Built Lehman Brothers' sector trading capacity 

for both in-house and external customer interests.

Background

Like many firms in the industry, Lehman has reorganized its Equities Research, Sales as well as Trading divisions to follow the "sectorization" of the market. 

I was given the responsibility to build the trading capacity for sector indices.

Actions

I adopted the following approach:

  • Assessed the objectives by surveying the market: assessment of clients' and internal needs, survey of the strengths and weaknesses of the competitors' products (brokerage firms and Exchange), analysis of our potential distribution forces

  • Defined the strategy on the client side by targeting a high-volume and low-margin activity, with simple derivatives (forwards) on the Stoxx family of indices, to be distributed through Derivatives and Hedge Funds sales. Also designed stock-like instruments to answer internal needs (stock traders, accounting / hedging requirements)

  • Created the products at the legal, operational and accounting levels. Eventually increased the product range with standard and dynamic swaps on indices, then baskets of indices

  • Built an Excel infrastructure to (1) download and maintain the compositions of the sector indices (2) maintain databases of dividends, corporate actions and composition amendments (3) publish quotes and (4) risk-manage the inventory

  • Advertised the products and the activity internally and prepared promotional materials

  • Animated the market with tight spreads on fairly large sizes, while offering the whole Program-Trading analysis and  execution capacity

Results

As a result of these efforts,

  • Lehman can now answer its customers' needs with a range of products, one of which is considered the best in the market

  • The desk has enough expertise and customer base to consider this activity a "regular flow"

  • The desk manages continuously over $250 Mn of assets, has generated profits of $ 3 Mn on the first half of 2003, and has a guaranteed annuity of $2 Mn per year just on maintaining the current customer positions