Taube conducts the orchestra that is the trading desk, dealing with funds and clients -- ranging from retail brokerage houses to hedge funds -- on day-to-day, or minute-to-minute, issues. Lichtenstein manages risk, making sure the desk’s own inventory of ETF shares and underlying securities are hedged and that the unit stays within Cantor’s limits on committing capital.

Cantor Fitzgerald makes money on its ETF desk by charging clients a spread, or margin, that amounts to fractions of cents per share as they execute millions of trades. Browne, Taube and Lichtenstein’s pay is linked to the profitability of the operation, Browne says. Cantor declined to disclose their compensation.

An Instant Power

When Cantor Fitzgerald lured Browne and his crew to the firm, brokerage head Matthews called them “unquestionably the most knowledgeable and experienced professionals when it comes to the pricing and trading of ETFs.” The hires made Cantor’s small ETF trading desk an instant power. The move was part of a wider expansion by the firm, which lost 658 employees in the Sept. 11, 2001, terrorist attack on the World Trade Center. In the past year, Cantor has started up a municipal-bond sales team, hired seven corporate-debt brokers from Gleacher & Co. and bought many of the assets of London-based Seymour Pierce Holdings Ltd., one of the U.K.’s oldest brokerages. Matthews said in October he planned to hire 200 to 300 people this year to boost fixed-income sales and trading in emerging markets.

Basel III

All of this is part of a big shift on Wall Street triggered by the implementation of the U.S. Dodd-Frank law and Basel III, the new global set of capital requirements agreed on by the Basel Committee on Banking Supervision in the wake of the financial crisis. Dodd-Frank curbs what is perceived to be risky activity such as proprietary trading by big banks, while Basel III requires increased capital reserves to guard against future financial tremors.

Browne says that’s why, when he contemplated leaving Knight, he chose Cantor rather than a big bank. The firm is not a bank holding company and is not considered systemically important.

“If you look at regulatory pressures coming, I believe there are head winds for the largest banks and much less for middle-market broker-dealers,” Browne says. “The multinational banks may have more difficulty deploying their capital for different businesses, and that could include ETFs.

Browne, Taube and Lichtenstein met and became friends in 1997, when they worked together making markets for the Spider at the Amex. The action was in old-fashioned pit trading, where personal relationships between traders helped drive the deal flow. That experience, Taube says, still helps, even in a world where trades are all electronic.

Floor Ecosystem

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