Sales and Trading Overview V2

Institutional Equity Sales & Trading Overview June 29 th , 2010 By: Kyle D’Silva

Career Background
2 ½ years at Blackmont Capital
Desk Analyst (Combination of Research / Sales / Trading)
Hedge fund idea development
Merger-arbitrage, long / short, dedicated short, convertible / warrant arbitrage, warrant volatility, spin-offs, special situations
Developed various trading models (merger-arbitrage, DCF, relative value)
Produced special situations and event-driven publication for hedge fund clients
Interfaced with Investment Banking, Equity Capital Markets, Research, Sales, Trading, and Fundamental / Alternative PM’s and analysts on the buy-side

Capital Market Structure

Sell-Side Capital Markets Structure
MARKET ROLE RESPONSIBILITIES
Primary Capital Markets Investment Banking Raise capital (IPO & secondaries), M&A advisory
Secondary Capital Markets Equity Research Research publicly traded firms
Equity Sales Buffer between PMs and IB / Research. “Sell” IB deals / research ideas / trading ideas to PMs
Equity Trading Trade stocks on behalf of buy-side. Trade stocks on behalf of firm.

The Age Old Question: The Chicken Or The Egg?

Connections Make The World Go Round

Equity Trading Roles
FUNDAMENTAL / HEDGE TRADER
Trades as an “agent” on behalf of clients. Client specifies what they want exactly, trader executes.
Trades as “principal” for a client. Trader has discretion on how to execute trades.
Paid commissions in pennies / share, scaled.
Probability of getting a job right out of Ivey: 1%
LIABILITY TRADER
Facilitates trades for clients of firm (buy-side).
Acts as a source of liquidity for clients.
Works with firm’s capital. Goal is to lose as little as possible.
Carries very few positions over-night, as they are risk-focused. Eliminates risk.
Probability of getting a job right out of Ivey: 0%.
PROPRIETARY TRADER
Trades on behalf of the firm in order to make money on capital. Similar to a hedge fund.
Goal is profit.
Very specialized knowledge and are well connected.
Probability of getting a job right out of Ivey: 0%.

Equity Sales Role
FUNDAMENTAL & HEDGE SALES
Talk to clients daily about what is going on in the markets
Discuss client positions and make recommendations about how to structure their portfolios.
Discuss “fundamental” (long only) ideas, discuss special situations / alternative / hedge ideas (short ideas, long-short ideas,
Main job on a daily basis is to sell Coles-Notes version of Equity Research in order to get daily trade.
Main job on a long-term basis is to sell Investment Banking product. IPOs, secondary deals.
Schmooze clients in order to get trading and investment banking revenue.
Take Equity Research Analysts to clients to discuss ideas and get intelligence on client positions.
Probability of getting a job right out of Ivey: 1%

Sales & Trading Desk – Physical Set-up Assistants Sales & Trading Desk

What Does A Trading Desk Look Like?

Sales & Trading Desk - Communication Equity Research & Investment Banking

A Day In The Life Of A Trader / Salesperson
5:00am – Wake up, read the news, drink 1 st coffee.
6:30am - 7:30am – Check over night markets, futures, market / economic / sector / stock specific news, understand the trends, drink 2 nd coffee.
7:30am to 8:00 / 8:30am – Morning meeting. Research, IB, ECM, Sales, Trading will all contribute. Speak about client positions understand what is going on in the world that date.
8:30am – Grab breakfast and coffees for the desk (3 rd coffee).
8:30am – 9:29am - Call clients to get orders and understand bias. Make firm positions on stocks be known.
9:30am – Market about to open, watch stocks, queue orders.
10:00am – Salesperson is making calls to PMs and analysts. Potentially takes Research Analyst to a client to “market” the stocks they cover. Potentially go to an industry conference.
10:30am – Head trader throws a pen at you for making a stupid trade.
10:35am – Head trader high fives you for making a great trade.
11:30am - Assistant gets lunches for traders.
12:00pm - Salesperson takes client out for lunch. Discusses economy, portfolio, and stocks.
2:00pm – Markets are dead, grab coffee for the desk (4 th coffee)
4:00pm – Markets close, mark trade blotter, follow up with clients for confirm, ensure P&L is accurate.
5:30pm - Drinks at Ki, Bymark, and / or Vertical with clients and / or colleagues.
10:00pm – Back at home. Fall asleep and have sweet dreams of a fat bonus.

How Do You Get a Job?
Know somebody on Bay Street.
Call any and all capital markets firms and beg the Head of Sales / Head of Trading for an interview.
Recruitment programs – Check bank websites.
Headhunters
Joe Kan - http://www.theheadhunter.ca/headhunter.html
Bill Vlaad – www.vlaadco.com
Trading - Start trading and show that you have a history of success as a trader. Know the markets inside and out, and they may give you a chance.
Sales – Typically through IB or research, viewed as a place to retire without going to the buy side.
Typically have to start off at a small shop and move to a larger one once you prove your abilities. You will have the smallest and worst accounts to begin with, and must make them profitable.

Key Success Factors
Knowledge of and passion for markets
Knowledge of industries
Proactive and aggressive bias
Tenacious
Having the “gift of gab” (being able to schmooze / sell)
Having industry contacts
Firm and team fit are the most important factors
Being a team player
Trading lingo is distinct. Learn the lingo!

Industry Trends
Consolidation amongst dealers
Forcing buy-side to choose who they want do business with. Buy-side is “over-brokered”.
Power is shifting to buy-side.
Buy-side is bringing research and trading function in-house.
Sales and Trading are merging
The “Sales –Trader” is emerging as a regular feature on desks across Bay Street.
Specialization amongst Sales / Trading
Industry / market specialization. Allows a firm to garner a loyal following and therefore business.
Hedge Fund Sales / Trading
Rise and fall of this profession due to markets.
Return of the prodigal ex-pats – NYC and London workers returning to Toronto.
Rise of the machines – Program / algorithmic trading and the rise of the quant traders.

Resources
Newspapers – WSJ, Financial Times, Globe & Mail, Financial Post
Periodicals – Barron’s, Investors Digest, Economist
Vault Guide to Sales & Trading
Bloomberg Certification, DealMaven, IBI, Marquee, Wall Street Prep etc.
CFA designation (Toronto CFA Society)
Canadian Securities Institute Courses
Alumni network
Current Ivey students
A personal copy of Wall Street

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Sales and Trading Overview V2

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Sales and Trading Overview V2 — Presentation Transcript