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CEO CHAT: Daryn Kutner, Olivetree Financial

Traders Magazine Online News, February 4, 2019

John D'Antona Jr.

Like the mythical phoenix from mythology, Olivetree rose from the ashes of the financial crisis and disorder seen in the post-crisis sell-side.

In the ruins of the financial tumult  came many things – mortgage reform, tightening credit and a booming stock market. Amid the growth of brokers back in 2009, Daryn Kutner thought there was a better way to compete in the trading business and that the traditional sell-side model was broken. The ex-Morgan Stanley Managing Director left the bulge firm and started his own firm, Olivetree Financial.[IMGCAP(1)]

Looking through his own crystal ball, Kutner figured growth and survival in the brokerage business and equities trading would be in combining technology with human sales traders. Taking his own sell-side experience and recognition of the value of technology in enhancing the sell-side’s ability in helping the buy-side generate alpha, he modeled Olivetree Financial and a new brokerage was born in 2009.

Kutner spoke with Traders Magazine’s editor John D’Antona Jr. about the firm’s vision, its operating model and the role of the human sales trader in the age of artificial intelligence and algorithms.

Traders Magazine: How did you come to the view that the traditional sell-side model was broken?

Daryn Kutner: It has never been my view that the sell side was broken per se but the principles of Best Execution operating alongside Asset managers paying for Research via transactions was always a construct I found difficult to come to terms with . Clearly it is/was a conflicted operating model.

The primary principles of MiFID have come along ten years later than we expected but now we are here we expect the ramifications to be more than significant . The simple facts are that sell side cash businesses have operated on pretty poor operating margins even in the best years so with a significant percentage of revenues being reduced from the top line post- MiFID we don’t think many models can sustain.

TM: What technology did you pioneer or advocate to advance the sell-side’s ability in helping the buy-side generate alpha?

Kutner: In 2010 in collaboration with a number of clients we began to develop OTAS. We felt that there was a swathe of observable data available that if we were able to consolidate and analyze could be effective to help our clients navigate through an investment life cycle. Developing OTAS was a challenge but we pursued it because it was entirely consistent with our founding principles - ie we wanted to help our clients in the areas that were not part of their normal USP.  We believe most of our clients are very good fundamental stock pickers but often volatility makes them question their investment principles. We wanted to help them understand this better and help them stay focused on what they know best.

TM: How long did it take to advance this technology?

Kutner: We were making advances every day. The reality is that any analytics tool needs and should be advanced on an ongoing basis – it can never stop. Ultimately we decided to sell OTAS once we came to terms with this fact. But actually it was a really liberating point for us as it allowed us to go on the hunt for any comparable/interesting technology that may give different insights

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