What is Color?
Color springs from close relationships. The secure, anonymous environment provided by the JonesTrading network is unique in the industry. It allows our traders to give clients the color they need to strategize best execution, while giving away nothing in the process. The following are excerpts from recent interviews on color conducted with Jones traders.
1
"If you go to the floor of the NYSE, you see the system is a buyer, the system is a seller—but you do not get color. Jones has color that others in the system don't have. We know who the real buyers and sellers are, and the nature of the accounts that are out there. We are able to disseminate a feel for what's going on."
"We are the proxy for the market in block trading, certainly in the names that we trade—smaller cap, illiquid, difficult—where anonymity, information, and knowledge are key to minimizing impact. You are trading toward mediocrity in an algorithm; slicing up a trade might minimize impact, but blocks minimize market impact and maximize trading efficiencies. Color is different to every trader on the street. Color is an individual thing. We don't want to overcomplicate what we do—color is part of it. We work every trade like it means something and then they come back to us. They have all the machines they need. At Jones, what you see is what you get—working knowledge of the market."
"By making educated decisions on how to execute—whether that's color, market feel, or market flavor—we're gaining more clients, and we are building an account base that has become underserved by the big firms. When you put a machine on a client's desktop you take away the relationship. We have relationships with the small to the big firms—all sizes, all shapes, and that diversity of access to people gives you access to color which gives you information."
2
"The market is looking for real color. The JonesTrading niche is in the more illiquid names, names where there's news, and outsized trades at all cap levels. Real color gives you a handle on the picture on the other side so you can better address your piece of business. When trying to get color, we are negotiating. In the spirit of negotiation, we need to determine how to trade a piece without embarrassing anyone and make sure it's not misrepresented. We make sure we are using the same language on a level playing field. We only have naturals so what we offer is real. At Jones, there are no other variables affecting your compensation except for getting a trade done and that comes from the relationship."
"Relationships need to be stronger here than at the big firms because at JonesTrading there's no other agenda, no other reason to do business. They don't need to pay us back for research, or corporate access, we have no calendar of deals—it's just you and your execution, leading to the bigger trades that need to be handled strategically with delicacy and finesse. "
"Here, you don't have to go through another block trader where you lose a lot in the translation, particularly if the block trader is busy. There's no mediator here. We negotiate directly with the other trader, which gives you a better feel. When you look at the numbers, it's clear that very few firms do a better job in execution."
3
"Real color is important because ECNs are more prevalent. With pennies on the screen, you can't see what's bid or offered. As a result, it's harder to see what's going on in the marketplace. You have no confidence whether you are buying or selling at the right price and no market awareness of other players in the name. We further our clients' trades not the P&Ls of our firm's proprietary desk. It's an enormous checks and balance system. Proper calls are being made. We're able to talk candidly because our filter system is strong. It's all about relationships and trust and the ability to execute. My customers get real color because I scout out every market to see where the liquidity is. Real color is knowing where the bodies lie. If there's no buyer, then you make a buyer, you dig it out."
4
"What makes Jones different is the platform and the people. We've got the flow and the expertise. We provide a premier level of service. An order is not jammed on the desk. The order is worked. We maximize the liquidity that our clients are seeking."
"Why is it harder to get color today? A lot of firms are executing through machines—even floor brokers use them. And a lot more players are involved today. We don't necessarily give that much more flavor, we are just more timely and conscientious about it. We'll just do it conscientiously with more depth and market definition."
"With fewer layers of personnel to go through, you lose less in translation. That falls under the umbrella of premium service. It's one of the advantages of the Jones platform. We aren't doing millions of shares of business per day. The big firms don't care because the economics of secondary business don't make sense anymore for them. They are making more money trading a proprietary product. We have a real opportunity because we are low cost and realistic on what we need to do to be profitable. Our good day is someone else's bad day. That makes this a very viable firm given what's going on in the evolutionary development of the business."
5
"Giving color sets us apart. Is it harder to get these days? Creating the smallest amount of impact when moving big blocks of stock is becoming much more important. It's more difficult to find our form of liquidity—where natural buyer meets natural seller. The economics of the business made servicing customers unprofitable at the big firms. It became a loss leader and they stopped putting resources in place to make it better."
"JonesTrading has a very stable and experienced workforce versus Wall Street. We can talk about the tenure of the sales trader here. We've been doing it for a long time; we care about our customers."
"Our business model has stayed the same. Customers truly want consistency. You have to have experience to give color. The longer you cover the account, the more you know. We have learned from our customer base that color is what's important—and we have built our firm around it. Which means we can find the other side without disturbing the market. In a day when the average age on Wall Street is coming down, ours is going up. "
6
"Is it harder to get color these days? No, there are a lot of people trained to give color, a lot of color. But a lot of the color today is not real, not good enough, now that the market is diluted. With the penny increments, the looks aren't as good. Color is smaller, it's not as concrete as it was before—it's been broken down."
7
"For real color there has to be trust and that trust comes from experience. While you have an infusion of new people at Jones, it's on a base of the old. JonesTrading was founded on having color. It was Bud's concept, based on building trust with clients."
"Color is found in the edges of nuance in the marketplace, in the fringes of relationships between clients and traders, and in the firm itself. We have a culture that links us to the integrity of standing behind everything we do. The customer is our primary focus. We are an extension of their desk."
8
"At Jones we have two advantages: the skill of the sales trader, and the strength of the system. These are the two reasons to use us. There is far less communication today over the phone. Now everything is directed toward electronics. As a result, people are missing a whole level of information. Most of the phone calls made in this industry are worthless. If you don't make the call to Jones, you stand to lose the sense of the larger situation—that there may be a bigger situation on both sides, and no one discovers it unless there's communication. On the flip side, no one is willing to give up that information because they don't trust or have faith in who they're talking to. This is where I see art and skill in the third market"
