"The reality of the US securities industry is that it is exceptionally cash intensive--and becoming a division of a bank is a natural progression that all of the major firms will sucumb to sooner or later."

If you had said that to me as recently as six months ago, I would have agreed. Now I'm not quite so sure. Citi's been told by regulators to not even think about more acquitions until they get their current operation in order, and I've yet to see any other bank/brokerage marriages work out as planned. In fact, Citi's already killed their attempt at a full service brokerage/bank/insurance giant by selling off Travelers.

It may be the bank/brokerage mergers we've seen are little more than a cycle that can reverse.

",…cylce that can be reversed."



Why would it be good if the trend were reversed?  Having access to
capital is critical, and it matters not where that capital comes from.



Is there a top tier firm other than Merrill and Edwards that is not already dancing with a bank?



What does Citi Group being told that they cannot buy another brokerage
firm have to do with Merrill or Edwards accepting an offer from a bank?



If you’re in production at Merrill or Edwards how will your life change
if there is a change in ownership of the firm?  In many ways a
producer is like a professional athlete–he plays the game and doesn’t
really care who owns the team as long as he gets paid.



Finally, the reason there is very little movement among the big hitters
at the major firms is because they know that the grass is the same
color on the other side of the fence.  A producer at a top tier
firm has “arrived” and there is basically nowhere else to go.

[quote=rightway]

The deferred comp makes us wealthy- how is that bad again?  I just
don’t see why you all think ML indoctrines its advisors into some
"evil" practices.  Its a huge B/D, and if 5% of the registered
reps are bad- ML will have more than anyone else in numbers…ML has
nothing to do with that in practice.

[/quote]



Deferred comp is bad because it greatly reduces your ability to leave without suffering adverse financial consequences.



Brokerage firms did NOT push deferred comp down people’s throats because it wasn’t good for the firms.



Deferred comp is solely designed to limit reps, not help them.  A
successful rep can get wealthy just fine without having his
compensation deferred.



Deferred comp is going to be much cheaper than forgivable loans.  That’s for sure.



These firms can do whatever they want, whenever they want.  They
can slash your payout (which they will), they can cut support (which
they have), and they can start adding all sorts of fees for this and
for that which can cost several grand a month.



NEVER think that any firm is looking out for your interests.  You are in for a rude awakening if you do. 



The big players tend to move together, with ML leading the way.



How confident are you that you could take your assets out of ML?  Will your clients follow you?



Hey, if you’re happy with absolutely no options and having your career
held captive by senior management, then that’s fine.  But you
can’t put a price on freedom.  And freedom includes the ability to
pick up and go to the firm across the street.  Without freedom,
you are an indentured servant.



(By the way, I never said that ML reps were bad.  Not at
all.  However, I will say that the management is evil. 
Especially the investment banking side.)

[quote=Put Trader]",,....cylce that can be reversed."

Why would it be good if the trend were reversed?  Having access to capital is critical, and it matters not where that capital comes from.

Is there a top tier firm other than Merrill and Edwards that is not already dancing with a bank?

What does Citi Group being told that they cannot buy another brokerage firm have to do with Merrill or Edwards accepting an offer from a bank?

If you're in production at Merrill or Edwards how will your life change if there is a change in ownership of the firm?  In many ways a producer is like a professional athlete--he plays the game and doesn't really care who owns the team as long as he gets paid.

Finally, the reason there is very little movement among the big hitters at the major firms is because they know that the grass is the same color on the other side of the fence.  A producer at a top tier firm has "arrived" and there is basically nowhere else to go.
[/quote]

Access to capital is critical?  Hmmm....on the retail end of the business I actually perceive this business to be pretty 'asset light'....and feel that you only need access to capital if:

1.  You are going to get involved in the creation and distribution of proprietary product.  (Note AGE does not do so, and their ROA is quite high!)

2.  You plan on blowing tons of dollars on showy branches and expensive headquarters buildings in Manhattan and other major cities(again look at AGE....Ben always used to say that we owned our HQ for the cost of a year's rent in Manhattan.)

3.  You have a bunch of overpaid I-Bankers putting your firm's capital at risk on an ongoing basis.

4.  You dump a lot of capital into your trading desks so that your committed traders can trade against customer order flow....for the benefit of the firm...

Just one humble man's vaguely informed opinion.....enlighten me if you disagree.

[quote=joedabrkr]

Access to capital is critical?  Hmmm…on the retail end of the
business I actually perceive this business to be pretty ‘asset
light’…and feel that you only need access to capital if:

1.  You are going to get involved in the creation and distribution of proprietary product.  (Note AGE does not do so, and their ROA is quite high!)

2.  You plan on blowing tons of dollars on showy branches and expensive headquarters buildings in Manhattan and other major cities(again look at AGE....Ben always used to say that we owned our HQ for the cost of a year's rent in Manhattan.)

3.  You have a bunch of overpaid I-Bankers putting your firm's capital at risk on an ongoing basis.

4.  You dump a lot of capital into your trading desks so that your committed traders can trade against customer order flow....for the benefit of the firm...

<>

Just one humble man’s vaguely informed opinion…enlighten me if you disagree.</>

[/quote]



Regardless of what is done with the capital, it is critical to have it.



Your item 4–trading desks–is a good example.  The more capital a
firm has the more markets it can make.  Perhaps you can share with
us why it is bad for a firm to trade for its own benefit?



Perhaps you can explain why it’s bad to have buildings in
Manhattan?   That AGE chooses to office in St. Louis is
actually redundant.



There is so much more  to this business than retail branches, and
as a result firms like Edwards have hundreds–perhaps thousands–of
people in jobs in and around Manhattan.



As for fancy buildings.  Perhaps you can explain why it is wrong
to house your business in a showplace building in Manhattan. 
Quite often the landlords will give a premier Wall Street firm a year
or more of free rent in order to lure them.  The city is known for
cutting tax benefits in order to keep New York as the financial center
of the world.



Surely you’re not going to suggest that Ben Edwards is right and dozens of other bright leaders of other firms are all wrong?



Proprietary products are not all that cash intensive–it’s the ability
to participate in syndicates of all types that requires the
bucks.  On any given day there are dozens of deals being
worked–and managers telling brokers who then tell customers, “We can’t
get any of that…” is never good.

> ",,....cylce that can be reversed."

"Why would it be good if the trend were reversed?  Having access to capital is critical, and it matters not where that capital comes from."

I didn't say it would be good, I said I wasn't so sure it was the wave of the future any longer. This wouldn't be the first industry to go through a merger mania and a conglomeration phase only to see it all spun apart again. Also, I wouldn't be so sure banks are the capital source for retail brokerage that you might think. The same was said of insurance companies and that idea's already passed.

"Is there a top tier firm other than Merrill and Edwards that is not already dancing with a bank?"

Morgan Stanley. (BTW, AGE is a fine firm, but being centered out in StL, I wouldn't call it top tier. Jmho)

"What does Citi Group being told that they cannot buy another brokerage firm have to do with Merrill or Edwards accepting an offer from a bank?"

Nothing, but it does demonstrate the problems with integration.

"If you're in production at Merrill or Edwards how will your life change if there is a change in ownership of the firm? "

Not much, I would assume.

"Finally, the reason there is very little movement among the big hitters at the major firms is because they know that the grass is the same color on the other side of the fence.  A producer at a top tier firm has "arrived" and there is basically nowhere else to go."

I think you might want to rethink that one. I see a great many top producers (multi-million) and their teams moving between the top three (ML, SB and MS).

[quote=stanwbrown]



“Finally, the reason there is very little movement among the big
hitters at the major firms is because they know that the grass is the
same color on the other side of the fence.  A producer at a top
tier firm has “arrived” and there is basically nowhere else to go.”

I think you might want to rethink that one. I see a great many top producers (multi-million) and their teams moving between the top three (ML, SB and MS).

[quote=Put Trader] [quote=joedabrkr]
Access to capital is critical?  Hmmm…on the retail end of the business I actually perceive this business to be pretty ‘asset light’…and feel that you only need access to capital if:

1.  You are going to get involved in the creation and distribution of proprietary product.  (Note AGE does not do so, and their ROA is quite high!)

2.  You plan on blowing tons of dollars on showy branches and expensive headquarters buildings in Manhattan and other major cities(again look at AGE....Ben always used to say that we owned our HQ for the cost of a year's rent in Manhattan.)

3.  You have a bunch of overpaid I-Bankers putting your firm's capital at risk on an ongoing basis.

4.  You dump a lot of capital into your trading desks so that your committed traders can trade against customer order flow....for the benefit of the firm...

  <>
Just one humble man's vaguely informed opinion.....enlighten me if you disagree.
[/quote]

Regardless of what is done with the capital, it is critical to have it.

Your item 4--trading desks--is a good example.  The more capital a firm has the more markets it can make.  Perhaps you can share with us why it is bad for a firm to trade for its own benefit?

Perhaps you can explain why it's bad to have buildings in Manhattan?   That AGE chooses to office in St. Louis is actually redundant.

There is so much more  to this business than retail branches, and as a result firms like Edwards have hundreds--perhaps thousands--of people in jobs in and around Manhattan.

As for fancy buildings.  Perhaps you can explain why it is wrong to house your business in a showplace building in Manhattan.  Quite often the landlords will give a premier Wall Street firm a year or more of free rent in order to lure them.  The city is known for cutting tax benefits in order to keep New York as the financial center of the world.

Surely you're not going to suggest that Ben Edwards is right and dozens of other bright leaders of other firms are all wrong?

Proprietary products are not all that cash intensive--it's the ability to participate in syndicates of all types that requires the bucks.  On any given day there are dozens of deals being worked--and managers telling brokers who then tell customers, "We can't get any of that...." is never good.
[/quote]

Why is it bad to have a firm trade for its'  own account?

For starters, it's risky.  Goldman is about the only one who has been able to do it successfully with any consistency.  Secondly-it often means they're taking positions exactly opposite to that of the client....a built in conflict of interest.

Is there anything wrong with having a firm HQ in a showplace buildilng in Manhattan?  pffffft......only if you enjoy overspending, I suppose.  That one year's free rent is a drop in the bucket compared to what firm's spend in NYC compared to other locales.

"No doubt there is movement, but relative to the number of big hitters and their teams that could be in play relatively few move around--especially more than once."

I don't know how to quantify something like that, be there surely is movement, and the firms are paying big buck to getting them.

[quote=joedabrkr]

Why is it bad to have a firm trade for its’  own account?

For starters, it's risky.  Goldman is about the only one who has been able to do it successfully with any consistency.  Secondly-it often means they're taking positions exactly opposite to that of the client....a built in conflict of interest.

Is there anything wrong with having a firm HQ in a showplace buildilng in Manhattan?  pffffft......only if you enjoy overspending, I suppose.  That one year's free rent is a drop in the bucket compared to what firm's spend in NYC compared to other locales.

"There is no conflict of interest in being on the other side of the market from a customer unless you are recommending that the customer take what you see as the wrong position."

Gee, I think the odds of that (that the client owns what was recommended to them) are pretty good when we're talking about brokerage firms.

You mentioned capital needs to have the ability to participate in syndicates . Doesn't it sort of undermine your position about brokerages needing banks when the biggest players in this field are all "bank free"?

[quote=stanwbrown]

“There is no conflict of interest in being on
the other side of the market from a customer unless you are
recommending that the customer take what you see as the wrong position.”

Gee, I think the odds of that (that the client owns what was recommended to them) are pretty good when we're talking about brokerage firms.

You mentioned capital needs to have the ability to participate in syndicates . Doesn't it sort of undermine your position about brokerages needing banks when the biggest players in this field are all "bank free"?

"It sounds like you're a penny stock whore who has come to grips with the reality that you're really nothing more than a soldier in a crime family--that's good, self realization is good for the soul."<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

WTF are you babbling about? Obviously you’re deeply confused.

"However, if you had reputable firm experience you'd understand that real brokerage firms do not take the other side of the trade for any length of time."

Oh, so it's ok to recommend a stock to the firm's clients, and then take a position against it, so long as you only do it for a brief period? LOL Look, I don’t have a problem with firms doing proprietary trading so long as they never take a position contrary to what they’ve recommended to their clients. Clear enough?

"  The vast majority of trades in this business are not the "pump and dump" scams that color your point of view."

You need a program pal, clearly you can't keep the players straight without one...

"Reputable firms do not issue favorable research and then engage in short sales to accomodate customer buy orders."

Huh, I would hope not.

"As for the comment about the need for banks in order to engage in underwritings.
It is true that "bank free" firms such as Merrill are major players in the investment banking arena--but their successes are not because they have no ties to banks, it's inspite of the lack of ties to banks."

Is that right? Seems to me the biggest players in IB, MS, Goldman, ML are all bank free and have been leaders in the field for decades. OTOH, SB, with Citi behind it, a decade later still trails in IB business. UBS isn’t even on the map. Doesn't sound like "inspite of" to me.

"The other day I asked how the average Joe and Joanne broker's life changes if they wake up one day and hear that their B/D was acquired by The Bank of Sweden.  What I heard was nothing--so I assume that it is agreed that there will be no change."

I never said I thought there were be a change, although I've since heard from others that they did, in fact, see a change. They report an end of Entrepreneurial spirit, but I’ll leave it to them to support their comments.

"Arguing that bank ownership negatively affects any tier of the business is as specious as arguing that it's better to not be a member of a rich family--there is no way having more money can be portrayed as a negative."

Some how you drew all those comments based on things I didn't say or didn't disagree with. I never said it would negatively effect anything. I’m not particularly sure one way or another on that aspect of it.  My point is that several years ago it seem inevitable that banks, brokerages and insurance companies would combine. Now, I would say that doesn't seem so sure a thing. Citi's had a tough time integrating their enterprise, to the point where regulators have said "no more for now". They sold off their insurance arm, and the only player I can think of that's recently been bank bought was Paine Webber, never a powerhouse to begin with.

[quote=stanwbrown]Oh,
so it’s ok to recommend a stock to the firm’s clients, and then take a
position against it, so long as you only do it for a brief period? LOL
Look, I don’t have a problem with firms doing proprietary trading so
long as they never take a position contrary to what they’ve recommended
to their clients. Clear enough?<o:p></o:p>[/quote]



Acme B/D has issued a buy recommendation for XYZ–a top tier NASDAQ issue with plenty of float.



Is Acme behaving illegally if Acme fills Acme client buy orders from an inventory position?



They’re selling to their clients who are buying–is that prima facia
evidence in your world of taking a position conntrary to what they’ve
recommended?  If a firm has a buy recommendation out do they have
to maintain a long position in the stock or is it acceptable to be flat
at the end of the day?



If you’re a position trader is it acceptable to go home short even though the stock is on the firm’s recommended list?

"Acme B/D has issued a buy recommendation for XYZ--a top tier NASDAQ issue with plenty of float.

Is Acme behaving illegally if Acme fills Acme client buy orders from an inventory position?"

Yes.

"They're selling to their clients who are buying--is that prima facia evidence in your world of taking a position conntrary to what they've recommended?"

Yes.

"  If a firm has a buy recommendation out do they have to maintain a long position in the stock or is it acceptable to be flat at the end of the day?"

If they have a buy, and they're trading for the house, they should be long as long as they have a buy to their clients on the same stock.

"If you're a position trader is it acceptable to go home short even though the stock is on the firm's recommended list?"

No. That's taking a position contrary to the good of your clients.

"Acme B/D has issued a buy recommendation for XYZ–a top tier NASDAQ issue with plenty of float.

Is Acme behaving illegally if Acme fills Acme client buy orders from an inventory position?"

Yes.

Then, how do you propose a firm honor its customer's orders?

++++++

"They're selling to their clients who are buying--is that prima facia evidence in your world of taking a position contrary to what they've recommended?"

Yes.

Nonsense.  A trading desk is there to fill client orders.  If the clients are buying it's the desk's job to sell the shares to the clients.

If the firm is shorting the shares to accomodate orders you could possibly argue a conflict of interest--but even then it would be a difficult case to make. The role of market maker involves going short at times.

+++++

"  If a firm has a buy recommendation out do they have to maintain a long position in the stock or is it acceptable to be flat at the end of the day?"

If they have a buy, and they're trading for the house, they should be long as long as they have a buy to their clients on the same stock.

Are you using the term "trading for the house" to mean market making?

+++++

<>“If you’re a position trader is it acceptable to go home short even though the stock is on the firm’s recommended list?”</>



<>No. That’s taking a position contrary to the good of your clients.



Nonsense–there are people who are buying and selling every day, which is why it’s a market.



A trader is charged with turning a profit for his desk–and if he
senses that the stock is going to downtick for the balance of the day
he has a duty to act on that belief.



Do you believe that a stock can pull back as a normal part of an overall upwards pattern?

</>

. “Acme B/D has issued a buy recommendation for XYZ–a top tier NASDAQ issue with plenty of float.Is Acme behaving illegally if Acme fills Acme client buy orders from an inventory position?”

>Yes.

"Then, how do you propose a firm honor its customer's orders?"

On the open market, not out of inventory.

>> "They're selling to their clients who are buying--is that prima facia evidence in your world of taking a position contrary to what they've recommended?"

>Yes.

"Nonsense.  A trading desk is there to fill client orders.  If the clients are buying it's the desk's job to sell the shares to the clients."

It isn't a trading desk's job to sell out of inventory only. If a firm has a buy on a stock they should be filling orders out of the open market, not inventory, as that's nothing more than touting a stock as a buy, while selling their own holdings in the same stock.

>If the firm is shorting the shares to accomodate orders you could possibly argue a conflict of interest--but even then it would be a difficult case to make. The role of market maker involves going short at times.

You're pretending there's no open market or other market makers. With any real fill there's no need to short to accomodate client buys.

>> "  If a firm has a buy recommendation out do they have to maintain a long position in the stock or is it acceptable to be flat at the end of the day?"

> If they have a buy, and they're trading for the house, they should be long as long as they have a buy to their clients on the same stock.

"Are you using the term "trading for the house" to mean market making?"

I'm talking about any proprietry trading the firm might be doing within their own accounts, ala Goldman, for example.

>>"If you're a position trader is it acceptable to go home short even though the stock is on the firm's recommended list?"

>No. That's taking a position contrary to the good of your clients.

"Nonsense--there are people who are buying and selling every day, which is why it's a market."

You're confusing "people" (the market as a whole) trading and a firm selling when they have a buy on the stock.

"A trader is charged with turning a profit for his desk--and if he senses that the stock is going to downtick for the balance of the day he has a duty to act on that belief."

A trader shouldn't be taking a position opposite what his firm's telling their clients to take. It's really pretty easy to understand. A firm can either recommend a buy or sell to clients on a stock and take the same position, or they can trade for a profit, changing their position as they see fit foregoing having a recommendation different than their own position to clients. They just can't do both at the same time.

"Do you believe that a stock can pull back as a normal part of an overall upwards pattern?"

Sure. That doersn't mean a firm that's got a "buy" on a stock to its clients should be attempting to profit from that move.

"Do you believe that a stock can pull back as a normal part of an overall upwards pattern?"

Sure. That doersn’t mean a firm that’s got a “buy” on a stock to its clients should be attempting to profit from that move.



Suppose Acme has a buy recommendation on XYZ.



If they change it to a hold, or a sell, do they have to wait for every
one of their clients to come out of their long position before they
come out of their own long position?



Do you have any experience other than as a wire operator?

>>"Do you believe that a stock can pull back as a normal part of an overall upwards pattern?"

>Sure. That doersn't mean a firm that's got a "buy" on a stock to its clients should be attempting to profit from that move.

"Suppose Acme has a buy recommendation on XYZ.

If they change it to a hold, or a sell, do they have to wait for every one of their clients to come out of their long position before they come out of their own long position?"

Of course not. Now, what does that have to do with a firm that has a recommendation to clients on a given stock profiting by taking the other side of the trade? Could there be a clearer example of a firm putting their own interests before those of their clients?

"Do you have any experience other than as a wire operator?"

No. I tune sports cars for a living and just found this forum by accident. What's your excuse?

It’s ridiculous to argue that a firm must speak with a unified
voice–what is a proprietary trader supposed to do if their technical
research suggests a stock is about to drop while their fundamentalists
believe it’s about to rally?



The term front running has several definitions–one of which is to
establish long positions in anticipation of a favorable research report.



Suppose Acme’s research department is preparing a major buy
recommendation on XYZ.  In previous generations there were no
rules against Acme establishing a large long position in order to have
inventory to accomdate the anticipated orders.



In the wake of the incredible fraud in the penny stock market of the
1980s the NASD addressed the issue and forbid such accumulation. 
That was too bad because some of these recommendations were so powerful
that the resulting buy orders caused rallies that resulted to mean that
the customers who bought had to pay more per share than they would have
had to pay if they had been buying from inventory.



Whiners whining about making a profit are notorious for generating unintended consequences that make things worse.