Questions about the new S&T

Hi guys,

I've been lurking around the forums here since I entered university a few years ago. I've been gunning for S&T since then and I'm returning to the BB where I interned as an analyst. Since then, I've spent a lot of time searching through old threads for the information that I was looking for but I feel that a lot of it may have changed given how the industry has changed since 2008. There are a few questions that I have that I was hoping you guys could answer (if the answer hasn't changed since the 2007-2010 threads, please feel free to say so).

1. What kind of compensation heuristics can we be looking at now from the Analyst through VP levels, now that they aren't skewed by some of the massive pay figures from the prop desks?

2. How does the absolute pre-tax compensation compare in Asian hubs like HK/Singapore/Tokyo with the same position in London/New York?

3. Is there a cutthroat up or out culture in S&T (NY and Asia)? I have heard mixed tales about this - some say that most of the analysts are let go after their 2 years, while others say that it is relatively easy to grind your way to ED while doing a mediocre job and the difficulty comes in making the ED to MD jump.

4. What is the edge for a sell-side trader in a liquid macro product?
--- By this I mean, when it is clear the market will move in one direction, the trader will have the opposite position facilitating his clients, and when the market is unclear and volatility is high, the trader will be collecting spreads but would have difficulty deciding which side to position himself on. Also, my impression is, the trader cannot simply collect the spreads in the high volatility periods to meet the yearly budget because the spreads in the most liquid products are simply too low.

5. How is the job security for structuring relative to trading/sales?
--- My impression was that trading and sales were much less secure than structuring because they both had some sort of number/target attached to them, whereas structuring was more of just putting your head down and finding a way to facilitate a non-conventional client request through fancy products - like a problem solver with no yearly quota set.

6. For analysts in S&T that aren't asked to come back for a 3rd year/promoted to associate after their 2 year stint, how hard is it to find a job at another bank/top 10 MBA/capital markets role at a slightly lower tier bank (e.g. GS/JPM -> HSBC/Nomura)?

7. Any general advice for someone unsure between the roles of research, trading and structuring on the FICC side? What if one is planning on starting off/making to move to Asia early in one's career? I will have two engineering degrees upon graduation and I don't know what desk I will be on - will be told closer to FT. I mainly spent time on trading desks during my internship.

Thanks a lot guys. I understand there are a lot of questions and even if you could give some advice for one, I would greatly appreciate it.

 
Best Response
  1. Very difficult to give numbers as ive been out of the sellside for a bit, but in general its gotten even more desk and bank dependent. Where it used to be that as long as you were at a BB you were going to be ok, now even in the first couple of years, being at the right bank makes a large difference. Also all the litigation now does have an effect (management always looks for an excuse for a low payout)

  2. No idea, never worked in Asia

  3. Id say you do need to be pretty shocking to get let go in the first couple of years, unless its a case of layoffs across the board or the bank exits a particular area. Its probably a bit different at places like GS, but id say its fairly easy to just hide/grind your way to associate. Ive met guys that were associates for like 5 years kind of thing.

  4. Even in liquid products there will be elephant sized orders, sharing of risk type deals with clients that need to be priced. Also anything liquid is probably on exchange where there is commission, which is another revenue stream. Its the age old dilemma, do you want huge volume and liquidity but small spreads, or low volume and illiquidity with high spreads?

  5. I guess the way to put is that structuring is a bit less prone to uncertainty. I.e. you can lose money in trading making good decisions, thats just the nature of it.

  6. Id say from that point forward its all about what you have done in those 2 years nad what sort of connections you have made. Lets be honest, if you are tinned after 2 years at a bank and dont make associate (which is a promotion that doesnt really require any climbing, but more just bieng able to hang on to the branch) then that is some pretty bad signalling. Just think, if you are a trading desk, would you rather hire a new analyst from university and train him for a couple months, or hire someone who has already failed their first 2 years at another bank, and have to pay him more?

  7. It sounds very strange that you are going in full time and dont know if you are doing sales, trading or research. Those are three extremely different jobs that require completely different skill sets, so im surprised a bank is doing recruiting that way.In the end, the advice i always give is do what you enjoy. The biggest influencing vairable when trying to move geographically or even across desks is how well you perform at your CURRENT job, so do something you enjoy and you will be good at it.

 
derivstrading:

1. Very difficult to give numbers as ive been out of the sellside for a bit, but in general its gotten even more desk and bank dependent. Where it used to be that as long as you were at a BB you were going to be ok, now even in the first couple of years, being at the right bank makes a large difference. Also all the litigation now does have an effect (management always looks for an excuse for a low payout)

2. No idea, never worked in Asia

3. Id say you do need to be pretty shocking to get let go in the first couple of years, unless its a case of layoffs across the board or the bank exits a particular area. Its probably a bit different at places like GS, but id say its fairly easy to just hide/grind your way to associate. Ive met guys that were associates for like 5 years kind of thing.

4. Even in liquid products there will be elephant sized orders, sharing of risk type deals with clients that need to be priced. Also anything liquid is probably on exchange where there is commission, which is another revenue stream. Its the age old dilemma, do you want huge volume and liquidity but small spreads, or low volume and illiquidity with high spreads?

5. I guess the way to put is that structuring is a bit less prone to uncertainty. I.e. you can lose money in trading making good decisions, thats just the nature of it.

6. Id say from that point forward its all about what you have done in those 2 years nad what sort of connections you have made. Lets be honest, if you are tinned after 2 years at a bank and dont make associate (which is a promotion that doesnt really require any climbing, but more just bieng able to hang on to the branch) then that is some pretty bad signalling. Just think, if you are a trading desk, would you rather hire a new analyst from university and train him for a couple months, or hire someone who has already failed their first 2 years at another bank, and have to pay him more?

7. It sounds very strange that you are going in full time and dont know if you are doing sales, trading or research. Those are three extremely different jobs that require completely different skill sets, so im surprised a bank is doing recruiting that way.In the end, the advice i always give is do what you enjoy. The biggest influencing vairable when trying to move geographically or even across desks is how well you perform at your CURRENT job, so do something you enjoy and you will be good at it.

About the last point, there are some BBs running rotation programs, and the first rotation would be decided during the training period

 

Derivstrading did a great job already but I will add on.

1.) Your first 3 years will be pretty standard. It gets very hairy and dependent on your bank/PnL once you hit Associate (assuming you earned a book).

2.) No idea. I will say that banks have been paying premiums for experience hire's to move to Asia for the past 5 years. This does not include Japan, of course.

3.) Very difficult to get fired as an analyst. An associate (given the opportunities to take risk), could under perform and be pushed out, but not as often. Most people are canned or pigeonholed in the VP area. Tons of VP's on the desk.... But beware. There are several international banks (ahem the FRENCH!) that actually do have 2yr programs in S&T, where after your 2yrs expire you are let go.

4.) Don't understand your question, but the edge that a sellside trader almost always has is information and flow. I know what all of my clients are thinking/doing and I can see the flows. With this info and should be able to make an appropriate decision how to position myself.

5.) No idea. Not many of those guys around anymore- but the firings have mostly stopped in this area.

6.) Very difficult to remain in S&T after this, because desks would rather pay a recent graduate than a guy with some (not significant) experience. If you are with one of the banks that does have a fixed 2 yr program, you have to network your ass off to make sure that when the music stops, you already have a chair in hand. However, you could trade down to lower tier banks, or interdealer brokers if you want to remain in trading and work your way back up. With the way the industry is going, I would rather do research than push riskless trades and collect pennies with the hopes of landing a spot at JPM.

7.) No one can answer this but you.

"Sounds to me like you guys a couple of bookies."
 

Thanks for the responses!

@BillyRay05 - I guess with regards to question 4, I was struggling to see the advantage in that, when there is a lot of volatility, wouldn't different clients be doing different things (e.g. some buying while others are selling), hence earning you the spread but making it difficult for you to take a view on how to position yourself? Also, when the market has a clear directional trend, wouldn't you constantly be positioned against it by having to take the opposite view of your clients?

 
Tutti:

Thanks for the responses!

@BillyRay05 - I guess with regards to question 4, I was struggling to see the advantage in that, when there is a lot of volatility, wouldn't different clients be doing different things (e.g. some buying while others are selling), hence earning you the spread but making it difficult for you to take a view on how to position yourself? Also, when the market has a clear directional trend, wouldn't you constantly be positioned against it by having to take the opposite view of your clients?

That's where I guess your spread answer comes into place. To answer your other question, clients rarely do the same thing all at once- but you want to pay most attention to the guys you consider smart $$$. I was a credit trader in my former life, so its easier for me to explain using it as an example:

Lets say Sirius (SIRI) made headlines with a new contract which could mean that its market share and Revenue base would grow exponentially. As such, there is a lot of Vol around SIRI bonds.

The bonds are trading up in the market @ $100.50, which at first looks like good news for Siri. But then you hear a sales guy stating that both PIMCO and BlackRock are looking to sell size. This would indicate that the buying is overdone, or that the news is not necessarily that great. The way you protect yourself is with bid/ask. I am OK buying the bonds, even though the smart money doesnt like them, as long as I get compensated. So if the bonds are trading @ 100.50, I am a buyer at 100 or even 99.75 (The wideness depends on the liquidity and the name ofc). Everything has a price, your job is to find it.

If you want to position yourself outside of clients, you can use Interdealer brokers. You can buy/sell bonds into these guys with ease- but you will also pay an adequate markup for the service. So if you really want to sell those Siri bonds, you would have to do so at a price of 99.50.

"Sounds to me like you guys a couple of bookies."
 

Thanks again guys! Just a follow up - if you are doing a good job as an analyst on your desk, whether in trading/structuring/sales, but you determine that you aren't really enjoying the job or you aren't the best fit, what is the process for moving internally within the firm to another role, like capital markets or IBD? Do you reach out to HR or talk to your manager or network your way up from associate to MD on the desk/division you want to move to?

 

Impossible to say. Size of book is not a concept that should be talked about, but rather the amount of risk you take. And risk at the most basic level is a function of book size and volatility of the product (i.e. two guys can have a 100m USD book but one product moves 1% per day and the other 10%, then they have very different risk exposures).

But talking about daily sigma of pnl, still varies HUGELY which makes it sort of pointless to talk about it, so i can only speak for my own experience. But when i first got my own book which was about 9 months into the analyst program, iirc the daily sigma of pnl was around 25-50k/day. But it was also quite a quiet environment which played a factor.

 
derivstrading:

Impossible to say. Size of book is not a concept that should be talked about, but rather the amount of risk you take. And risk at the most basic level is a function of book size and volatility of the product (i.e. two guys can have a 100m USD book but one product moves 1% per day and the other 10%, then they have very different risk exposures).

But talking about daily sigma of pnl, still varies HUGELY which makes it sort of pointless to talk about it, so i can only speak for my own experience. But when i first got my own book which was about 9 months into the analyst program, iirc the daily sigma of pnl was around 25-50k/day. But it was also quite a quiet environment which played a factor.

Thanks derivs... What product were you/ are you trading (I'm guessing options of some kind)...?

What is a relatively big book for a credit trader who is trading higher beta stuff like HY or subordinated financials?

Thanks

 
derivstrading:

Impossible to say. Size of book is not a concept that should be talked about, but rather the amount of risk you take. And risk at the most basic level is a function of book size and volatility of the product (i.e. two guys can have a 100m USD book but one product moves 1% per day and the other 10%, then they have very different risk exposures).

But talking about daily sigma of pnl, still varies HUGELY which makes it sort of pointless to talk about it, so i can only speak for my own experience. But when i first got my own book which was about 9 months into the analyst program, iirc the daily sigma of pnl was around 25-50k/day. But it was also quite a quiet environment which played a factor.

Thanks derivs... What product were you/ are you trading (I'm guessing options of some kind)...?

What is a relatively big book for a credit trader who is trading higher beta stuff like HY or subordinated financials?

Thanks

 

Great post, great responses. I'm in a similar position as the OP, and what I have always wondered is how much money a desk actually makes in an average day, in today's markets, purely off flow? I know this is an incredibly vague question (depends on the size of the desk/product being traded/volatility of product/quality of traders/volumes ect ect...) but I just want a rough figure to give me some perspective on the profitability of market making.

Cause who wants to be in the 99%?
 

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