For years now the Mickey Mouse broker-dealer model has been chasing it’s tail, cutting off it’s nose to spite its face and has entangled itself in a commission-based web of sense and nonsense. Those responsible for these Romper Room activities can be easily placed into one of two categories. For the sake of keeping things simple, let’s refer to these groups as the Book-smart and the Street-smart.
I don’t think it needs to be explained, but in case some “book-smart” people are reading, I had better… The “street-smart” portion of Wall Street is made up of traders. Traders are witty, have strong instincts and have been conditioned to efficiently juggle multiple situations at once. Traders may be a little cynical, but they’re always thinking and extremely resourceful. When shit hits the fan, these are the kind of people you want on on your side. Trading is about thinking fast, being creative, reading people, evaluating risk on the fly and making money. In general, traders are under appreciated real people who find ways to relate to the entire petri dish of Wall Street personalities (or lack of). Traders have the ability to talk to people like people and not treat them like replaceable fan belts.
The traders reading this already know what role the “book smart” crowd plays. It’s management. The funny thing about book smarts – is that it often comes with little else. It makes perfect sense that one can be book smart and still be stupid. Book smart people tend to lack common sense, they live life expecting things to play out the way they planned or learned in school and get all fucked up when things don’t work out that way. They are big believers in following “policy”. They short circuit easily and are often socially impaired.
In fact, there was one d-bag manager at at previous firm who wasn’t even capable of saying hello to anyone not equal or higher then himself on the corporate ladder. He’s got the personality of stale hamburger bun. I’ve been in the elevator multiple times with this tool, looked him directly in the eye, said “Good Morning Bill” and he just stares straight ahead like we’re playing freeze tag. The last time in the elevator it was just him and I. He had to say good morning back… right? Wrong. What a dick. He just stared at the elevator tv like I wasn’t even there. So I stole a scene straight from Elf and leaned in and lit up the control panel like a Christmas tree. I added at least five additional stops to the elevator ride. His eyes shifted to mine… and this time with a big cheesy smile, I again said “Good Morning Bill!” Without uttering so much as a peep his cold amphibian eyes returned to the mini-screen and there they stayed till we reached our floor. Whatever guy.
Anyway… Back to what I was trying to say and the Looney Tunes broker-dealer circle of life… Anytime we get things working smoothly and the way we like… Management, in their eternal quest for total market share domination is constantly screwing up the picture and contaminating our watering hole.
Trading managers are gifted, they have the uncanny abilty to fuck everything up – even something as simple as a road trip. Any sales trader who’s been a road trip with their manager (or as I like to call it ..“The Empty Promise Parade”) has been witness to some serious bullshit. “you’re so important to us”… “we consider you a strategic partner” and “Whatever resources you need, whether it be research, capital or better allocations – you got it.” Even the client’s rolling his eyes at this point. Meanwhile, ten minutes later in the real world while your walking through the clients lobby… You manager usually says shit like “So… how much do they pay us?”, “What was that guys name again?” and these thirty second meeting recaps always end with “Make sure you stay all over these guys.” Yeah… No shit – thanks for nothing.
Then… equip only with our street smarts (and a corporate card), it’s up to the sales trader to bring the client back down to earth. First day back on the desk after seeing a customer is always interesting. Your boss just promised them five-star gourmet executions and service the day before and all you have to offer are the same old leftovers. But that’s what we do. It’s our job to clean up the dilusional wreckage our out-of-touch superiors leave behind.
A more substantial example of the cyclical butchery in the battle of street vs. book-smart would be contained in the history of algorithms and electronic trading. Remember when I said the powers-at-be like to take good things and fuck them up? Let’s go back fifteen years…
Stocks were traded for eighths and quarters – not pennies, markets were driven by men- not algorithms and the New York Stock Exchange was the center of the action – not a handful of has-beens clinging onto life support. Wall Street was admired and firms like Lehman and Bear were still in business. Back in those days, if you traded a million share order for an 1/8, you locked in $125,000 and if you crossed it with another client you collected an 1/8 on the other side for a total of $250k. Not too shabby.
Then one night, probably in the back room of Maloney and Porcelli’s, some electronic trading genius and Wall Street’s top 5 decided to have a race. A race for market share. From that night on, in an effort to put everyone else out of business, share would take precedence over revenue. It would be worth giving up the $125k on a measly million share order to trade for half pennies and make $25k on five million shares. Soon the competition would be gone and they would control all the flow. Hmmm.. or maybe.. every other fucking broker-dealer would just get there own algo’s and charge sub-pennies too… and maybe… customers would even put algo’s on there own desks… That’s Book-smart hard at work. At any rate, now that we’re done tripping over each other for market share, we’re left fighting for chicken scraps in the parking lot.
So here we are again. There’s not to much we can do about commission rates (except hope they’ve bottomed), but now that the ships been blown to bits, it’s up to us (the street-smart sales traders) to pick up the sub-penny pieces. Back to square one. We’ve got new products to sell and just like before, they’re the same exact thing everybody else has… so we give are algorithms funny little names and try to convince clients that our vwap apples are better then everybody else’s vwap apples and how our dark pool oranges are plumper and juicier than the next guys.
And for what it’s worth – there are a handful of managers that get it (like the ones I work for now for example… not only do they get it but they’re smart and good looking too)
Sorry to ramble on, but I woke up early this morning and couldn’t sleep,
Dopey
