enormous growth of hedge funds is a concern, considering their influence in the markets. I continue to be astounded that there is little regulation over this segment. Another one just exploded a few weeks ago [Amaranth] and caused consternation in the markets. At some point you'd think there'd be oversight of this very growing area.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
My first job was working for the Baltimore Brick Co. selling brick to contractors. It was very interesting trying to sell anything to contractors when interest rates were hovering at 18 to 20 percent. It made it a difficult environment in which to build. I learned a lot about tough business conditions.
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T. Rowe Price
100 East Pratt Street
Baltimore, MD 21202
Assets under management:
A little less than $300 billion in equity and fixed-income assets globally.
Fund(s) for which you trade:
T. Rowe Price equity income fund, T. Rowe Price value fund, capital appreciation fund, balanced fund and some for our high-yield funds (when convertible securities are involved).
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Types of products traded:
We have a broad product line. We trade fixed income, money markets, high yield, municipal and equity products.
Daily volume in equities:
That's one of those questions I'm not sure how to answer. We're a known and established player. We're an active long-term investor with a relatively low turnover.
Structure of trading department:
We are a group of nine traders, and we have four trading assistants.
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We are structured by portfolio manager and product line. We naturally have some sector orientation, because we trade different portfolios. If you trade for the health science fund, you probably have a better handle on biotech stocks than someone who trades for a value fund. We believe this gives us the generalist ability and a product and sector expertise that we can leverage as a desk and a firm. We are comfortable with the direct relationship that we have with portfolio managers, as we think it provides clear accountability and better communication and service orientation.
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Previous Positions:
I started at T. Rowe in 1980 and have been here ever since. I started on the desk as a junior person. At the time, the company wanted someone with work experience, but not in the business. They preferred to teach someone the business rather than retrain someone. And that's what they did with me.
Education:
B.A. in history from Union College in Schenectady, N.Y., and some executive education from University of Pennsylvania's Wharton School.
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TECHNOLOGY
Technology used to trade equities:
Our platform is very robust. We have the normal bells and whistles that you'd expect. We use the Macgregor OMS. We use Reuters and Bloomberg. Reuters is our primary quote delivery system.
Are you planning to add anything to your platform?
Not currently. We're in good shape. We have the usual plethora of ECNs and algorithms available to us. We need to be able to source liquidity wherever it resides.
Are you actively using the dark books that are cropping up everywhere?
Yes, we have an open mind there. We want to avail ourselves of liquidity. Some of these dark books are interesting. But if everything went dark, we'd all be in the dark, and that's a frustration and a challenge for the market in its entirety today.
Do you feel you need any special technology to navigate these dark pools?
We are trying to be as nimble and thoughtful as we can and ensure that we have the right risk management overlay on this. You have to be careful that you're not in too many places at once. You don't want to misrepresent yourself or, in fact, be more aggressive than you want to be. Obviously, we have tools to help us with that. But because there are so many different venues out there, I think that there is going to be a next generation of products to help you navigate the process and ensure that you are in the markets the way you want to be.
Chief Information Officer: Jim Mazarakis
How do you work with your CIO when it comes to getting new technology on the trading desk?
It's a combination of the traders and technology folks that bring new ideas. We want to make sure we are prudent. We want to be leading edge, not bleeding edge. We want to move swiftly if it's something that's helpful to have. We want to be careful, though. We want to make sure that the technology is legitimate and will work well without blowing things up.
INTERNATIONAL TRADING
In which international markets do you trade?
We have trading desks in London and Hong Kong. We pass the book to operate in different time zones. Here in Baltimore we trade: the Americas, Canada and Mexico.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers
In seeking best execution, ... certainly the market has changed and it requires us to have a very clear mission. When you get an order you should know what the goal is and what the portfolio manager is trying to accomplish. You want to make sure your approach is consistent with the PM's goal and best execution. We are in constant communications with our PMs. It requires that we have clear communication to make sure everyone is on the same page. We try to be a very communicative group and be clear as to what our mission is.
How do you work with your portfolio managers?
I work with numerous portfolio managers. We take enormous pride in working with them. They're tough task masters. Each portfolio manager is different, and we as a trading desk and a resource for T. Rowe need to adapt our style with what's needed to find the sweet spot to get the job done.
ALGORITHMS
Types of algorithms used to trade:
We have made use of just about everything. We're very open minded.
Which algorithms do you use most often?
It changes with style and need. Just because you're using an algorithm doesn't mean you're doing the right thing. Algorithms are not the answer to the world, as some people might think they are.
What percentage of trading is done electronically?
A significant portion, and we'll leave it at that.
What brokers' algorithms do you use?
We've built some of our own and use some brokers'. We use agency and full-service brokers. We try to take a look at all of them and truly understand which are the best. I believe most algorithms are a commodity, and there isn't much differentiation between them.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
There is a huge push for compliance, transparency and disclosure, and T. Rowe is fully in favor of all of that. As a result, we are doing exception reporting - if you do something different, you understand why and document it.
We are certainly concerned and trying to understand the implications of consolidations and fragmentation. The average order size went from 1,200 shares to 325. And as a trader, you need to learn how to trade with and against that. We are facing a challenge in assessing supply and demand in a stock. Part of the job of a trader is to determine if there are more buyers or sellers. The way the markets are moving and the structure is changing, I don't think we're enabling people to do that. That's not a productive thing.
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Interview by Kerry Massaro
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