bank loans and currency and derivativesecurities. This franchise is supported by the Lehman Brothers Bond Indices,which are the benchmark by which institutional bond portfolios aremeasured. Lehman Brothers is also a leader in U.S. and pan-European listedand over-the-counter stock trading.
Merrill LynchMerrill Lynch has a long tradition of innovation in equity derivatives, creatingthe ever popular Liquid Yield Option Note (LYON) and the more recent taxefficient iteration of this product. Merrill Lynch is a top trader of globalequities. It has been the top trader of listed stocks since 1989, and the toptrader of American Depository Receipts (ADR) since 1997. The firm alsomaintains a substantial NASDAQ/OTC operation. Merrill’s global debtmarkets sells, trades and structures fixed income and derivative securities outof 17 countries for its institutional clients.
Morgan StanleyMorgan Stanley maintains a major presence in every major equity, fixedincome and derivative securities market throughout the world. The fixedincome division consists of three major global product areas: credit productgroup, interest rate and currency products and commodity products. The98
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institutional equity division consists of the following global product areas:listed, OTC, international, research sales, convertibles, financial strategiesgroup, listed derivatives and program trading. Morgan Stanley also producesand maintains the MSCI indices, which are the most widely used performancebenchmarks in the fund management industry.
UBSUBS operates the world’s largest trading floor in Stamford, CT. UBS iswidely recognized as a market leader in eurobonds and is expanding itspresence in global bonds. It is also a major force in foreign currency trading.Through the firm’s integration of Paine Webber, the firm has enhanced itsmortgage and asset-backed securities business. The acquisition of Enron’senergy-trading book has established UBS in the energy trading business.UBS is also a leading bank in foreign exchange and treasury-related products.
Best of the restOther bulge-bracket firms that attract talent for their sales and trading desksinclude: A.G. Edwards & Sons, Banc of America Securities, PrudentialSecurities, SunTrust Capital Markets, Wachovia Securities, CantorFitzgerald, William Blair & Co. and U.S. Bancorp Piper Jaffray.Many other smaller firms maintain trading desks in numerous differentproduct areas. These internships or full-time opportunities are somewhatmore difficult to find, since these firms will tend to have less visibility ontheir hiring needs, and they typically chose not to incur the cost of doing oncampus interviews.
Boutiques, Regional Firms, ForeignFirms and SpecialistsBoutique and specialty firmsBoutique firms tend to service one type of customer very well, or are verygood at one type of transaction. Specialty firms focus their expertise oncovering one or several market sectors, and can be thought of as miniinvestment banks with a sales desk to support the trading effort, and
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investment bankers trying to nab the big deal away from the larger firms onthe basis that the firm offers specialized service and expertise in a particularmarket niche. Boutiques and specialty firms include: Kaufman Brothers,Laqdenburg Thalmann, Arnhold S. Bleichroeder, Neuberger Berman,Fulcrum Global Partners, Miller Tabak & Co, Sanders Morris Harris, SanfordC. Bernstein, Fox-Pitt Kelton, Soundview Technology, Jefferies & Co.,Thomas Weisel Partners, Weeden & Co., S.G. Cowen & Co., C.E. UnterbergTowbin, Robert W. Baird and Gerard Klauer Mattison,
Regional firmsSome firms swim in small ponds and pick up the business that the NYCjunkyard dogs overlook. These firms can be good alternatives for those whoeither are unable to land a position at a bulge-bracket firm initially, or whowish to live outside New York City. In some cases, specialty regional firmsfocus on one sector of the market that happens to be geographicallyconcentrated in one region. Regional firms include: Adams Harkness & Hill,Allen & Company, Oscar Gruss & Son, Miller Johnson Steichen Kinnard,Johnson Rice & Co, Janney Montgomery Scott, MHMC Meyerson & Co.,Ferris Baker Watts, Wedbush Morgan Securities, RBC Dain Rauscher, LeggMason Wood Walker, McDonald & Co., First Albany, Pacific GrowthEquities, J.B. Oxford & Co. and Friedman Billings Ramsey.
Foreign firmsForeign banks are always trying to establish a foothold in the U.S. market,and fail with alarming frequency. Here are several firms to consider: CreditLyonnais, BMO Nesbitt Burns, CIBC World Markets, Scotia CapitalMarkets, TD Securities, Nomura Securities, Daiwa Securities and DresdnerKleinwort Wasserstein Securities.
Options-related firmsThese are typically floor-trading positions on regional or secondaryexchanges. Options trading is a very entrepreneurial business – all it takes isa seat on the exchange, a willing trader and a financial sponsor. The moredeveloped a firm becomes, the more it is able to invest in a sales organizationto solicit order flow. Even with a sales organization behind you, life on anoptions exchange is typically nasty, brutish and short. Traders on certain
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regional exchanges frequently brawl for customer orders, so it doesn’t hurt ifyou’ve ever been in a rugby scrum before. Firms in this category include:Susquehanna Investment Group, O’Connor & Co., OTAA, Timber Hill, VanDer Moolen Options U.S.A., SLK-Hull Derivatives LLC, Knight FinancialProducts LLC, Group One Trading, GPZ Trading, Botta Capital Managementand GVR Company.
Specialist firmsTwo decades ago there were more than 50 specialist firms. Since then, thesepredominately family-owned businesses have merged or been acquired.Today, there are only 10 specialist firms, three of which specialize inexchange-traded funds. Each firm is responsible for the orderly trading in thestocks that it is assigned. In the past, specialists earned their keep by charginga commission for matching up buyers and sellers. As spreads have narrowedwith decimalization, specialists have relied increasingly upon principaltrading – buying and selling for their own account. Specialists basically standat their post and wait for orders to come in. There is not much need here fora sales organization, since once a stock has been assigned to a specialist,there’s no way a stock that’s traded by the firm can trade away from the firmstaffed post in a particular security.Of course, when a new stock becomes listed through an IPO, specialist firmsactively seek to be named as the firm that will cover the new issue. Needlessto say, the NYSE’s decision on who gets to be the specialist for the stock canget quite political. The seven stock specialist firms are: LaBranche & Co.,Spear Leeds & Kellogg Specialists (owned by Goldman Sachs), FleetSpecialist, Van Der Moolen Specialists USA, Bear Wagner Specialists,Performance Specialist Group, and Susquehanna Specialists. The first fivefirms on this list trade over 95 percent of the NYSE’s share volume.The remaining three specialist firms, Bear Hunter Structured Products, SLKIndex Specialists and Susquehanna Index Specialists are responsible for theorderly trading of exchange-traded funds (ETFs).
WholesalersThese firms are low-cost traders of large volumes of OTC securities.Wholesalers are, as their name implies, firms that specialize in trading OTCequities at low cost. These firms typically have a sales organization toVisit the Vault Finance Career Channel at http://finance.vault.com — withinsider firm profiles, message boards, the Vault Finance Job Board and more.
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support the firm’s traders, but there is not much of a commitment toinvestment banking relationships. These firms make their profits by tradinglarge volumes to make up for the lower commissions. Wholesalers include:Bernard L. Madoff Securities, Knight Securities, Charles Schwab & Co.,Pershing (owned by CSFB), National Discount Brokers (SherwoodSecurities) and Herzog Heine Gedould (owned by Merrill Lynch).
Use the RankingsA valuable resource for researching employers is the annual industryrankings compiled by a number of industry publications. InstitutionalInvestor’s, “II rankings” are the most well known, but other respectedpublications with rankings include Global Finance, Global Investor,International Financing Review, Asiamoney, Euromoney, Risk andAsiaRisk. When analyzing these rankings, there are several factors toconsider. First, you want to see how the particular bank that you’reinterested in ranks in the product area that you are most interested in.Consistently high rankings over a number of years (i.e., not just a oneyear wonder) should also be considered positive. Typically theserankings are derived through extensive client polling. Beware of firms’trumpeting of any individual ranking. These rankings are sliced anddiced innumerable ways – three months vs. six months; announcedmergers vs. completed mergers, and so on. So any one ranking isn’tyour best guide to who’s tops in the field; the aggregate picture whenlooking at many rankings is a much more solid comparative study.Be careful to note when the survey was performed and be sure to keepcurrent on the latest news within the industry. If Merrill’s listed tradingdesk won top honors for 10 consecutive years but then the ManagingDirector and a group of traders left Merrill for Morgan Stanley, chancesare good that Merrill’s ranking will drop the next time the survey isconducted. Also, be sure to note how a firm’s overall research effort isranked. Although the research department is often referred to derisivelyas a “cost center,” when all other things are equal, a strong researcheffort is accretive to the overall sales and trading effort. A wellestablished research department leads to more commission dollars andinvestment banking revenue which increases the firm’s visibility andprestige in the marketplace. In this hyper-competitive business, theimportance of analyst coverage and name-brand research analystscannot be overstated.
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If a firm you are interested in is conspicuously absent from the rankingsfor the product area you are interested in, you might want to ask yourcontacts or interviewers there why. The most common answer is thatthe firm is building up its capabilities in that particular product area.This is especially true of European investment banks that have alwayscoveted the U.S. markets but have made very little progress. But youshould probe further. Is the firm leveraging a core strength? Is themanagement fully committed to riding out the ups and the downs of themarket cycle to build this business? What is the background of themanagers of this desk?As an analyst or as an associate, you want to know that if you’re notplaying for the Yankees, you are at least playing for a team that isstriving for greatness. As an analyst you want satisfactory answers tothese questions. As an associate, these questions are even moreimportant, since your promotion and future success depend on a stableorganization with decent growth potential.
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Lifestyle and WorkplaceDiversityCHAPTER 9
LifestyleSalespeople and traders revel in the lifestyle afforded by their jobs. They lovethe fact that they’re done when the market closes. And it only gets better:generally speaking, the more senior a trader is, the sooner he or she gets outafter the market closes.The one negative to working market hours is that you’ve got to get up veryearly to get to work. Typical fixed income and equity desks are fully staffedby 7:30 a.m. For most people, this means getting up at least one hour beforethat. International equity traders who are trading London hours are in evenearlier. Investment bankers, by contrast, begin rolling in the door after 9:00a.m.In contrast to most investment bankers, S&T professionals actually get to taketheir vacations. When senior traders are out, junior traders have anopportunity to step up. Normally there’s a pecking order among the juniortrading staff. The worst way to lose your position on this list is to trade thepad and lose a ton of money. While this is not a regular occurrence, it is veryunpleasant and junior traders who step into this responsibility when a seniortrader is on vacation need to strike the right balance between being aggressiveand being cautious with someone else’s P&L. Junior salespeople have atougher time earning this type of backup role. Most of the time, if asalesperson is out on vacation, it’s easy enough to re-assign that person’saccounts to the remaining sales staff. This minimizes any disruptions to thelevel of service to the client, but it also doesn’t provide a learning opportunityfor junior salespeople. When a junior salesperson develops the confidence ofmanagement, that salesperson will be given an opportunity to develop hisown book of business, typically starting with accounts that have not donevery much business with the firm in the past.Lunch is also worth talking about. There is a rather unpleasant hierarchywhereby summer interns and first-year analysts and associates are expectedto fetch coffee and take lunch orders. Junior staff on trading desks have been
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known to trek to Hoboken for special-ordered sandwiches for the Jersey mob,or to Brooklyn for steak and shrimp cocktails. But just because taking lunchor coffee orders doesn’t seem important, doesn’t meant that it isn’t. If Joeorders a medium coffee with cream, don’t give him a Frapuccino. The moreyou screw up, the more often you’ll be sent on coffee runs. The logic here is,if the kid can’t even take a coffee order, what reason do we have to think thathe can take a stock order? This is a rite of passage – almost everyone hasexperienced it, and there’s no way around it.Senior traders leave around 4:01 p.m. Analysts and associates at this pointbegin cleaning up the traders’ mess. This means going through the tradeblotter, matching up trades, confirming prices and knowing trades with otherdealers (settling the trades at the end of the day). Woe to any analyst who hasnot paid attention during the day to keep a running tally of what his trader hasdone for the day. Some traders have typical type A personalities – theyremember every detail of every trade, and are not impressed when the newlyminted Ivy League grad can’t keep up. On the other hand, some traders can’teven remember what they had for breakfast – in this case, the analyst needsto protect the trader from himself. In either circumstance, it is advisable tonote the details of every trade in the system and make sure you know exactlywhat happened. The best time to do this is right after the trade is done – it’sfresh in everyone’s mind and there’s less possibility for error.
Desk or Floor?Working on a trading desk (e.g., trading foreign currency options on thetrading desk) and working on the floor (e.g.., working on the ChicagoMercantile Exchange Floor) are two completely different experiences.Working on the desk is more comfortable – you can sit at a desk instead ofstand in a crowd. Whenever a big economic number is about to be released,CNBC will normally do an interview with a local trader on the ChicagoBoard of Trade. That colorful mass of humanity in the background is thetrading floor, and to survive, you need to be loud and aggressive. There arealso hand signals that you need to learn.Floor traders will argue that being on the floor gives them unique insight intothe flow of the business. You get to see the raw human emotions of thebusiness, you are competing with the best to make the right price on everypiece of business, and you get a more complete picture of supply and demand106
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dynamics of the business. The downside is that life on the floor can be quiteunpleasant – people can be nasty and rude to each other. Because of this,floor traders have a high burnout rate. Generally, specialist firms have floortraders and “upstairs” desk traders who work together as a team. The upstairstraders structure trades and the floor traders execute the components of thesetrades. Both the upstairs traders and the floor traders will tradeopportunistically for the firm’s account.
Q&A with a former (successful) floortrader:What did you trade?I traded Options on Futures of all the major USD vs. G-7 currency pairs(ie USD/JPY, EUR/USD, GBP/USD, USD/CHF, USD/DEM, USD/CAD) atthe CME and PHLXWhat’s the main difference between a floor trader and a desk trader?It really depends on what type of trader you are talking about (i.e.,equity vs. bonds, prop vs. market maker). In my case I was makingmarkets on Fx options. The biggest difference was centralization. Onthe floor you have access to all the traders in one central pit – thisallows for a fast execution as you can trade with several people veryquickly. OTC you have to call each individual bank or broker in order toget a price. Realize this is only for the options, a lot of OTC spot is doneelectronically and even the OTC options have moved this way recently.On the floor, 90 percent of the traders are locals working for themselvesor a small partnership or company. These guys have a limited amountof capital and are often unable to take down big size. The other bigdifference is the physical aspect – on the desk you get to sit in a comfychair all day and eat at your desk – on the floor you have to standshoulder to shoulder and there’s no eating or drinking allowed. Also,collusion is a lot easier on the floor.What type of coordination is there between the floor and the desk?At a bank that has both floor and OTC operations traders often shareprice and flow information and might leg into an arbitrage if the marketsare different. The arb is very popular in the S&P’s. There are guys thatjust trade the S&P futures against the basket of stocks in order topocket the difference.What did you learn in school that made you a better trader?The best thing I learned at school is how to compete. (I think, due tothe grade structure, this is severely lacking at the MBA level.) Futures
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and options trading is a zero sum game; being smarter than the otherguy and taking the right side is very important. There are winners andthere must be losers. A desire to be the best and be a winner at schooltranslates into good trading on the job. Also, school gave me a goodwork ethic that is important in trading. People who work hard at schoolwill do so at trading and this usually pays off. In terms of specificclasses, I think statistics is very important. Understanding how pricesare distributed with help you understand the length and range ofdifferent security moves. Also, any class with game theory that helpsyou think strategically.What did you enjoy most and least about floor trading?The most: the learning experience. It is much easier to learn how totrade on the floor than a desk because you can see and hear the greedand fear in traders eyes and voices. The least: standing up all day,which really hurts your legs and feet. Also, it is generally a dirty place– the physical location, the people, the conversation...What advice do you have for aspiring floor traders?Use the floor as a learning experience then get out. Electronic tradingis the future and where you want to be. The ISE – InternationalSecurities Exchange – is now the second most popular equity optionsexchange after having been around for only a few years. The specialistsystem is the only thing saving the NYSE – it provides a more orderlymarket.
DiversityAn important aspect of sales and trading is that it is predominately white andmale. Although no one on the inside will admit it (especially to anyone onthe outside), there is still a great deal of gender and ethnic-bias built into thesales and trading culture. This is most apparent in the types of jokes that arecirculated from one desk to another. If this is not an environment that you arecomfortable with, then take this as fair warning. If you’re passionate aboutsales or trading, but are uncomfortable with this type of environment, then itmakes sense for you to try and visit the desk before making any decision onan offer.
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Q&As with Women S&T ProfessionalsTo give you a sense of what it’s like to work on a trading desk as awoman or minority, we’ve interviewed several people in this position.Fixed Income SalespersonQ. What do you trade/sell?I work on the fixed income side, focusing on corporate bonds and creditderivatives.Q. How did you get interested in sales and trading?I was interested in working for an investment bank. As a careerswitcher, I diligently attended all the company presentations on campus,and quickly settled on sales and trading. My prior position was inhospital sales. I used to be on the phone all day long selling, and Ifigured that selling on Wall Street can’t be too much different.Q. I noticed that the only woman in the Boiler Room was the secretary.Obviously real life is different. How is it like working as a woman in thesuper-macho sales and trading environment?It’s not easy. There are very few female MDs or VPs on the businessside. Most women are either sales or trading assistants, with a slightbias for women in sales. Perhaps this is the face of the future, orperhaps it’s the glass ceiling. Successful women in this business workhard. A saleswoman that I work with has been in the business for over20 years. She graduated from Wharton and has a reputation for makinga lot of money and for being a workhorse – she competes with the bestsalesmen on the desk on a regular basis. Of course she rarely goes outdrinking with the boys, since she has to go home to her kids. Anotherfactor here is that a lot of women have husbands of means and oftenend up quitting the business to take care of the kids.Q. Do you find the jokes on the trading desk to be offensive? How doyou handle this?It’s hard to ignore everything, but I do my best to ignore the reallytasteless stuff. Although the trading desk is definitely raucous, at theend of the day, most guys realize that this is a place of business, andthey will conduct themselves accordingly. Going for drinks after work,however, can be a totally different experience.Q. How do you manage the work/life balance? How have you observedothers managing this balance?
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The really successful people in this business (men or women) spend alot of time working at the job. There’s really no way around it. To besuccessful you have to be a little obsessive about your career.Q. Do you feel that your quality of life is higher than your friends’ inother industries?Great question. The answer is that it depends on your definition ofquality of life. If your definition of quality of life means the person withthe most money, then the answer is maybe. Sales and trading involvesgetting up at ridiculously early hours and going to bed before the 10o’clock news. There’s always the image of a trader holding a losingposition and having a heart attack on the floor. While this undoubtedlyhappens, stress in this business is more insidious. It’s monotonyinterspersed with stressful situations day after day after day. Mostpeople in this business are young and physically fit, but it’s incrediblehow many people have ulcers or high blood pressure. That’s not to saythat this business isn’t for the right person. What I would say is thatyou need to have more of a reason to get into sales and trading thanwanting to score the fast buck or not wanting to work in the investmentbanking sweatshop. One of the MDs I work with has been around sincebefore the 1987 stock market crash. He still gets up at 4:30 a.m. everymorning and is the first one to log onto the Bloooberg to check thenews. This isn’t because he has to – it’s because he loves the business.Mortgage-backed Securities SalespersonQ. What do you trade/sell?Mortgage-backed sales – this includes just about anything that issecuritized, from commerical MBS, asset backeds, CDOs. Althoughthey are not my primary focus, I do end up selling some Treasury,Agency and derivative products as well.Q. How did you get interested in sales and trading?Although it may sound kind of corny, I really have always beensomewhat interested in the markets because my father was in thebusiness for 35 years, albeit on the equity side.Q. I noticed that the only woman in the Boiler Room was the secretary.Obviously real life is different. How is it like working as a woman in thesuper-macho sales and trading environment?What they say is true – you indeed MUST have a thick skin (although Iwould say this goes for pretty much anyone who is entering the tradingenvironment from a different business or directly out of college). Iusually just remind myself that if someone is yelling (at me or otherwise)
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it probably has little to nothing to do with me (or the individual inquestion). My desk has really come a long way in the last few years –publicly chastising or berating someone is much less tolerated. Withregard to being one of the few women in fixed income, my firm is a veryfamily-oriented place and with few exceptions, most of my malecolleagues are not pigs. Don’t get me wrong, there are times I shrugand roll my eyes at some of the things I hear people say. Quitehonestly, though, people on the Street want to make money and if youcan contribute to the bottom line, you will be accepted. I would addthough that it helps if you like sports and play golf because it gives yousomething additional to discuss with your male colleagues. On a relatednote, most of my customers are male and dealing with them at timescan be trickier than dealing with my colleagues on the desk. I have hada few men say inappropriate things to me but I really just do my best toshrug it off and move on.Q. Do you find the jokes on the trading desk to be offensive? How doyou handle this?At times I am offended but I really believe that these jokes are told in allworkplaces, not just on a trading desk. The difference is that everythingwe do and say is out in the open so it is challenging to close youreyes/ears to lewdness. I am not a shy person so will definitely open mymouth if I find something offensive. The best way to get someone torealize that what they are saying is inappropriate is to make them selfconscious.Q. How you deal with uncomfortable situations which may arise whenyou go out with the guys after work.Again, I have to first say that most of the guys I work with are genuinelynice, fun people who are married or involved in serious relationships sothey behave themselves. I think I distance myself a bit from the fewpigs I know on my desk and thus have not had to deal with anythingtoo bad. I have had to ‘chaperone’ some of the younger girls on thedesk when they have gone out with a specific individual because I didnot trust him to not try to exert his seniority over them. Also, since Iam pretty forthcoming and outspoken, I am quite adept at avoidingtouchy situations. Finally, I have spent most of my adult life working inmale-dominated industries (after attending Dartmouth as an undergrad)I am kind of used to it!Q. How do you manage the work/life balance? How have you observedothers managing this balance?
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It is not always easy but as I indicated earlier, my firm is a familyoriented place. For example, a women with a toddler recently startedworking from home two days a week and it seems to be going well thusfar. That being said, it seems like after a second or third child, morewomen opt to stay home. I am frustrated at times by the flippant malewho will proclaim how easy it is to have a family and work. Of courseit is for them when they have a stay-at-home wife and a nanny!Q. Do you feel that your quality of life is higher than your friends’ inother industries?Yes. Although at times I wish I had an office and could close the door,I thrive in my work environment. I don’t work late at night (other thanentertaining) and have my weekends free 99 percent of the time. I doget to work very early in the morning (before 7) but I am used to it. Forthe most part we are very well paid especially considering how muchfun we have.
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SALESTRADICAREGETTING HIREDChapter 9: The Hiring Process
Chapter 10: Interview QuestionsChapter 11: Exit Options
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The Hiring ProcessCHAPTER 9
Hiring ProcessThe front-door hiring process for analyst/associate programs is on-campusrecruiting, which for most campuses and firms takes place in October andNovember. Most investment banks conduct on-campus interviews at theirtarget schools for their sales and trading analyst and associate programs.Students who do well are invited for a second (and generally final) round ofinterviews at the firm’s headquarters.In addition to the typical behavioral interview, you should also be preparedfor the “stressful” interview – an interview in which the interviewer is veryconfrontational or disagrees with what you’re saying just for the sake ofdisagreeing. This is a modified behavioral interview meant to separate outthe cool and composed candidates from the ones whose nerves fray easily.The rationale here is that if you fall apart during the interview, chances aregood that