While the credit crisis has meant bad news for traders on the job front, some capital markets firms actually see this as an opportunity to expand into new areas of equity trading and risk management. Take Pali Capital, the U.S. broker- dealer subsidiary of Pali Holdings Inc., recently lifted a portfolio trading and risk management team from CIBC World Markets to expand its offerings in equities and execution.

Pali hired Bryan Street to launch a portfolio and electronic trading desk in New York with his two partners Robert Ehee and Simon Bradley with whom he worked at CIBC. Collectively they have 50 years of experience on the desk. Ehee is a senior portfolio manager on the desk with whom Street worked close to 10 years at CIBC and prior to that at Goldman Sachs. Bradley is a sales trader with significant relationships in the portfolio and electronic trading space, says Street.

Meanwhile, Street, who has 22 years of experience, was instrumental in developing and overseeing the portfolio and electronic capabilities at CIBC World Markets, Goldman Sachs and ITG, respectively. He joined Pali Capital in May, where he has spent the last few months focusing on getting the technology and operations components up and running.

“We looked at the current market as an opportunity to come here,” says Street. “The area has attracted a lot of people, “ he says. Over the past six months, Pali Capital has probably grown its personnel by 20 percent, while the rest of Wall Street has been contracting, notes a firm spokesman. Since there are lots of talented individuals who are leaving investment banks, and lifting out entire teams is an attractive alternative, notes a spokesman.

While Pali Capital has been around for 10 years, it sees an opportunity to grow its business in portfolio trading, which Street says is different than program trading. The NYSE defines program trading as "encompass(ing) a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks with a total value of $1 million or more," but Street says it could be any number of stocks. In his view, portfolio trading can be "Any kind of high-level strategy that has an interrelation of names." Even a simple pairs trade — buying one stock and selling another¬— would fall under portfolio trading, he says.

"Think of it as any high-level strategy relative to a portfolio," says Street, who also notes that single-stock algorithmic and electronic trading will fall under his mandate as well. "In the end, we are real-time risk managers. Our role as traders is to measure our portfolio-level risk, and at the same time manage trading performance on individual names and the entire portfolio. We have a dual responsibility," he says.

Street's team will manage market risk, sector risk and all different levels of risk that get lost in a single stock world, he says. Historically, program trading started growing in the 80s primarily driven by index funds and index arbitrage, when it was one-to-two percent of the market. Now the NYSE has 35 percent of market share. But that is only confirming programs that meet its definition of 15 or more stocks captured by member firms. The number is closer to 50 percent of NYSE average daily volume, according to Street. "And if you lump in all the algo trading, you're probably approaching 75-to-80 percent," he says.

Pali Capital is looking to differentiate itself in the electronic business relative to other firms. While the business has become very low-touch, "We're kind of the high-touch desk in a low-touch business," says Street. Part of the sales pitch is their traders' experience. All of the traders who sit on this desk have 15 years of experience, while Street himself has 22 years. Pali Capital is betting that it can bring its experienced staff will prevail over relative to other desks staffed by less experienced traders who are leaning on technology to accomplish the same goals. "In the end, technology is commoditized across the street. It's really come down to what you do with it," says Street.

On the other hand, portfolio trading is just one business that Pali is attracting experienced people to join. The firm is involved with equities, fixed income commodities, derivatives and global DMA. "They're taking a different approach than the bulge bracket firms in trying to move to a low-touch business," suggests a spokesman.

Over the past six months, Pali Capital has probably grown its team by 20 percent, while the rest of Wall Street has been contracting, notes a firm spokesman. Since there are lots of talented individuals who are leaving investment banks, and lifting out entire teams is an attractive alternative, adds the spokesman. So while it may seem like the rest of Wall Street is contracting as so many firms have announced cutbacks, the reality is that the credit crisis could lead to growth opportunities for those firms that snatch up the talent.

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