Vision for the Future
I hope that you aren't able to see technology, that we can interact with the market without manipulating technology. I'd rather be involved in the purest form of trading - placing bids and offers - as opposed to figuring different ways to manipulate different technology or phones.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I was very focused on going to medical school growing up, but in college did an about-face. I guess I decided I didn't want to go to school, residencies, etc., for the next 15 years.
INTERNATIONAL TRADING
In which international markets do you trade?
Last year we traded in 70 markets. In 40 of those markets, we traded directly (electronically). For the remaining 30 countries, we used a local specialist - someone who will trade on the floor in the crowd and represent our orders.
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Russell Investments
909 A Street
Tacoma, WA 98402
Assets under management:
$171 billion globally for our fund of funds products and $300 billion for transition management.
Fund(s) for which you trade:
There are two types of flow coming into Russell. One is our major product line, our manager of managers product. We're also executing for our transition management business. Those are external third-party clients that we're transitioning assets for globally.
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Daily volume in equities:
$2 billion to $4 billion a day across all business lines. It rotates across all product lines.
Types of products traded:
Equities, derivatives, currencies and fixed income.
Structure of trading department:
We have 20 traders globally responsible for executing all asset classes and markets. Most of the dealing is out of Tacoma. There are four traders stationed physically in London.
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We were using a model where traders become specialists by country and market. However, a few years ago we started to get away from that model. Now we rotate trading so everyone has exposure to all markets. Certainly there are pros and cons to each. For the specialist model, they do know the market, market micro structure, but by rotating globally we've been able to parlay that experience into a broader understanding of the markets.
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Previous Positions:
I started at Russell in 1997 as an assistant trader and worked my way up from there.
Education:
Hillsdale College in Hillsdale, Mich.
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TECHNOLOGY
Technology used to trade:
The interlinking piece between all of our different asset classes and security types is a proprietary trading system that we've developed in-house. This system gives us all the different views and abilities we need to accomplish our trading strategies and achieve our investment objectives. We've put Charles River on the desk. That really serves the portfolio managers and, to a lesser degree, the traders. For trade execution, we took a best-of-breed approach by using multiple, multivenue products, which allows us to execute different asset classes in over 40 countries directly.
Equities:
We use six systems to execute trades. Some have different specialties - that is, some are better in Europe, while some are better in Asia. We have tried to create a model that is best-of-breed because we haven't been able to create one that is all things to all people.
Chief Information Officer:
Jim Wallace
How do you work with your CIO when it comes to getting new technology on the trading desk?
Jim is responsible for the overarching vision of technology for Russell globally. He deals with multiple offices around the globe to make sure that they are all moving in the same direction cohesively. As for my day-to-day interaction, I work with Matt Griffith, manager of business line integration. He is in charge of the technologists that work on our desk.
We have two technology specialists that are on our desk who understand the day-to-day issues that we deal with. These technology specialists help drive our technology needs. The approval on new projects is usually coming off the trading desk in collaboration with Matt and myself.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
We're keeping an eye on globalization of markets and where that will play out with the NYSE's bid for Euronext. This could create a huge capitalization center that would span the markets. Historically these markets have been very divided, so I think it definitely could change how we interact on a daily basis. In addition, we are very interested in the NYSE's current evolution process as well as Reg NMS.
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PORTFOLIO MANAGEMENT
How do you work with your portfolio managers?
It is a collaborative process. Before any portfolio trades are executed, we have a sit-down meeting with all three groups. The portfolio manager is bringing client objectives to the table; the quant group comes with technical research, analytics and stock selection in mind; and trading brings a practical perspective. The value in that is - because it is collaborative and it is iterative - you don't have a situation where the PM is creating unnecessary demands that aren't achievable in the marketplace. The trader could come back and say, "This name looks difficult to execute" - but we've actually traded this recently and we know exactly how to do it. Or, "This name looks simple," but it's actually very difficult.
Has this relationship changed?
It has always been highly collaborative. What has changed is the increased real-time view that we're looking at. Trading has always had that real-time view, but PM now does as well. The goal is that they have the same high-speed view that we do.
I would like to see a continued development of integration of portfolio platforms with trading platforms. Now there are OMS and EMS - two very different products. One is designed for traders and the other is designed for PMs. Anything that can be integrated between the two - the fix linkages, the speed, the real-time requirements for those - will make the group better.
ALGORITHMS
Types of algorithms used to trade:
I can quantify our algorithm usage into three buckets: implementation shortfall, market participation and optimization/market on close.
Do you use algorithms for equities only?
We use them also for fixed income and currencies. We've used some off the shelf and developed our own.
Which algorithms do you use?
We think that standard implementation shortfall is the best measure of time-weighted investment return from the client's perspective. So that predicates our behavior from a trader-using-algorithms perspective. We typically use market participation and arrival price. The changes I see aren't in the usage but in the development of those algorithms. They are traditionally single-stock-based. There are a few firms that do correlated portfolio-based models that work well. That will drive our change in usage of algorithmic trading.
Do you use specific brokers' algorithms or develop algorithms in-house?
We do both. The ones we develop in-house, obviously, have our fingerprints on them. But the ones that we use from brokers and software providers also have our heavy genetic Russell footprint on them. From a developmental perspective, the decision tree is organic. Someone will identify a need saying, "Hey, we should trade like this." Is there an algorithm on the Street like that that we could tweak? And if there isn't, let's build it. The benefits, if it exists, are that we don't have all the time or energy invested in the development cycle - and it is a huge cycle. You have to spec it out, test it, back test it, make sure it's performing to expectation. But if it doesn't exist, we don't shy away from developing it ourselves.
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Interview by Kerry Massaro
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