Vision for the Future
Today, buy-side traders are actively working trades themselves, so the skill level for all these traders is going to increase. The demand for more-skillful traders and the demand for more personnel is going to increase. As the sell side downsizes and offers more electronic platforms, we will be increasing our staff here to deal with that.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I came over from Ireland as a drummer in a rock band. I was drumming in NYC for 12 years, but I also worked at the New York Stock Exchange during the day. I ended up becoming fascinated with it. So I got a haircut and migrated to Wall Street. My band was "KC and the Spenders." We played the hits of the day at various venues all around New York. I have not drummed in a long time; I think my wrists are pretty stiff. But in our living room at home, to my wife's chagrin, I have my cymbal stand next to the piano. She has been after me to get rid of it because it does not go with the decor, but it's a reminder of earlier days.
INTERNATIONAL TRADING
In which international markets do you trade?
We trade in European or Far East ADRs. The trading desk in London would trade in the regular shares.
Do you have separate traders for international trading?
We have separate traders for international trading.
For more on Northern Trust's technology efforts, check out CTO Nirup Krishnamurthy's profile in Wall Street & Technology's Gold Book 2006, which profiles leading technology executives.
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Northern Trust Global Investment
50 South LaSalle St.
Chicago, IL 60603
Assets under management:
$640 million.
Fund(s) for which you trade:
We trade for The Northern Trust family of mutual funds that include small cap, mid cap, large cap and core/blend. We also trade for our Personal Trust portfolio managers.
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Types of products traded:
The products we specifically trade on the Active Desk are domestic equities, ADRs, ETFs and options.
Daily volume in equities:
Our volume on the active equity desk is running about $4 million shares a day.
Structure of trading department:
All told, we have four separate desks trading equities. In Chicago, we have two desks:
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the active equity desk and a quant desk that specializes in enhanced equity-index products, tax-advantaged strategies and transition trading. In New York, our desk trades index products for domestic, developed and emerging markets. In addition, they also trade futures and currencies. Overseas, we have a growing London desk that trades similar products to New York with a heavy focus on the U.K., Europe and the Far East, along with International Transition capability.
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Previous Positions:
This is my first time on the buy side with Northern Trust. Prior to that I was on the sell side with Schroder & Company, as director of institutional equity trading for the Midwest region. I held similar positions with Drexel Burnham Lambert and Blythe Eastman Dillon. My first job was on the floor of the NYSE working for the exchange itself and later with specialist firm Albert Freed and Co.
Education:
Belvedere College in Ireland. I studied business administration.
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TECHNOLOGY
Technology used to trade equities:
We use the Charles River order management system (OMS). We have fully integrated into our OMS the available algorithms from our main trading partners along with customized algorithms developed here on the desk at Northern Trust to accommodate specific styles of some of our portfolio managers.
In addition, we employ Bloomberg Tradebook, Liquidnet, Pipeline, DMA brokers, and ITG Posit and its dark book. Bloomberg and Reuters Trader are our two main commercial sources for market news and statistics.
Chief Information Officer:
Nirup Krishnamurthy
How do you work with your CIO when it comes to getting new technology on the trading desk?
We have teams that are assigned to us. Generally, what will happen is that we will evaluate a product here first, and when we see a product we would like that has been introduced by a vendor that comes in and does a demo, or there is something we have read about at a conference or something, then we will go to the appropriate place within the organization and say, "This is the thing that we would like on the desk." Then we get it to [the technology team assigned to us.]
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
Reg NMS is going to change a lot of the ways we work. We continue to focus on that here. The other thing that concerns me is the continued downsizing of the high-touch trading desk by our sell-side partners as they enlarge their electronic distribution. And then you have the continued focus on compliance. So all of that is going to motivate us to make sure that we continue to take advantage of all the tools to seek liquidity.
What do you hope technology can change to make your role easier?
From a head trader's perspective, whether it's increasingly more-sophisticated algorithms or an improved OMS/EMS, future technology will allow for increased productivity and better executions. For a head trader who likes to trade, that's not necessarily going to be a good sign because it's going to be more time off the desk. If you talk to a couple of head traders at large firms and asked them, "When was the last time you actually did a trade?" it would be a long time.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers? Has it changed recently? Do you expect it to change?
I don't expect it to change. I have always believed that the portfolio manager is a very important part of the trading process. I have always believed in a strong relationship with the portfolio manager, and that is certainly not going to change. We integrate them into our process all the time - we try to let them know what strategies we are employing on the desk, why we are employing them, the methodologies etc., so that they are very comfortable with what we are doing.
ALGORITHMS
Types of algorithms used to trade:
Clearly, because we have so many asset classes, we've had to find a couple of customized ones, which we've done in-house. We are primarily a growth shop, but we also have a value unit that continues to grow quite rapidly. But at no time do we ever try and do a VWAP strategy. We are primarily implementation shortfall and a couple of strategies that would work well with small and mid cap. Everyone's challenge right now is to continue to upgrade for small to mid cap.
Which algorithms do you use most often?
The customized one that we have is the one we are going to use most, because it is specifically for the style and strategy of our particular portfolio manager. Away from that, probably something involving implementation shortfall would be used quite a bit - maybe Guerrilla by Credit Suisse. We have enjoyed a lot of success with that. ITG also has a good set of algorithms.
Do you use algorithms for equities only?
Yes.
Which brokers' algorithms do you use?
Credit Suisse is probably our lead broker for algorithms.
How do you rate your brokers and determine which broker will get your order flow?
The selection of the broker is determined purely by best execution. Having said that, we also vote twice a year between the research analysts' portfolio managers and the trading desk. From that we determine the value of our relationships. But we won't assign specific targets.
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Interview by Leslie Kramer, Contributing Writer
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