Wall Street Journal
By Kristina Peterson
9/10/10
NEW YORK—On the day the "flash crash" bludgeoned the stock market and chaos swept over the floor of the New York Stock Exchange, the founders of Briargate Trading were at the movies.
Rick Oscher and Steven Rubinstein weren't playing hooky. Briargate, a proprietary-trading firm that the two former NYSE floor "specialist" traders started in 2008, is mostly active at the stock market's open and close.
In between, when market activity typically drops, the Wall Street veterans play tennis in Central Park, take leisurely lunches, visit their children's schools and work out at the gym. Dress shoes have been replaced with flip-flops, slacks with cargo shorts. Once during market hours, they walked about five miles and crossed the Brooklyn Bridge to try Grimaldi's pizza.
"We actually planned on working a full day," says Mr. Oscher, wearing a white polo shirt and blue-plaid shorts. "But from 11 to 2, the markets are pretty quiet—what's the point? As a specialist, you have to stand in your spot all day and we did that for 20 years."
Briargate—an anagram of "arbitrage"—isn't the only firm taking an extended recess during the 6½-hour U.S. trading day. Trading has become increasingly concentrated in the first and last hours of the session.
Those two hours now make up more than half of the entire day's trading volume, according to an analysis of data provided by Thomson Reuters. In August, the first and last hour generated nearly 58% of New York Stock Exchange primary volume, up from 45% in August 2005, the analysis shows. The rise of high-frequency trading, where algorithms are used to exploit small discrepancies in high-volume situations, amplifies the concentration of trading at the beginning and end of the day, analysts say.
Heavy trading in the first hour is largely due to the accumulation of orders placed by individual investors and their brokers after the previous day's close, mutual-fund activity and new strategies deployed by institutional investors based on the latest research and overseas trading, says Adam Sussman, director of research at Tabb Group, a financial-markets research firm. Meanwhile, funds that track stock indexes often wait until the final hour to execute trades to better reflect the benchmark measures' last prices.
Focusing trading on those times could limit gains, but Messrs. Oscher and Rubinstein are at peace with that. "Would you rather play tennis or make an extra $80? It's a lifestyle question," says Mr. Rubinstein, who sometimes works remotely from Florida. "I can go play 18 holes of golf and then come back and trade and that's a workday."
"If someone offered us three times what we make to do a real job, we wouldn't do it," Mr. Oscher says. "Money isn't everything. Plus, we'd make terrible employees."
The men, both 42 years old, met 12 years ago as specialists manning posts 10H and 11H for Van der Moolen Holding on the NYSE floor. They rose to oversee floor operations for the Dutch market-maker, but saw the writing on the wall as the era of specialists faded. Van der Moolen eventually sold its specialist arm to Lehman Brothers in late 2007 and filed for bankruptcy in 2009.
The advent of automated trade execution rendered people who could see and direct the order flow less crucial. There was a peak of nearly 50 specialist firms working the NYSE floor in 1990. That has dwindled to five now.
In 2008, the men joined forces with a programmer from Van Der Moolen and started Briargate. The five employees that now comprise Briargate work out of an apartment in a luxury-hotel and condominium complex on Wall Street.
Briargate trades mostly stocks, using computer algorithms that still require human decision-making. Sometimes the firm's programmer is left in charge when the rest of the staff leaves the office.
Mr. Oscher said the firm, which trades only its own money, hedges its risks "so there isn't any scenario that would move our profit and loss beyond boundaries of comfort." Briargate says it didn't sustain losses during the May 6 flash crash because it closes its books when the market tends to be volatile. "We actually had a pretty good day," Mr. Oscher says.
While the firm declined to disclose their returns, Messrs. Rubinstein and Oscher say they make more than they did in their later, leaner years as specialists, though not as much as they did in the late 1990s before the industry started to consolidate.
Mr. Oscher says their compensation is "in line" with what they formerly made as specialists. Successful specialists could make upward of $500,000 at the industry's peak, while partners could bring home more than $1 million.
Both feel their freedom is fragile, as trading invariably carries risks. Says Mr. Oscher: "We say all the time—these are the good old days."
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