New type of trader, new type of trading Wed Aug 10, 2005 11:16 AM ET By Megan Davies NEW YORK (Reuters) - Swagger and instinct were once key tools of the mostly men who worked the trading floors of Wall Street, the world's most important marketplace, but the rise of electronic trading has created a new breed of trader. "We used to look for very aggressive, more athletic, gambling-oriented people, people who liked action and thrill," said Andrew Fishman, president at Schonfeld Group Holdings LLC, whose firm employs about 500 proprietary traders. "But that hasn't really worked since the Internet bubble burst. You need much more analytical, serious, harder-working people. People used to make a lot of money in an hour or two a day -- now it's a grind." The rise of electronic trading has changed not only how fast and efficiently securities are bought and sold, but who sells them and where, with only one of every four U.S. securities industry jobs located in New York today compared with one of every three a decade ago. One market veteran, who started on the floor of the 213-year-old New York Stock Exchange 20 years ago, said technology had totally changed the name of the game -- and the type of people attracted to the industry. The exchange had always been seen as a place where a bright youngster from a blue-collar background with no college degree could begin at the bottom and end up with a $1 million paycheck. The prime example of this phenomenon was former NYSE head Richard Grasso, who rose from an $82-a-week clerk. He was forced from his post in September 2003 for accepting a compensation package worth $193 million. But now dealers are "much smarter coming out of schools, they're much more educated regarding systems and they know balance sheets better," said the market veteran. COMING: HYBRID MARKET Wall Street in the past decade has seen the introduction of order-handling rules, the rise of electronic communications networks (ECNs), decimalization and consolidation among both exchanges and discount brokerages. At the same time, the market has had a rollercoaster ride, with the bursting of the dot.com bubble resulting in up to 80,000 jobs lost and a cautious, frequently range-bound market with dismal volatility frustrating traders. Analysts expect the fast pace of change to continue as systems become increasingly more sophisticated. The biggest changes likely will come when the New York Stock Exchange introduces its hybrid market with the acquisition of electronic trading network Archipelago Holdings Inc. (AX.P: Quote, Profile, Research) , one of the original electronic communications networks. The deal was announced in April, followed two days later by Nasdaq Stock Market Inc. (NDAQ.O: Quote, Profile, Research) announcing it was buying Instinet Group Inc.'s (INGP.O: Quote, Profile, Research) automated trading platform from Reuters Group Plc (RTR.L: Quote, Profile, Research) (RTRSY.O: Quote, Profile, Research) , signaling the commitment of both exchanges to technology. While the NYSE has insisted it's committed to retaining floor-based trading, there has been continual speculation about how long the open-outcry system, in which screaming brokers wave buy and sell orders, will last. One of the hottest market trends is algorithmic trading, the automated execution of orders according to a predefined numerical strategy and set goals. This form of trading caters to the new breed of mathematically-minded dealers, brokers and money managers who are demanding and creating highly sophisticated systems. ALGORITHMIC ANONYMITY Take Frederick Graboyes. Sixteen years ago he was a Captain and Company Commander in the U.S. Army's 504th Parachute Infantry Regiment, creating systems for pilots to manage the high intensity workload of flying a plane while fighting enemy missiles. Now Graboyes is president of institutional broker/dealer Algorithm Trading Solutions, developing complex systems to help investors make their trades blend into the rest of the market. Algorithmic trading breaks large orders into smaller ones and sends them to the market according to preset parameters, providing relative anonymity to investors -- crucial when trying to sell a large block of stock. According to a survey published in July by Banc of America Securities and Financial Insights, algorithmic trading by the buy side is expected to rise to 15-20 percent of order flow by 2007 from a current 5 percent. Graboyes, together with managing director George Rodriguez, formerly a director at the NYSE, have more bullish predictions about growth in algorithmic trading. Rodriguez said algorithmic or rule-based trading could account for about 90 percent of orders on a buy-side desk. The multi-billion dollar options market is also ripe for new technology, some predict. Trading volume has grown at a blistering pace as electronic platforms have created more liquidity and significant quoting capability. "If you really want to grow a product you need to make it cheap to trade and anonymous to trade. Right now the options exchanges are well behind the equities exchanges in terms of efficient market places," said Jamie Selway, managing director at White Cap Trading.