Cash Equities in This Day and Age

Hello folks - it has been a while since I've posted on here!

For a myriad of reasons that I don't feel like explaining at the moment, a role in cash equities at a BB in NYC has piqued my interest despite my current role working on a derivatives desk.

More than anything I think that I'm just curious about how this business works; I ignorantly thought that cash equities didn't exist anymore or had been whittled significantly across the street since 08 (down to to one or two traders at any given bank).

So I was surprised to see that this role was available. I've since been trying to learn more about the day to day business of these desks but, all of the posts on here are multiple years old.

Thought I'd hop on here and see if someone could help answer some of the following:

1) What is the highest margin line of business on cash equities desks these days? Is it making markets in illiquid issues? I can't imagine that there are still strong revenue opportunities in making prices for blue chip names now that the buy side has very strong access to a massive range of algorithmic execution strategies to scale into liquid equity exposure and can also obtain exposure through OTC D-1 products.

2) Why do cash equities traders all seem to have series 57 exams (prop trader license) is there some form of prop trading that still exists in this business?

3) Are there corners of the cash equities space that haven't been harmed by prolific automation?

4) Who are seen as the top banks in this space? (Defined as: Biggest VaR, most competitive pricing, biggest revenues, etc.)

5) How do these desks compete with the cash equities HFT / Market Making shops (citadel, virtu, Jane Street, etc.) do they offer some other form of value/edge to those trading with them? I suppose research and market color are important pillars of this business, is that correct?

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Comments (11)

Dec 22, 2021 - 6:18pm
WSO Monkey Bot, what's your opinion? Comment below:
Most Helpful
Dec 26, 2021 - 9:52am
Fuwuyuan, what's your opinion? Comment below:

i spent a short time on a top bb cash equities desk (2015-16). at a family office now as an investor but ill opine from what i can describe.

1) highest margin line of business - working in tandem with the prime broker function (extending margin, security financing etc) because it is riskless or low risk, total return swaps (hi bill hwang); other good business is crossing buyers and sellers (take comission from both transactions and take no risk). my understanding is that many BBs are now using more algo traders to manage the flows and the market making function. at least thats how I understand GS/JPM operate now days. this could be outdated information so someone else can please chime if i am wrong. but in summary, market making for buyers and sellers, and working with the prime broker function to be useful for clients so they trade through them. Nothing is that profitable though as you rightly describe the competitive nature of things. youre also the cash register for buyside paying for research (unless thats change drastically in the last 5 years).

2) series 57 is required to trade equities, at banks i think its still the 7/63 which works as well (?). prop trading at banks on equities seems minimal but in anticipation of RENTD (reason expectation of near term demand) you can make that arguement that you need to own those 200k shares of XOM. I think in general its gradually become more and more frowned upon, again, return vs risk capital...extending financing is nicer in that regard. 

3) no idea on spaces that haven't been harmed, id suspect ADRs or the micro/small cap names, margins might be higher. 

4) top banks are MS GS JPM (id argue in that order, but things may have changed in the past few years, MS has tended to be the top dog, i cant opine in greater detail as I dont know more. Im speaking just from equities revenue. My experience has been MS is most competitive in pricing, JPM has lots of top equity researchers and balance sheet, i honestly have no idea why GS always makes it -- their research never seemed that impressive to me...maybe their pricing is competitive too. again, just my opinion which may be outdated.

5) edge comes from research and flows. yes research and color are important in this business. Id argue banks tend to be the axe in names when the street listens to their analyst. For the random executions, unless banks need to get paid, I suspect pricing is more competitive with a MM shop. 


Dec 26, 2021 - 4:10pm
Fuwuyuan, what's your opinion? Comment below:

ultimately salestraders/research sales is still a role for the human to provide value add. yes you can send the 50k VWAP on $CRM using your banks algo but the REAL value add from a salestrader/research sales person (depending on the customer) is knowing what is important to the customer.... is CRM's upcoming analyst day going to move the stock? What is the buy side whisper number, what is consensus missing, which clients will want to position for this / care to know this becomes very subjective but ultimately you need to be able to do something unique that an algo cant, i.e. gauge investor sentiment heading into events, be the first call to clients that are interested in the name when there is new information, provide useful color/commentary on market/sector/security....TONS of people send research out and its largely worthless to the majority of people, but there are tidbits that are valuable. Find those and become valuable to clients. If I am a healthcare salestrader, I had better know exactly what type of revenues the street is expecting from covid vaccines, now what does management say/channel checks imply? If a big enough delta, you've got some information (edge) that fund managers may find helpful. Do this enough times and you'll become to go-to for things healthcare (as an example..same goes for any sector).  

Dec 26, 2021 - 12:25pm
futures trader man, what's your opinion? Comment below:

Fantastic insight here. This is just what I was looking for. Thank you.

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Dec 29, 2021 - 3:52pm
vitaminI, what's your opinion? Comment below:

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