Vision for the Future
Commission rates are going to continue to head lower. There is a move toward unbundling led by the folks at Fidelity, and we think that unbundling will take place going forward. All these things are client centric - they allow our clients cheaper access to capital markets, and that's good for all investors. I think you're going to see more internal crossbooks. You've seen a lot of dark crosses - the Pipelines and the Liquidnets. I would assume that the future market structure will not be the duopoly that you read about in the paper. You won't have just the NYSE and the Nasdaq; you'll have more market centers opening based on failed regulations. And the more markets you have competing, the better things will be for the end investor.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
On a personal note, I actually happen to be a five-time world freestyle Frisbee champion. It's a fun way of unwinding from the stress of the day.
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Lord Abbett & Co.
90 Hudson St.
Jersey City, N.J. 07302
Assets under management:
Approximately $106 billion in total assets under management as of March 31, 2006.
Fund(s) for which you trade:
I am responsible for overseeing Lord Abbett's equity trading team and activity across all portfolios.
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Types of products traded:
The equity trading team is responsible for all domestic and international equity trading across a range of small-, mid- and large-cap stocks for value, growth and core/blend investments.
Daily volume in equities:
On the wrap desk, the average volume that we see is in excess of 1 million shares. And on the desk as a whole, we see 7 to 7.5 million shares per day.
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Structure of trading department:
We're a 24-hour global trading desk with 13 traders and one assistant trader. There's one individual in charge of Asian trading directly off the desk in Jersey City and one individual who is trading Europe. We have four individuals who transact business for the wrap or separately managed account (SMA) side of the equation - we're the No. 3 money manager in the wrap arena in terms of assets.
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Previous Positions:
I came to the firm as an equity trader in 1983 from Brimberg & Co., where I worked as a brokerage clerk. I have been in the investment business since 1982.
Education:
B.A. in economics from Ohio Wesleyan University.
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TECHNOLOGY
Technology used to trade equities:
The Macgregor Financial OMS is how our portfolio managers get their orders to the desk. We have a rich suite of ECNs, DMA and algorithmic products, including Instinet, Liquidnet - our top broker here to date - ITG and the Channel Product. We utilize Pipeline across the network. We transact business through Bloomberg's B-trade feature. ILX is what we use for quotations in addition to the Bloomberg technology. We use AutEx to find the counter side of the trade. We have a home-built product called TRADES (Trade Rotation and Data Board), and it allows our SMA desk to capture and audit-trail on our SMA products. TRADES was built by me and a trader on the desk about five years ago. We transacted it over to our IT department, which rebuilt it three years ago, and it's currently being upgraded.
How do you work with your CIO when it comes to getting new technology on the trading desk?
Generally, I identify and queue new products. But the IT team comes up with shortcomings. If I have a new vendor that I've isolated that I think would work into our workflow, oftentimes IT can tell me before I do the due diligence that it will or will not fit into the business.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
Reg NMS is going to be brought to fruition. That's going to change the entire dynamic of the equities markets as we know them. Unfortunately, we've landed with a top-of-book methodology for traders, which means you can only access liquidity in the best bid or offer in a given stock. It's going to change the way people sweep stocks. We hope that our algorithmic providers will actually help us in creating a de facto depth-of-book environment.
What do you hope technology can change to make your role easier?
We actually do 50 percent of our business through algorithmic pipes, ECNs and DMA products, so we're certainly a huge believer in the fact that technology is going to change the landscape. Speed matters, and one thing I'd like to see is OMS providers living up to their promises and making their products much quicker.
INTERNATIONAL TRADING
In which international markets do you trade?
Asia and Europe.
Do you have separate traders for international trading?
Yes.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers? Has it changed recently? Do you expect it to change?
Lord, Abbett employs a unique structure in which it assigns an individual trader to a specific portfolio, working directly with a portfolio manager. The trading desk is the eyes and ears of the portfolio management group. The Street itself is generally heading towards a sectorized model; we think that's a failed proposition. We think that the information flow that the traders can add to the portfolio managers and to to the analysts is far superior.
How do you work with your portfolio managers?
Because we deal with our portfolio managers on a product basis, we deal with them extensively intraday. We've actually built a trader desktop on the trading desk for our portfolio managers, so oftentimes they'll sit here with us as we give them intraday flow, etc. Also, on the international side, we're starting to see a lot more remote access. I have the Asian portfolio manager trading from Asia on a remote access laptop.
ALGORITHMS
Types of algorithms used to trade:
We bought into the Lehman Brothers' algorithmic capability, Goldman Sachs' Ready Plus, Bloomberg Tradebook, AES' product out of Credit Suisse, Morgan Stanley's BXS product and UBS' DSA - and we've customized some of our own.
Which algorithms do you use most often?
We really have to use the entire gamut of these algorithms.
Do you build your own algorithms?
Yes. The store-bought models are good. They each have individual components that can get at these capitalization differences. What we've found is, overlaying some of the strengths in a given algorithm and putting them in a customized [form] made for a more-seamless algorithmic product, and one that can't really be reverse engineered.
How do you rate your brokers and determine which broker will get your order flow?
We have an oversight committee called the trading practices committee. I sit down with them bi-annually and go through a list of quantifiable measurements - every one of those is execution related. The research creation doesn't come into our choice of brokers. It's really about taking a hawkish stance on best execution, from how a transaction is settled to how much capital a broker will afford us. Trust also enters the equation. We want to know that anonymity is being upheld by our brokers, that they're not shopping our orders away.
For more on Lord Abbett's technology initiatives, check out CIO Michael Radziemski's profile in Wall Street & Technology's Gold Book 2006, which profiles leading technology executives.
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Interview by Maria Wakem
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