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Liquidity Hunters

With so many electronic trading venues emerging under Reg NMS, monitoring market structure is turning into a full-time job.

After earning a Ph.D. in physics from Duke University in 1998, Michael Bleich probably never envisioned that he'd be building an alternative trading system (ATS) at Lehman Brothers, or representing the firm's stake in the Boston Stock Exchange's (BSE) electronic trading venture. But fast-forward eight years later and that's exactly what Bleich is doing.

"This is a once-in-a-lifetime event where market structure is unfolding rapidly - it's on top of everybody's minds," says Bleich, who parlayed his analytical and math skills into a trading career. Reflecting an industry trend, in May, Lehman Brothers shifted Bleich, who was cohead of its agency program trading desk, into the new position of liquidity strategist.

With so many market structure changes driven by Regulation NMS reverberating through the equity markets, a new role is emerging at Wall Street brokerage houses to help firms understand the new trading landscape and access liquidity for their customers. Large sell-side firms are tapping internal market structure experts to monitor the execution venues, ATSs and hidden liquidity pools.

In the past two years, Lehman, Credit Suisse and Citigroup have asked traders to immerse themselves in market structure, and at Lehman and Citigroup, the role has morphed into a full-time position. These individuals typically have experience as traders, but they also advise the firm on its investments in regional stock exchanges and other electronic equity trading venues, while playing an instrumental role in driving their firm's own projects to build ATSs.

As a trader, Bleich often focused on market structure issues. "We were going through an incredible time with market structure, with ECNs being bought and consortiums being formed around the regional exchanges," he recalls. After Lehman decided to invest alongside brokers Morgan Stanley, Citigroup, UBS and Credit Suisse in the BSE's electronic trading venture last year, Bleich began representing the firm on the board of the BSE. Earlier this year his new position was formalized, and today Bleich spends 100 percent of his time on market structure and liquidity issues. What began "as a sideline started taking up more and more of my time, until we realized we needed a group focused on those issues," he says.

Though liquidity strategist may be a unique job title, the role has been turning up at other major sell-side firms. Bleich's counterpart, Jose Marques, is director in the equity division at Credit Suisse and attends the BSE board meetings. But unlike Bleich, Marques' title - and his responsibilities - are not so narrowly defined. Still, "The need is similar at most firms," says Marques. "This kind of activity has grown out of the need to adapt and react to quickly changing market structure."

While Marques has trading oversight in U.S. equities, he says he spends about 50 percent of his time on market-structure-related issues. "I spend a good deal of time understanding the minutiae of market structure," relates Marques, who joined Credit Suisse two years after stints as a trader at Goldman Sachs and Morgan Stanley.

Currently, according to Marques, he is involved with creating algorithms for automated trading. In addition, Marques says he oversees his firm's strategic investments in U.S. equity trading venues, whether that's in regional exchanges or other trading venues. Credit Suisse has taken equity stakes in the BSE and the Philadelphia Stock Exchange. And, at press time, Credit Suisse and Citigroup were among a group of Wall Street investors - including Bear Stearns, Merrill Lynch, Knight Capital Group and Bloomberg Tradebook - that intended to close a deal in early September for a 50 percent stake in the National Stock Exchange.

Marques also is actively involved in evaluating other trading platforms, including ATSs and ECNs. "Our primary motivation is to positively influence market structure development on behalf of our clients," he says, adding that "the investments also have to make financial sense."

Meanwhile, Tom Richardson shifted from his full-time trading job two years ago to fill a gap in market structure knowledge at Citigroup Capital Markets as a managing director in U.S. equities. Richardson has been investing money in the electronic trading space and is engaged in a similar range of activities as Marques. Richardson serves as an adviser to Citigroup's head of equities and global equities on U.S. equity market structure, which encompasses all the automation occurring at the exchanges, the NYSE's Hybrid initiative and investing Citigroup's money in the electronic trading space.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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