Back!

Took a bit of a break (from blogging) in May, but eventually, the DTs took over and I couldn't accurately key in my copious algos on FIX.

Speaking of which, in one of the quieter periods last month, one of my better HK salestraders sent me this mildly amusing piece (which, he assures me, wasn't cribbed off somebody else):

We all know that no one is perfect, but if you were to have an ideal perfect Sales Trader. What would he be like?

• Guess to begin with he would look like Brad Pitt/Tony Leung if you're a female client. Or Jessica Alba/Miss HK if you're a male client.
• He/she would entertain you at the hottest spot in town. On top of beating vwap all the time, he/she would buy at day low and sell at day high for you.
• Always call you within 3 seconds after they have received your order in fix and always ask you the right questions like "how do you want to work that?" "Is there more behind?" He would give you all the winning stock ideas which are +50% in 2 days.
• And he would give you his views/ideas about how to work your orders and always be RIGHT!
• He would make you look like god's gift to trading in front of your PMs and CIO...

Well, wake up there is no such person!!! So now come trade with the imperfect Sales Trader extrordinaire which tries hard to keep you amused and always tried his best for you but admits it when he calls the mkts wrong and screws up (rarely).....Some clients call me poonson/viewson. God of trading and god of views in Chinese...Too kind...I'm not worthy

SALES TRADERS LINES

1. At the bid side, you will have to share. But if you pay the offer, they are all yours!!
2. The balance is 1,422,092 . That is it . That cleans them out!! (while in fact the seller has got 28mil shares behind)
3. "Thought we crossed the stk??" "Oh, that's the other seller not you."
4. I have some awesome news. You got them all!! They tried for an extra cent, but I told them to jam it.
5. He can't get hold of the P.M. I will let you know as soon as they do.
6. No mate, that is all agency.
7. You should buy them when you can, not when you have to!!
8. We were ahead of VWAP all day. But lost to vwap by 150bps becoz of volume skew/spike towards the close at the high levels
9. Client is asleep, we can do whatever we want with it...
10. No, that is an Option trade
11. No, that is a Derivative transaction
12. No, that is the straight through processing
13. No, that is DMA
14. It is an offshore seller and he is about to go bed. I would take that stock, mate.
15. It is a funding thing. The buyer can't do the other side . He is do something else is Asia
16. No, they are volume resticted. I will let you know when they can do a few more

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His follow up, the next day, focused more on the comparison with algo trading

Talked about the perfect Sales Trader ydy and got very good feedback so decided to talk a bit more tdy. The rise of technology to our business has enabled us to do our jobs a lot better. I still remember the good ole days of waiting 5 minutes for the dealers to calculate a breakdown coz everything was manual and they had to mark each single print in their books. With the emergence of DMA and Algos, some people (including myself) worry that it would be the end of careers for Sales Traders. Not really, as technology improves it only means our roles will be different and evolved into something more sophisticated.

I see Sales Traders role to become even more critical going forward to drive and monetized the revenue on the sales side as we're at the forefront of the commission process as buy side traders gets a lot more discretion. We win the flow and trade the orders.

There are still a lot of things that the algos can't do. So NO is the answer and algos will never be able to replace Sales Traders (but they might be able to replace some sales side dealers.) You all know what algos can do; they can basically trade and time slice orders and get you roughly vwap, they can short sell aggressively, they can be 1/3 of mkt volume (or any % of mkt vol you like) and strictly adhered to that. They can also bid 25 names for 20k shares and go nuts and lift thinly traded stock up 15% when they feel they missed volume. WELL, lets now see what algos CAN'T DO...

• Algos can't source and provide you with big liquidity in stocks or get you that block which is 20 days of trading volume.
• Algos can't give you trading ideas.
• Algos can't broke that important research report that is relevant to you.
• Algos can't take views or call the mkts (might be a gd thing actually)
• Algos can't wine & dine you, and take you out for a drink at your favourite bar and drink till 4am in the morning with you. (might also be a gd thing..)
• Algos can't "generate" orders thru idea generation and relationship/trust, they can only "receive" orders.
• Algos won't listen to your frustration or get yelled at if and when you think we have screwed up. Enuf of that...think u get the idea....

Now all that was definitely worth an agency trade or two!

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PS: "Algos" = algorithmic trading, through a computer at the broker's end using various strategies and at very low commission rates, and not seen by sellside traders
"DMA" = Direct Market Access, also via a program at the broker's end, but just banged into the market live and at even lower commission rates.
Neither much loved by the sellside (salestraders in particular) for obvious reasons.