BTIG's London ceo Gary Hayes and Russell Scott, md and head of CEEMEA trading at the firm, answer SCI's questions

Q: How and when did your firm become involved in the structured finance markets?
GH: BTIG was growing - mostly in equities, outsourced trading and prime brokerage - and at the end of 2008 we realised there would be an opportunity to do with international equities what we were already doing in the US. It was our customers who asked us to move into that.

It was also our customers who asked us to move into what we are doing now with our agency platform in fixed income. We hired John Bass from UBS to start the fixed income business in February 2009, and we hired the best part of 70-80 people in the US. The next extension from that was to look at specific areas depending on when we could get the right people in Europe.

Q: What are your key areas of focus today?
RS: In the States on the fixed income side, the focus is on US high yield, investment grade, convertibles and emerging market fixed income products, mainly G7 based. That fits in with the natural customer base and overlap.

When the market becomes a little bit dislocated and we see these huge yield spikes and the market blows apart - as we did post-Lehman - you get equity investors looking to shop in fixed income markets that are broken. Banks do not want to add risk onto their balance sheets and, if anything, they are looking to reduce risk.

In that scenario, we get a huge cross-over of investor bases. That is why there is the desire to be in the fixed income world.

Q: Do you focus on a broad range of asset classes or only one?
RS: In the UK we see the market is broken down into pieces. The first piece is emerging market fixed income. The second would be emerging market local market products, which is not an area at the moment BTIG is looking to be involved in, but for a certain group of our core customer base that is 50% of their world.

There is also another core group of customers that overlap in and out of fixed income like marginal buyers and sellers. This would be the customer base that looks traditionally at investment grade credits, less risky assets and - in the recent past - are very much focused on bottom-up credit stories in the high yield market.

All of these are currently covered out of the US, except of course for the local products. In London, because it is the best fit for our customer base in the States, the natural fit is to do emerging markets first in London, before moving out in the future.

GH: I would say it is very important to get the right people. We look at what our customers are asking us for and then we look at who might be out there, instead of just hiring anyone.

The first thing we look at is our business model; then we look at what our customers want and at what is actually out there. When we set up in London I had an idea of what we wanted to do at certain times, but sometimes a great opportunity comes along - such as hiring a team that you know won't be available in a couple of months.

You might not want to start high yield until next year, but if a great team is available now, you might have to go for them. We react to where the market is. We have to be flexible and we think the banks cannot be as flexible as us.

Q: How do you differentiate yourself from your competitors?
GH: We have a partnership model and regional leadership. Our model gives us great flexibility.

It means that if I want to hire two people, I make one call to the partners and we can get those people hired in 24 hours. It is far more long-winded in the banks.

We are high-touch. So much of the market has gone electronic and people do not know where things are and where things are trading.

Actually having contact with human beings, people you know and trust, especially in the last two years when the market has been in turmoil, makes a huge difference. Do you want to put an order in to a machine or do you want to go to a professional?

RS: From a drilled-in fixed income trading perspective, the relative sizes in the market of the sell-side and the buy-side have completely flipped. We are a middle-man, with straight retail to our customers. We should know what our customers are doing.

One thing with the emerging market franchise is because we are only doing emerging markets fixed income credit at the moment we can be far more specific. The sales team is not trying to sell EM FX options and EM local markets to the same customers at the same time.

We are very much specialised in the asset classes that we are trading. The person who a customer deals with is a professional and a specialist in what they are doing.

All the little touches make the difference. The little things we do help speed orders through.

GH: Potentially banks are going to have their positioning limits on their market-making desks squeezed by the Volcker ruling, so there is no proprietary activity there. That helps us to provide a better service to customers, relative to the competition.

RS: However, we are not trying to compete with the banks; we are offering another service. We are trying to trade within the bid-offer spread, end-customer to end-customer, where you do not get these big lumpy moves within the market.

GH: If you give your customers options, then they tend to feel like you are working with them. That has been the ethos at BTIG; we try to do what the customers ask us.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
GH: What happened 18 months ago provided a real challenge. People have set up businesses in reaction to what happened in world markets, but world markets seem to have come back so quickly. There were spaces for us to operate in, but the banks have rebounded quicker than anybody thought and not that many of them went to the wall.

RS: One of the hard things is always getting good, quality talent. You can always put bodies in seats, but what you want is quality.

The other thing is individuals' views of the market. There is a double-dip scenario, which is bad for the man on the street but could be revenue-enhancing for banks. Volatility is dropping, which in my mind means it will have to pick up at some point in the future.

If there really is going to be a job cull, we hope it will not be because we have gone through a reasonably low volatility spell now and people think they can trim their workforce.

GH: There are lots of opportunities still to come, whether it is with the Asian economies or emerging European economies and the like. The market is in a slow spot right now, but things will pick up, and good people are still very much in demand.

Q: What major developments do you need/expect from the market in the future?
RS: From a personal perspective, I want markets to perform well. In emerging markets there is a large amount of in-flow of recycled dollars coming in from government agencies and central banks. That money is going to keep coming in to the better economies, such as the ones exporting to China.

That emerging market story is not going to go away, but there will be more credit differentiation. There will be relative changes between the different credits. People will tend to expand more and more and the knowledge base will become more specialised. In a rising tide, not all boats rise.

The markets are going to be much more credit intensive, which requires a lot more knowledge and skill. It may be what we had in 2006 and 2007, when the market had a huge bull run up.

GH: We think emerging markets is a place to be. It is something we have invested time and effort in within fixed income and equities, and we certainly think it is going to be a way to drive revenues.

But, once again, our customers want us to be in this space and that is why we are. They want to deal with people they know and they trust.

JL