Friday, December 23, 2005

Help Wanted: Equity Traders With Technology Skills

Brian Barry plans to go back to school this spring. The 32-year-old trader at Piper Jaffray & Co. (PJC) is shopping around for evening classes in the computer programming languages C++ and JAVA.

Barry already has a degree in finance and about 10 years of trading experience. But the use of computer-trading programs is increasing, and he believes that Wall Street firms are constantly on the look out for technology-savvy traders.

In particular, algorithms, or software programs that execute stock trades electronically, are playing an increasingly important role. One survey suggests about one-quarter of equities trades last year were from algorithmic programs. Trading desks, even buy side firms, want new recruits to quickly master these and other trading technologies.

"By having a finance degree, rather than a degree in computer science or mathematics, you are almost behind the curve," said Barry, who is a senior trader in program and algorithmic trading.

Understanding programming languages will help him to provide buy-side clients with reports on the execution of their stock trades and to play a role in the development of new trading strategies, he said. "It's helpful if the trader can access the database and write custom client reports without having to wait for help from the IT department."

Wall Street firms are hawking a slew of new trading software to fund managers and their trading desks. And traders from these brokerage firms, or the sell side, are spending a lot more of their time interacting with and advising their clients from money management firms, or the buy side.

"The sell-side desk is being transformed into a high-end, complex helpdesk for the buy side," said Adam Sussman, a senior consultant at the Tabb Group, a Westborough, Mass., research firm. If the buy side is having a breakdown with technology, the sell-side trader is expected to at least come up with an intelligent answer, he said.

According to Boston-based Aite Group, about 25% of total equities trading volume was driven by algorithmic trading at the end of 2004. The increased adoption of these automatic software programs is one factor that is driving the need for more technology know how on trading desks.

"The skills that traders need have evolved and are increasingly weighted toward technology - It helps to have the ability to understand and build technology," said Tony Huck, managing director of brokerage firm Investment Technology Group Inc. (ITG). His trading desk is made up of people from a host of different backgrounds ranging from mathematics to computer sciences. "But we are certainly hiring more people in [technology-related] areas than ten years ago."

Trading desks are looking for a variety of skills, ranging from experience in managing networks to knowledge in building trading platforms, said Sang Lee, managing partner at the Aite Group, "They are trying to put together a group that can cover all the bases."

Buy side desks are also demanding more technical skills from the traders they hire. Ted Oberhaus, director of equity trading at Lord Abbett & Co. (LAB.XX), which manages over $100 billion in assets, says that one of the first questions he asks potential hires is usually related to their familiarity with trading technologies. At present, only one of his thirteen traders, an internal recruit from the company's information technology department, has a degree in computer science. But he added, "It wouldn't be a stretch of the imagination to believe that in the future trading could be dependent on a computer science degree."

Still, although degrees in software or programming can be helpful in building and understanding trading technologies, they often come with their limitations.

Investment firms and brokerages have accelerated their hunt for people with science, engineering and computer-related backgrounds over the last three years, said Lez Carter, president of recruitment and consulting firm Carter Stone & Co. But many of these specialists don't have a strong understanding of financial markets and senior traders continue to be the ones who are actually executing trades, he said .

Many Wall Street veterans agree with Carter. And the working of many trading desks remains testimony to the fact that an understanding of technology isn't useful unless complemented by an understanding of financial markets.

Michael Earlywine, director of portfolio trading at the LaBranche Institutional Execution Group, agrees that technology people are becoming more important with the growing use of trading algorithms and pre-trade and post-trade analysis. "You try and get the best technology people to the point where they are actually trading," he said.

Still, Earlywine, a trading veteran with close to 20 years of experience, believes that an understanding of technology doesn't necessarily make someone a good trader. "You still need to understand the emotional mess that is our marketplace."

"Although many technology people have some of the skills you need, many don't grasp the business aspect. They have a tendency to look to their computer screens exclusively for all the answers," added Earlywine.

His trading desk uses algorithmic trading programs, but most of the traders there don't have a technology background. Some of the best work in the industry is still being done by teams of people with very disparate backgrounds, Earlywine observed.

As trading desks try to increase their productivity through the use of new software, some have managed to maintain a certain balance between their need for trading expertise and technology skills.

UBS has separate teams to handle its technology and trading. "I think we are looking for traders who are very technology literate, but we aren't necessarily looking for a computer programmer," said Larry Leibowitz, chief operating officer of UBS Americas Equities.

Still, the firm strongly encourages its traders to be technology savvy and its technology people to develop some understanding of the trading process. "We are looking for technologists that can engage in the trading and traders who will engage with technology," said Will Sterling, head of institutional electronic trading at UBS.

-By Anjali Cordeiro

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