Vision for the Future
I am hoping that from a regulatory standpoint we will see things that give us a greater transparency in the markets. Market consolidation will only continue from here. Although the transition might not be easy, this should lead to greater liquidity.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I have always been working to develop a good technical market-timing system. I use candlesticks and other tools that I feel will help benefit my trading system and benefit our clients as well.
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Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
Assets under management:
$14 billion.
Fund(s) for which you trade:
I trade across all 25 investment strategies offered by the firm, but specialize in international equities.
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Types of products traded:
Equities - value/growth/small cap, domestic and international.
Daily volume in equities:
About $100 million per day.
Structure of trading department:
In addition to myself, we have a European and an Asian trader, as well as a global program trader. Domestically, we have three senior U.S. traders.
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We also have another trader who handles programs and/or smaller lots. I speak daily with the traders - the European trader in the morning before the open, and the Asia trader in the evening prior to that region's open. We discuss strategy as well as what transpired in the U.S. market. The domestic traders I sit next to, and we interact throughout the day. But I try to give them a large amount of autonomy.
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Previous Positions:
Prior to joining Nicholas-Applegate in 1998, I was employed at Wisconsin-based Strong Funds Capital Management as an international equities trader.
Education:
B.B.A. and M.S. in management/finance and analysis from the University of Wisconsin-Milwaukee.
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TECHNOLOGY
Technology used to trade equities:
Bloomberg to monitor the markets. We use different DMA products. Some traders use Instinet or GTrade. We use the Liquidnet system that sits on top of our order management system. Some of the traders are also starting to use Pipeline to find more liquidity. We try other systems as well from time to time.
Chief Information Officer:
Steve Rapp (SVP and CTO)
How do you work with your CIO when it comes to getting new technology on the trading desk?
I interact with product managers in the technology department on a daily basis. These individuals cover specific products, such as Bloomberg, the order management system and trading hardware/software needs. These individuals report to Steve Rapp. As far as Steve, we typically discuss higher-level issues. When it comes to technology, the individual product managers usually become involved.
ALGORITHMS
Types of algorithms used to trade:
It really is specific to what the individual traders prefer, but we use implementation shortfall, VWAP, time weighted average price or Guerilla Tactic. Instinet also came out with one that we will probably use a lot called Night Hawk, which will allow us to search the crossing networks for liquidity while staying in the dark. Because we trade a lot of the smaller names, we like to get involved without showing up as a large buyer, and these help us.
Which algorithms do you use most often?
Implementation shortfall is one. But it really does depend upon the market and the trader.
Do you use algorithms for equities only?
On the equities side, where I work, we do. On the fixed-income side of the business, they are focused on improving transparency as well. So they, too, will use whatever technology they need to do that. But they certainly don't use it to the level that we do.
Which brokers' algorithms do you use?
It depends on what our traders want to use for direct market access, but we use Bloomberg Tradebook, GTrade, Instinet, Credit Suisse and Miletus.
Do you build your own algorithms?
No, we do not.
INTERNATIONAL TRADING
In which international markets do you trade?
We trade in 37 different markets. Canada, Germany and Japan are among the largest.
Who is your custodian bank?
We use the banks our clients want us to use. Really, we use a lot of different ones that are client specific.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers? Has it changed recently? Do you expect it to change?
The portfolio managers sit just feet from our traders and myself, so there has always been a fair amount of interaction. More recently, though, I think there has been less information flow coming from the traders to the portfolio managers due to things like Reg FD [Regulation Fair Disclosure]. Reg FD put a limit on rumors and things of that nature that affected stock movement. This has freed up traders to focus on trading and developing their individual strategies.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
I think the technologies that help us control our order flow and direct our strategy are making us more efficient as a whole. And going forward this technology will better enable traders to decide where to go with an order. Hopefully, things will only become more efficient from here, and we will be able to find liquidity easier and get the best price more often.
What do you hope technology can change to make your role easier?
I am hoping that technology will improve how fast I implement my trading strategy. I am hoping for technology that will give me full control over what I am doing with an order and give me a quick fill at the best price.
Interview by Glenn Curtis
For more on Nicholas-Applegate's technology efforts, check out Wall Street & Technology's Gold Book 2006, which profiles leading technology executives. Below are excerpts from SVP and CTO Steve Rapp's profile detailing the firm's current top three technology projects:
Simplify and Consolidate Trade Matching
Objective: This is an efficiency and cost-saving undertaking for both our global and domestic businesses. We're looking at vendor-provided solutions. What we have now is a number of applications that we've accumulated over the years. We're working on retiring those applications and moving to one central matching facility. The vendor space is now capable of doing it, which wasn't the case a couple of years ago.
Total Quality Management
Objective: Improve client servicing, including responsiveness and content. We're revamping the client statement and also improving the workflow for setting up and handling new accounts. We've implemented a lot of major systems since 2001/2002, and what we need to do now is weave them together and begin to exploit their capabilities. The real maximization comes from systems integration, so we're working on conquering interfaces.
Wireless Access to CRM Data
Objective: Provide salespeople with mobile access to our CRM database. We're looking at a couple of vendors that provide access via a BlackBerry device from the road. Security is still a definite concern, but I think we've got the satisfactory controls to protect ourselves.
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