Bulge Bracket Prop Trading

sa34h's picture
Rank: Senior Chimp | 24

So after the crisis, people got scarred and started spinning off the prop desks at BBs, or so thats what we heard.
I was talking with a Investment banking MD, who also enjoyed trading and to my surprise he told me that there are still BB prop desks, in Canada, toronto for example, they still exist, regulation didn't restrict prop trading, they simply increased the cost of trading therefore making it unfeasible for the bad trading desks to continue trading, but prop trading still happens at banks.

So here are my questions,
1. Does anyone know if Bulge Brackets still have prop desks in US?
2. what strategies do prop traders use to trade at BB? technical, fundamental? algos? etc

Comments (47)

Mar 28, 2012

The Volcker Rule won't pass

Mar 28, 2012
sa34h:

1. Does anyone know if BB still have prop desks in US?
2. what strategies do prop traders use to trade at BB? technical, fundamental? algos? etc

  1. yes
  2. whatever makes money
Mar 28, 2012
dabanobo:
sa34h:

1. Does anyone know if BB still have prop desks in US?
2. what strategies do prop traders use to trade at BB? technical, fundamental? algos? etc

  1. yes
  2. whatever makes money

^^This.

Mar 28, 2012

there will always be a certain amount of prop trading under the guise of flow trading. it will never completely go away. plus its seeming more and more likely that volcker wont pass, and after that who knows.

    • 1
Mar 28, 2012
leveRAGE.:

there will always be a certain amount of prop trading under the guise of flow trading. it will never completely go away. plus its seeming more and more likely that volcker wont pass, and after that who knows.

This.

Guys making markets in basically whatever xyz are bound to end up with some positions that they didnt immediately sell/hedge off - hence the prop nature of those positions.

As for Volcker, i actually think it will (albeit a very watered down 'update' rule) go into effect, which would explain why we're seeing all the bulges and other banks with US ops really trying to spin off or extend their prop arms into a different subs., though as for every rule in finance, there should be a quick workaround which won't at all prohibit big banks to constantly move and control the market.

It would be too much of a free lunch for hedgies otherwise.

Learn More

Boost your resume and land a finance job by passing the FINRA SIE. 264 pages & 1981 smart flashcards written by a former 8X top Fidelity instructor. Try it for 0 bananas here.

Mar 28, 2012

I think it's fair to say though that US based banks have spun-off/wound (or are planning to) all the pure-prop, non client-facing businesses (e.g., GSPS, Morgan Stanley PDT Advisors, JPM pricipal trading - moved to asset management arm). I thnk the banks accept that whatever happens, Volker or not, the days of segregated, non-client, prop are over for some time.

Mar 28, 2012

Surprisingly, I'm not sure if that IBD MD knows what he's talking about- all Canadian banks have dismantled their prop desks in Toronto aside from RBC. As for small satellite offices of BBs in Toronto, UBS runs an equities prop desk and HSBC runs a rates prop desk, both operations being almost insignificant.

Mar 30, 2012
Macro Arbitrage:

Surprisingly, I'm not sure if that IBD MD knows what he's talking about- all Canadian banks have dismantled their prop desks in Toronto aside from RBC. As for small satellite offices of BBs in Toronto, UBS runs an equities prop desk and HSBC runs a rates prop desk, both operations being almost insignificant.

Surprisingly? IMO that right thur is some archetypal shit

Moving tonnes of product. Making fat stacks.

Mar 28, 2012

Macro: Why? I thought that the Canadian banks did everything? Are they facing pressure from the government similar to the US banks?

Mar 30, 2012

Well he nailed it for you.

Mar 30, 2012

God I hope Democrats all go to hell.

Mar 30, 2012

Where did you read that it will pass?

Mar 30, 2012

you won't get laid off. instead of working for a bank you'll work for one of the pe/hf that will invariably buy all the prop desks.

Mar 30, 2012

ya i remember reading somewhere that on GS's prop (not sure if it was pe or hf) but was doing an MBO. maybe that'll be happening too and you might get lucky enough to get a share (ok probably not, but that would be cool)

Mar 28, 2012

Macro: Why? I thought that the Canadian banks did everything? Are they facing pressure from the government similar to the US banks?

Mar 30, 2012

I just want to know how Barney Frank headed this bill after the crap job he did to help us get in this mess....

Mar 30, 2012

how is this ultimately going to affect all of us who are trying to break in?

is ibanking not the industry to strive for anymore?

Mar 30, 2012

http://online.wsj.com/article/SB100014240527487046...
Is the timing on this strange to anyone else? Too close to the bill's passage... this just seems sketchy.

Mar 30, 2012

If your on a sell side desk, you likely won't see much impact unless you are in some of the more tightly regulated products.

Mar 30, 2012

Yea that's why the discussion is in regards to buy side prop trading....Guess no one knows though, even though it will should effect a decent amount of people over the next 1,5,10years

Mar 30, 2012
TopTrader:

Yea that's why the discussion is in regards to buy side prop trading....Guess no one knows though, even though it will should effect a decent amount of people over the next 1,5,10years

I was responding to the person who said it would affect lots of people who want to break in, not noting the difference between pure prop and sell-side. I understand your original post, I'm not sure anyone really knows what the full impact will be.

Mar 30, 2012

I don't know to what extent prop trading or hedge fund related activity at BBs has affected the intra-day market swings, but I imagine BBs had some degree of influence. Although 3% cap may be small, we may witness a migration, perhaps a Trader's Pilgrimage, towards the private prop firms and HF's.

All this proposed reform over the year or so has impeded public sector growth, causing a mass exodus from BBs towards the private entrepreneurial-driven firms. This is just another example.

Mar 28, 2012

CDN banks are inherently more risk-adverse so prop trading does not really fit in their business model (I'm generalizing here).

Mar 30, 2012

I'm confused, If I get recruited as a S & T associate what role will I play? If I want to be in trading can I start with sales trading?

Mar 30, 2012

"As you can see, I am blatantly clueless. How does S&T at IB's work?"

you are a bit clueless indeed. ;)

not sure what exactly you mean by agency trader. in BB there's prop and flow trader. you know what a prop trader is. a flow trader make markets as well as putting on prop trades. but a flow trader's mandate is to provide liquidity in secondary market, increase market share in the asset class you trade, and make money from bid-ask spread. however, every flow trader puts on prop trades too every now and then. in fx spot for example, most client orders <1mm are executed by some kind of automated system (autobann in DB and BARX at barcap, they are algorithmic market makers). so an fx spot trader only has to make a price to buy and sell when a large order comes in. large orders dont come in all the time. so what does he do? he spends 75% of his time watching the order flow, reading up on the market and putting on prop trades here and there...

in something illiquid (opposite), let's say CMBS, a trader often has to hold a CMBS for 2 weeks before he can find a buyer to sell off to. in a way he is taking significant prop risk, those CMBS' values could have gone up or down a LOT on the BB's balance sheet. but again, he has to take that risk b/c the asset class he trades is so darn illiquid. the bid-ask spread is also much higher. so when you buy it from someone on Dec 2nd and sell it on Dec 19th, he prolly made quite a few points on the trades... in previous example fx spot markets, order come in and out intra-second and bid-ask spread is literally 0.0001 (one pip).

the skill set for each is very different. so a good prop trader may be a shitty flow trader, vice versa. a lot of great flow traders want to stay in flow trading...

dedicated prop desks at my BB is very fundamentally driven. lots of ex-research, ex-hedge fund guys, or seasoned flow traders who want to test out long term views. not day traders like oh im feeling hot about gold today let me buy some and dump tomorrow. the flow traders can carry out these short term intuition driven prop trades themselve. the dedicated prop desks at my bank mostly do longer term stuff that requires tons of analysis. (L/S equity, L/S credit, distressed debt)

but some BBs like Citi, has rates prop desks. i had a buddy who worked there and he told me trade ideas were quite intuition based. like "im not feeling good about this nonfarm payroll number tomorrow, gotta buy some eurodollar futures", etc

Mar 30, 2012
Mar 30, 2012

thanks a lot untilted, your replies have been very helpful (in both threads).

Mar 30, 2012

agreed. i need not add anything here. just a little clarification: i would add structured trader (to flow trader and prop trader). this "title" describes basically the more illiquid or structured products (like CMBS as described above).

good post UNTITLED.

Mar 29, 2012

You have to realize there's difference between "having a prop trading desk at BB" and "there is still prop trading at BBs".

I dont know about Canada, but official prop desk are definitely gonna be gone. But will there still be "prop trading"? You bet, and it's mostly what I saw (at a BB) last summer. It also depends on how you define "prop trading". The definition in Volcker is very very vague.

I don't accept sacrifices and I don't make them. ... If ever the pleasure of one has to be bought by the pain of the other, there better be no trade at all. A trade by which one gains and the other loses is a fraud.

Mar 29, 2012
ah:

You have to realize there's difference between "having a prop trading desk at BB" and "there is still prop trading at BBs".

I dont know about Canada, but official prop desk are definitely gonna be gone. But will there still be "prop trading"? You bet, and it's mostly what I saw (at a BB) last summer. It also depends on how you define "prop trading". The definition in Volcker is very very vague.

^Like he said, you do need to realize that having a prop trading desk and prop trading are different however I know that there are still some BBs with "prop" desks that don't seem to be winding down. Again, like the above poster says, this may be because the definition of "prop" trading in the Volcker rules is vague and these BBs may have redefined their groups to make the argument that they aren't "prop" trading under the Volcker definition.

Mar 30, 2012

Sorry I don't work yet so I have no idea, but congratulations for landing the prop trading job!

Btw, how hard is to go from a mutual fund to a fundamental HF or prop trading?
Do you think you were chosen because of your previous m&a experience or your current buy side job?

Cheers

Mar 30, 2012
FIGurine:

Sorry I don't work yet so I have no idea, but congratulations for landing the prop trading job!

Btw, how hard is to go from a mutual fund to a fundamental HF or prop trading?
Do you think you were chosen because of your previous m&a experience or your current buy side job?

Cheers

Bit of both I think....M&A helped with the modelling and rigour which I think if you start out at a buyside AM houseyou can lack - generalising here but a lot of buyside AM analysts will take what the sellside say as a gospel without getting deep into the financial modelling side of things- and with the high turnover of the past few years making quality variable I dont think that gets you the edge a prop desk are looking for ....however both are fundamental equity focused analyst positions so a large body of transferrable skills and stock/sector/market knowledge

Mar 30, 2012

You paint the Prop job so nicely that it would make anyone want to jump in.

Mar 30, 2012

I would take the BB prop desk. If this guy is that good, he'll take you under his wing. He gets cut, so do you, and he'll take you with him wherever he goes. I'd take the risk, but that's just me. You'll learn a ton more.

--
"Those who say don't know, and those who know don't say."

Mar 30, 2012

Haha....I am not trying to paint in a totally rosy light....I know it will be a hell of a lot more intense than L-only AM I have however come to terms with that.....

and I am doing well at my AM house but its a slow and steady path to money management and comp seems to be weighted towards AUMgrowth as much as performance....I have had a couple of very good years personally but it has not been necessarily reflected....

Clearly if this was 2006 I wouldnt even need to make this post but am just wondering whether people think in 2011 making such a move is silly even given regulatory developments or would people just wait for a more attractive HF opportunity to come along

The thing that is atractive about this particular opp is it is a sector specialist book covering the same sector I currently do in my generalist team

Mar 30, 2012

My understanding is that the prop desks will either be folded in to the AM department or folded out, to form new prop houses / hfs.

Still if you have an interest in developing skills on the short side it would be a good idea, plus smaller team, better exposure etc

Mar 29, 2012

As someone who was a prop trader at a large bank I can tell you that all the real prop trading is essentially gone. Yes market makers still take risk and trade, but the prop desks are gone. In Canada, RBC and CIBC do prop trading but RBC has it set up as a seperate hedge fund so Im not sure i'd really call it a prop desk.

Mar 30, 2012

I'm aware that all of the official prop desks at banks have been dismantled

Someone correct me if I'm wrong, but I don't believe this is true for some of the more quanty products.

Mar 30, 2012
voljol:

I know that cash trading earns the vast, vast majority of its money from market making whereas something like FX trading tends to earn more money by taking bets on market direction.

you "know"??? do you also know there are at least 3 main products within "FX trading", some of which are more "prop"-ish and others less so (and it's tuff to even generalize by product since banks may choose to run their franchise for the same product differently)? "cash trading" earns the vast majority of money from market making? is this cash equities? cash bonds? how about a distressed guy trading cash bonds, does he make the vast majority of his money from market making (again, different banks run the same product franchise in different ways)?

i don't get why you are trying to find this out, not like you have the opportunity to switch desks anytime soon unless you are at citi doing the rotational, which it doesn't sound like you are. what if someone told you your desk sucked at "prop"? what are you going to do then?

i don't have any information you want to hear, but that's partly because i don't think it's possible to give you that information in nice clean generalities (and i'd like to see someone try). but so as not to be a total dick, here's a nugget for you to get excited about: http://www.bloomberg.com/news/2014-06-25/citigroup...

*disclaimer: i do not work at citi. not trying to plug them or anything

Mar 30, 2012
Comment
Mar 30, 2012
Comment