Traders and researchers scooped up for prop desks

Don't look now: banks are building their proprietary trading desks.

"Demand for proprietary traders is up on last year," says Bahador Moussa, a consultant at recruiter Huxley Associates. "Banks are beefing up their prop trading desks across a range of strategies and products."

"Prop trading recruitment now is a lot more active than two years ago," confirms Shaun Springer, chief executive of search firm Napier Scott. "Tighter controls have reduced the risk of losses and it's seen as a potentially very profitable area."

Suggestions that proprietary trading (AKA 'prop trading') desks, which trade banks' own money, are big on banks' expansionary agendas could be a cue for wild exuberance or fretful apprehension.

Prop desks can generate big profits - or big losses. Goldman Sachs, widely seen as running the mother of all proprietary trading operations, earned $16.3 billion in net revenue from trading for its own account last year.

During the same period, however, JP Morgan saw equities trading revenues fall 17% after several trades went 'sour.' ABN Amro suffered a reduction in prop trading revenues in 2005. And in a salutatory warning several years earlier, Commerzbank eliminated its proprietary trading team in November 2004 after suffering third quarter losses of €208m ($258m).

Who's hiring?

Predictably, it's Goldman Sachs' prop trading golden goose, rather than Commerz's dead donkey that other banks want to clone.

Credit Suisse, ABN Amro, Deutsche Bank, and Morgan Stanley are among those said to be adding bulk in the area. Morgan Stanley has reportedly moved around 30 of its asset-backed bond traders, analysts and technology specialists to a new proprietary trading group at the firm's headquarters, and is said to be considering repeating the strategy in London.

Prop trading enthusiasm is spilling over onto other roles, notably research. Jonathan Evans, managing director of search firm Sammons Associates, says banks are exceptionally eager to hire researchers who can provide trading ideas to proprietary desks.

"Most firms are now latching onto Goldman's trading mentality, and need researchers to support that," he says.

If you're a researcher, migrating to the prop desk could be a lucrative option: Evans says it's not unusual to double your compensation. "Instead of sitting in a darkened room generating ideas away from the salespeople and traders, you're immediately identifiable as the person who's created the idea that brought home the bacon," he says. "And you'll be paid for that."

Going internal

Although researchers supporting proprietary trading desks are hired externally, recruiters say most actual trading jobs go to internal hires.

"You can move from an analyst or a quant job into a proprietary trading role in another firm," says Moussa. "But it's difficult to make the move from flow trading into proprietary trading unless you do so in your existing firm."

One advantage of sourcing new prop traders internally, is that banks can build prop trading desks fairly covertly.

Rather than averting your eyes, it may be necessary to look very, very closely to spot the openings.