Mike Bickford retired as senior vice president, options at the American Stock Exchange (Amex) last October. He is currently pursuing new challenges in the securities industry. Bickford has been in the financial services industry for 30 years and spoke with JLN’s Jim Kharouf about his career, the options markets, ETFs and one of his outside interests, baseball.
Q: How did you get your start in the financial markets?
A: I started out as retail broker for Dean Witter in 1978. I had an undistinguished and short career in October of 1978 as the market went from 800 to 700 on the Dow. Then in October of 1979, it went from 800 to 650 and I lost my second set of clients. After that, I talked my way into the training department and went on from there.
Q: Were there any mentors or people to whom you give a tip of the cap?
A: Yes, I give one to Glen Givens, who was director of training at Dean Witter for many years. Before I joined the training department, they gave those jobs to people who were successful and on the management track. He decided to take a chance on me, and he taught me so much about the business. Another is Joe Stefanelli, (former executive vice president in charge of derivatives at Amex) whom I had the pleasure of working with for about eight years. He was supportive, willing to listen, willing to let you do things even when he disagreed. He and I would have famous disagreements but I learned so much from him. He was one of those people you realize how much you relied on only after he retired in 2003.
Q: What are your thoughts on the options market today versus when you started? How has this industry changed?
A: The change is so startling it’s hard to know where to begin. Let me give you a short story as a backdrop. In 1980, I was working for Dean Witter and got a call to work teaching options trading. I got a 50 percent increase in salary plus a bonus and was over the moon. So I called my father about this great new job. My dad paused and said, “Options, those are the puts and calls they advertise in the newspaper. Are you sure this is a good idea?”
I tell that story because in 1980, options were still in their infancy. There were only puts on a limited number of stocks. Markets were not terribly deep. Spreads were wide and singly traded. It was not uncommon to try and trade a 10-lot and end up trading one option. I joke that five minutes was a good execution time and five seconds is ridiculously long today. But because of the competition, auto-execution led the way in the options markets and then spread to the equities markets.
Q: With electronification of the options markets, what would you say was the tipping point that pushed options into a more mainstream investment tool?
A: It was all the education. All the firms initially participated but the CBOE’s Options Institute was instrumental and then came the Options Industry Council. The industry decided that a concerted effort needed to be made to educate as many investors as they could. That worked perfectly with the online trading explosion, because more online investors became self-driven and were looking for that kind of information. You no longer had to work through firms but could reach directly out to the customers who would take that information and put it to work.
Q: You helped grow Amex’s successful ETF business. Can you tell us how the Amex development team came up with the idea for ETFs?
A: It began before my time at Amex. But the story starts with the father of ETFs, Nate Most. He had a long career in the markets and was head of new products at Amex. He decided we needed to come up with a way to put the S&P 500 Index into a single product package. There were a couple failed attempts at it, CIPs (cash index participations) and EIPs (Equity Index Participations) , which were akin to deleveraged index options. There was a lawsuit on those as to whether they were a securities or futures product. Ultimately the commodities markets prevailed and got them delisted.
Nate, with the encouragement of Ivers Riley who was executive vice president at Amex at the time, came up with the warehouse receipt idea, giving everyone a small fractional portion. The hardest part was that mutual funds trusts were regulated by the Investment Act of 1940, which didn’t contemplate any of those vehicles being listed on the markets. It was a number of years of working with the Securities and Exchange Commission to bring the product to life. It was 1993 that SPDRs (the very first ETF that tracks the S&P 500 index) was launched.
Q: As senior vice president, derivatives marketing and research, you helped grow the ETF product category from $1 billion in assets to $18 billion. What led to such massive growth?
A: I became directly involved with the product in 1996 as director of marketing of derivatives until 2000. When I took over there, there was $1 billion in assets, a huge deal for us to cross the $1 billion mark with SPDRs, mid-cap SPDRs and WEBs, or small foreign country ETFs.
To grow it from there, new product launches certainly helped with sector SPDRs and then high profile launches such as the Dow Jones Industrial Average (Diamonds) and Nasdaq 100 (QQQs). And then we marketed ETFs as a product category and as a family of choices, almost like a family of funds.
The concept of indexing really came to the forefront at that time as well. These products were low cost ways to participate. And there was a tremendous amount of trading in these products.
Q: What’s the funniest or craziest product idea you ever bounced around at AMEX?
A: One of the good things about Amex is that we developed a reputation for product innovation and became the go-to place for new ideas. But one idea was expirationless options. I still scratch my head about that one.
Q: Amex was such a leader in product design and in the options industry, what were your impressions of that exchange as it was going to be sold to NYSE Arca?
A: It was a great institution I was sorry to see go. But when someone writes the story of the Amex I think you’ll find that in the days when you could thrive on product innovation, we did well. And when the market became more about electronics, the exchange as a whole was never really able to stay competitive. Ultimately, we couldn’t create our way out of it. And even the products we came up with, we couldn’t keep them proprietary. I’m glad the exchange found a home and will continue to live as part of NYSE. They were the perfect partner for the exchange.
Q: One of your interests is baseball. And since baseball is a business – if you were a general manager, who would you rather have on your team and how much would you pay for Manny Ramirez or Alex Rodriguez?
A: It’s simple – A-Rod. And I’m a lifelong Boston Red Sox fan. But it’s hard to speak about baseball and the Amex without bringing up Stu Sternberg’s name. Stu used to be the head specialist and partner at Speer, Leeds & Kellogg, which was sold to Goldman Sachs. And he ultimately bought controlling interest in the Tampa Rays, which beat the Red Sox. There’s a guy with a long association with the options business.
Q: And how about Sternberg, an options industry guy taking on John Henry, owner of the Red Sox and futures industry guy last year?
A: They’re both really smart people.