Alpha - September 2007 - (Page 82)

Top Trading Firms have been in the past to assume execution risk and route their trades themselves. “As a result of the volatility in the marketplace, clients have become more concerned about risk rather than impact,” says Andrew Silverman, head of U.S. distribution for Morgan Stanley’s electronic trading business in New York, which is No. 3 in Trading Expertise & Market Knowledge and No. 4 overall. “They need the flexibility to use whichever venue works best for specific trades. Funds are looking for ﬁrms that provide trading advice and content.” Morgan Stanley has been conducting extensive seminars for clients, including some of the industry’s biggest hedge funds, TOP EQUITY TRADING FIRMS BY CATEGORY outlining the effects on trading The following tables show how the top brokerage ﬁrms fare in each of the four major areas of trading, based on voting of Regulation New Market Sysfrom nearly 300 hedge fund ﬁrms that use their services. tem — which requires brokerages to route orders to all possible liqALGORITHMIC TRADING TRADITIONAL EXECUTION uidity pools to ensure the best Rank Firm Rank Firm possible execution. 1 Goldman, Sachs & Co. 1 Credit Suisse “Historically, electronic trad2 Citi 2 Goldman, Sachs & Co. ing desks have been at odds with 3 Banc of America Securities 3 Lehman Brothers traditional high-touch desks, but 4 Bear, Stearns & Co. 4 Banc of America Securities it has become clear that each exe5 Credit Suisse 5 Morgan Stanley cution venue is appropriate for 6 Morgan Stanley 6 Bear, Stearns & Co. different clients in different circumstances,” says Michael Schaf7 Lehman Brothers 7 Deutsche Bank tel, New York–based head of sales 8 UBS 8 Citi trading for the Americas for Mor9 Deutsche Bank 9 UBS gan Stanley. “People willing to 10 Jefferies & Co. 10 Merrill Lynch take the execution risk themselves will trade electronically, while ELECTRONIC TRADING/DIRECT MARKET ACCESS TRADING EXPERTISE & MARKET KNOWLEDGE others will need the high-touch Rank Firm Rank Firm trading expertise of a cash desk.” 1 Goldman, Sachs & Co. 1 Goldman, Sachs & Co. Hedge fund managers’ growing desire for full suites of prod2 Banc of America Securities 2 Bear, Stearns & Co. uct offerings has also meant an 3 Credit Suisse 3 Morgan Stanley edge for bigger brokerage firms 4 Morgan Stanley 4 UBS — those with the scale to main5 UBS 5 Credit Suisse tain bigger product offerings — 6 Bear, Stearns & Co. 6 Banc of America Securities particularly firms that have had 7 Lehman Brothers 7 Jefferies & Co. that service model all along. Bear Stearns, which trails only Gold8 Deutsche Bank 8 Citi man Sachs in Trading Expertise 9 Citi 9 Lehman Brothers & Market Knowledge, is known 10 Merrill Lynch 10 JPMorgan Chase & Co. as the home of adroit traders who can both work an order and “Everything is about competition for alpha, and we want pass market color to the buy side. The firm, which ranks No. to have a research analyst, a salesperson and a trader who can 5 overall, has leveraged its expertise into one of the top fullhelp provide alpha to our client base,” says Forlenza. “Addi- service prime brokerage platforms, giving hedge fund clients tional value can take many forms, all of which lead back to the choice of directing an order through its electronic Bear the human element.” XO network, to the cash desk or to Bear Wagner Specialists, Forlenza believes that agency-only brokers will have an in- its captive specialist operation. creasingly difficult time competing and expects that hedge A similar marriage of scale and quality has been pursued funds’ gravitation toward full-service brokerages will con- at UBS, which ranks sixth overall and No. 4 in Trading Extinue. “We’ve seen a migration toward brokers that can pro- pertise & Market Knowledge. “It’s a quality game, and the vide a fuller suite of products,” he says. subtle difference is that our scale lets us be the slightest bit Several other major brokerage houses report that on bal- better at trading stocks,” says Matthew Pecot, head of the ance their hedge fund clientele are a little less eager than they Zurich-based bank’s U.S. prime brokerage unit. He says UBS 82 • INSTITUTIONAL INVESTOR’S ALPHA • MONTH 2004 2007 SEPTEMBER 000 • the ﬁrm’s system had to cope with unprecedented volumes. Banc of America — which ranks No. 3 overall and second in Electronic Trading/DMA — has been similarly focused on bolstering its trading services by providing a level of human expertise and support with its offerings. Equity co-head Forlenza says the firm recognizes that direct market access has evolved from a niche product into a necessary component of institutional brokerages’ offerings and that electronic trading is no longer the differentiating factor between providers that it once was.

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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