Q&A with an Institutional Sales-Trader at a Bulge Bracket NYC Firm
On the way into work, I read The Wall Street Journal and Investor's Business Daily as a way to review yesterday's market activity. I get into work around 7:00 a.m., and I'm reviewing the news and analyst notes on our firm's internal research system. The most important part of the morning for me is the morning call, when analysts give a brief summary and Q&A on the stocks where they have issued a research report. I pay particularly close attention to new initiations of coverage, upgrades and downgrades, changes in target price and the justification for these analyst actions. Research analysts love talking about EBITDA multiples and are constantly evaluating the latest technology in technical jargon that nobody understands. I need to translate lengthy analyst commentary into an understandable language for my clients. My institutional clients are inundated with calls from my counterparts at competing firms, and I strive to be the first to deliver timely market information and value-added investment research.
Q: What is your typical routine?
Once the call is over, I check the desk's opening indications. If I've done a big business in a particular stock, I touch base with the trader to see which way he wants to go, and what type of bid or offer I could mention to the buyer or seller just to have a conversation and to get the juices flowing early in the morning. There's a real flood of information and the most challenging part of my job is to synthesize all this data into a tight and cohesive call to my clients. Clients respond well to a sales-trader who can communicate relevant information and insights succinctly, and I'm always working to refine my communication skills, and to get to know my clients better. Even with the best call, it takes time for me to build up a relationship with my clients, and it's very important to be able to build up the trust in relationships in this business. This is particularly challenging since traders don't want to trade with customers they've never done business with, and my clients are wary of unscrupulous traders. My job is to help everyone get along.
Q: How do you get a customer order?
I normally will try and solicit orders before the market opens, since the traders over here appreciate working orders as early as possible. The reality is that in this game, everyone likes to keep their cards pretty close to the vest. Even if a customer's been selling stock every day for the past week, it's sometimes difficult to get this order back before the market opens, due to the aforementioned issue of trust. When the market opens up, if it's a busy day, the phones are ringing and the order flow is rolling in. 25,000 shares of XYZ in at $30 -- I get a nod from the trader and write the ticket. Normally I need to get a working order, but for top-tier accounts, 25,000 shares are a cost of doing business. The trader knows that at best he's going to break-even on this trade. That's the cost of business of attracting the larger orders. Traders are giving my fills on working orders and making their 6 cents, and I'm accumulating my sales credits. Everyone has strong incentives to maximize individual measures of performance, but recognizing the centrality of the customer to everything that we do keeps everyone honest. It's unwise to sacrifice the long-term customer relationship for any one particular trade.
If, as is often the case, it's a slow day in the market, then it's a game of taking market share away from our competitors. Maybe my trader tells me that a seller's been around in Intel for the past few days, and it's our job to roll out with super messages and AUTEX trade volume. Super messages are bids or offers that the trader makes to hook into a customer order. It's basically advertising. For example, if Intel is currently trading at $15, he might make a $15 bid for 500,000 shares to attract the seller that we think is out there in the marketplace. It's a low-probability game, but in the event that our super message does attract incremental business, engaging in this activity generates incremental revenue for the firm. Regardless of the situation, I'm always asking for orders, and trying to create an obligation on the part of the customer to trade with us if and when he's ready to pull the trigger.
Q: You referred to yourself as a sales-trader. Is there a difference between a salesperson and a sales-trader?
Not really. OTC equity salespeople are sales-traders. Some listed equity desks also have sales-traders in addition to their block traders (who tend to transact in larger order sizes). The sales-trader is a hybrid positon -- part sales and part trading. The sales-trader is responsible for initiating calls with clients. I'm constantly pitching new stock ideas and updating my clients with our research department's market commentary.
Salespeople, particularly in research sales, for example, need to be much more familiar with the details of a stock's story. Research sales are focused on selling the firm's research capabilities to institutional clients. A significant portion of any firm's research sales commissions are generated through soft dollar arrangements, where the broker agrees to kick back a portion of the commission to pay for certain client services, such as Bloomberg terminals and other subscription services.
Q: What do you think is important for success as a sales-trader?
This business requires the ability to communicate effectively and to tell a brief and compelling story about a company. The buy-side is inundated with sell-side calls, and being able to convince the customer that immediate action is required sounds simple enough but is very difficult to accomplish on a daily basis. The stories we're going out on are developed by our research analysts, and the market views are constantly updated by our traders. I need to stay on top of all of this and pass along the most relevant information to my clients on a real-time basis.
Beyond strong communication skills, it's really important to be able to prioritize and to multi-task. Prioritizing customers when multiple lights are ringing is important, since the best service should be delivered to the best customers. Sometimes exceptions need to be made -- it's important to know which situations demand these exceptions. For example, if I've been talking to a second-tier client who happens to own a big chunk of Intel, and Intel is going wild at that particular moment in time, maybe it's better for me to pick up this customer and let my backup coverage deliver the latest fill to the top-tier account.
Multi-tasking is also very important. Trading tends to be very heavy at the opening and closing of the market, and that's when I have to be on my game. Every situation is fluid, and the price I'm quoting to the person on the other end of the phone is by definition negotiable up to the minute the transaction is relayed to the customer. The trader may be trying to adjust the price or change the quantity. At the same time, I need to be able to read my customer to discern whether or not any changes to the fill will be acceptable, or if I'll end up losing the order if I make the change. Remember, without the customer, we don't have much reason to be in this business in the first place. As the intermediary between the trader and the client, my job is to insure that everyone gets along, and that the client and firm interests are represented and balanced throughout the course of the trade.