Looking Forward

By Karla L. Yeh, Chicago Correspondent

KEY PLAYERS WEIGH IN ON THE CHANGE AND CHALLENGES of 2009

This year brought its fair share of challenges and there are still indications that more challenges lie ahead. Markets Media Chicago Correspondent Karla L. Yeh speaks to key players in the new era of trading as they look forward to 2009.

Tim Mahoney, chief executive officer of BIDS Trading

Markets Media: How did your company perform in market turmoil of 2008 and what did it learn from the challenges of last year?

Tim Mahoney: When you look at 2008, there were so many challenges that came so quickly so suddenly that you couldn't predict them, so you rely upon your ability to innovate. Who would have ever suspected, or even calculate, that Bear Stearns and Lehman Brothers would cease to exist? If you look at 2008, here were lots of surprises. And if you look at 2009, there will be more. You have to continue to be as thoughtful as you can in planning what's going to happen. It's like living your life in a whitewater existence to avoid rocks and get around them. That's kind of the way we see the year. It's been a year of challenges and a year of unexpected events.

Whenever you, as a spectator, watch a disaster, you always recognize that there is always something to happen afterward. You still have to be able to take a stock, sell it and buy stock B. Our responsibility is to provide the highest quality and most reliable place for people to trade stock. We've been through one of the great tests in the history of the business, and it worked. We're committed to having a flexible environment.

2008 was a year of building and connecting, the less glamorous work to add value and build infrastructure. In 2009, we will continue our core mission of the New York block exchange of helping investors and users. Allowing convergence of display, reserve and dark liquidity is going to be a very big part of our story next year.

To be successful in our environment, you have to be able to maneuver and think on your feet. With my Swiss Army knife and little bit of duck tape, we'll be able to succeed.

MM: How will your company approach the challenges of 2009?

TM: If you're going to sit there and predict what will happen, you're going to be plain wrong. There will be multiple different twists and turns going forward. We need to plan and spend money on infrastructure to support our system. Innovation has generally been good. We've been able to have multiple types of trading work very well together in inevitably one of the most stressful times.

What you don't expect to happen will happen. You have to be really prepared for the unexpected. There will be a certain amount of continuation from 2008. We're better off being McGiver than James Bond, or the heroes of the ‘80s when the guys with a Swiss Army knife and duck tape could dispose a nuclear bomb.

MM: What are the greatest challenges to come in the market in the larger scheme of things that will directly affect your company? How will you personally meet those challenges as CEO?

TM: There were lots of successes of 2009, like how well the cash U.S. equity market structure worked. 2008 provided a thoughtful, resilient infrastructure that works quite well. It's giving you the ability to react and gives multiple different approaches to the same problem. The U.S. market worked every single day. The U.S. equity market structure had a component that let you experience and be innovative and create to determine the price of a security. 2008 proved to me that venues like dark pools are incredibly valuable to handle tremendous infrastructure shock. We, as an industry, should be very proud of how we performed.

Bill O'Brien, CEO of Direct Edge

Markets Media: How did your company perform in market turmoil of 2008 and what did it learn from the challenges of last year?

Bill O'Brien: 2008 was a year of incredible turmoil and incredible transition. It was an incredible opportunity for Direct Edge. I really feel like this year was our coming out year. We established ourselves as one of four major market centers. If you look at matched market-share and where everybody is in January versus December, Direct Edge has grown the most. We're definitely the fastest growing major market. Throughout the course of 2008, we layered on significant growth with significant volume in these turbulent times. It really was quite a ride.

MM: How will your company approach the challenges of 2009?

BO: Despite the significant growth we had, there's still significant growth opportunity before us to grow our core business. We're pretty darn focused about making sure we continue to exercise strength as an innovator and offer off-floor trading solutions that others cannot provide. We want to be more things to the trading community. We'll also take advantage of the benefits of the partnership with ISE. The deal is slated to close between now and the end of the year and we're scurrying about trying to make that happen. We're also thinking about how we expand the Direct Edge product offering and take things that are unique and special when we choose to expand what we do.

MM: What are the greatest challenges to come in the market in the larger scheme of things that will directly affect your company? How will you personally meet those challenges as CEO?

BO: Maximum level of alertness with 10 Diet Cokes a day! You have to expect the unexpected and conventional wisdom doesn't exist anymore. As we lay out our strategy for 2009, we have to do so knowing full-well that we have to be flexible in changing macroeconomic market conditions. We need the right people on board and we set that strategy of getting the right partners up the food chain and getting the right people down the food chain.

My job as CEO is to create conviction to execute on that strategy. We need to have the right partners with the right attitude to help us do that. I'm so excited about the ISE partnership because we're bringing a whole bunch of new passion into the fold. You're going to see a variety of initiatives to stimulate growth in our core business, like formerly filing the exchange application for EdgA and EdgX. We'll start to executive the plan outlined.

Stu Breslow, CEO of Townsend Analytics

Markets Media: How did your company perform in market turmoil of 2008 and what did it learn from the challenges of last year?

Stu Breslow: The current market turmoil hasn't dramatically affected Townsend, which experienced a somewhat diversified revenue stream and client mix across geographies, asset classes and client segments. All-in-all, there has been some movement of users and shift in the mix of trading destinations. But overall, we're still seeing increasing growth in trading activity proportional to market volumes. We're seeing the consolidation of technologies on the desktop, which is good for our business. Due to market volatility, certain asset classes are flourishing especially for hedging and complex strategies.

Townsend learned how valuable a player it is to the global trading community. Also, neutrality and independence matters. Multi-broking and multi-prime models are the most resilient especially as destinations and players are shifting. Single-prime and single-executing broker models are increasingly becoming outdated. And in an up market or down market, vendors always need to be a step ahead of the market with respect to infrastructure capacity. And in turbulent times, service is especially critical.

MM: How will your company approach the challenges of 2009?

SB: No one anticipated the scale and scope of turmoil in 2008 and we don't profess to have the crystal ball for 2009. But it's reasonable to expect some continuation of market consolidation and contraction among end-users and an increase in messaging rates. There will be an increasingly competitive market from providers and displacement versus growth. We expect an increase in the number of agency brokers looking to leverage RealTick as the preferred EMS for their electronically savvy client bases.

Townsend will approach the challenges of 2009 the same way it approached the challenges of 2008: Stick to our guns and continue providing clients with the best global, multi-broker, cross-asset trading solutions available. We plan to continue adding brokers and destinations to its network and be nimble and quick to respond to market challenges and opportunities as they arise.

MM: What are the greatest challenges to come in the market in the larger scheme of things that will directly affect your company? How will you personally meet those challenges as CEO?

SB: Getting the capital markets engine moving again, the overall economic environment, potentially increased regulatory environment, fund closures and investor redemptions and the shifting of players with the evolving of former investment banks' business models are all challenges that could affect Townsend.

We have a lot of smart people at Townsend, from development to service and support, and I will continue to provide an environment where we can address challenges as they arise as a firm. I will also continue to deliver a robust, stable, cutting-edge global multi-asset trading platform and continue to differentiate by providing superior client service.

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Posted on Jan. 16, 2009