Reading B.I.F.

I'm not sure where this article is from, but a friend of mine emailed me this article:

Veterans In Demand
Bonuses For Equity Derivatives Traders Up Over 10%
--Veronica Belitski
November 23, 2005

Bonuses for equity derivatives traders will be up more than 10% this year, bolstered by an explosion in options and futures trading volume, according to trading executives and recruiters. The surge will push total compensation for derivatives traders well into the seven figure range and well above what most equities traders make. Last year derivative traders' comp was flat. These bonuses could translate into even bigger numbers next year, as investment banks and trading houses are offering guarantees to the best traders to take advantage of the hot market, recruiters and trading executives said.

"There are a lot of mandates for experienced [derivatives] traders, so firms have to become more aggressive with guaranteed bonuses to get the best," said Steven Fleming, managing partner at Wall Street Options, a recruiting firm. Recruitment in derivatives had been mediocre over the past three years until the market picked up in 2004, he added. Les Carter, recruiter with Carter, Stone & Co., expects to see bonuses for the best derivatives traders to increase by much more than 10% in the coming year. "There aren't that many people who are qualified to work on a derivatives desk; it's a much more intellectually driven business than equities," he said.

Equities derivatives desks are also much smaller than equities desks--they typically employ less than a dozen options and futures traders, while traditional cash desks often employ anywhere from 20 to 50 people. As commissions for equities continue to come down, there is much more room for growth on the options desks, said Richard Lipstein, recruiter with Boyden. "The derivatives and structured products businesses remain strong; there are cost pressures everywhere but here," he said. Several derivatives trading execs said they are increasing hiring by about 15-20% next year.

Average commissions per options contract are coming down just as for equities, but increasing volume in options and futures trading is compensating for the loss, according to a recent study by Greenwich Associates. Average commission per contract fell to $2.27 in 2005 from $2.49 in 2004, but average commissions paid by an institution increased to $1.64 million from $1.57 million last year (WSL, 11/4). Hedge funds coughed up even more cash, and paid on average $2.6 million in 2005, up from $2.2 million in 2004.

Because there is more competition among the top trading outfits, firms are expecting derivatives traders to be more sophisticated than several years ago, Fleming said. Banks expect traders who come out of the traditional investment banking background to go back to school, and get the Masters' or even Ph.D.s before applying for work on a derivatives desk, especially if the trader wants to work on the proprietary side. "This is a business dealing with complex products, and it is really specialized trading, so a higher level of education is expected," said Leah Peskin, recruiter with Cromwell Partners.