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Potpourri

Jeopardy!

Potpourri Jeopardy!

The tv show Jeopardy! was and remains on at 3:30 CST each weekday, so watching it was how many a trading day was spent closing out the last 30 minutes of the Globex session back when I used to have the tv on.  Since there are a few odds and ends to mention which I don’t want to put into different posts, I’ll just use the catchall Jeopardy! category “Potpourri” to make mention of everything.  To keep w/the theme, I’ll come up with five listings since that’s what each vertical has on the show.

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A couple excellent resources for financial history is the International Bond & Share Society and the Museum of American Finance.  The IBSS focuses on scripophily, the collecting of stock certificates, and a few times a year the society puts out a great magazine entitled Scripophily, filled with stories of historical companies and stock or bond certificates.  *Update* – the IBSS recently updated their website and I’d encourage any readers of this website to also visit the new IBSS website, scripophily.org to learn of an additionally deep resource on financial history.   The MOAF is also quite broad to cover all aspects of economic history, in it’s NYC location on Wall Street and also puts out an interesting quarterly magazine entitled Financial History.  The most recent issue of Financial History is quite dry but throughout the year, a lot of enjoyable articles are included to justify a subscription.  Membership fees are $32/year for the IBSS and $50/year of the MOAF, small thing to a giant for all you Market Wizards.

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In regard to this site, a lot of it remains a work in progress w/some legacy stuff I have yet to transfer over from the old tradingpitblog.com site and also building out the Further Resources category which is particularly overdue.  Life in general and my many other hobbies have seemed to out-compete for focus and attention compared to this trading pit stuff but I also know that free time and energy will continue to dwindle, so if I put off these improvements much longer then they’ll be harder to finish.  At the beginning of the year I was able to visit the grave of a personal hero, Sir Richard F. Burton, and told myself that I still have to raise this project up to his standards.

The moment isn’t ready to pour resources into it now but I’d also like to establish bourseophily, which I’d roughly define as the study of financial bourses, the physical environs of these exchanges, the contracts/goods/equities traded and participants who transacted at the bourse.  Not sure if I’d ever have enough time to build out the framework as envisioned, but it’s fascinating to learn more of this subject in a more structured manner or just continuing to do so at leisure.

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sliders

White Castle sliders

Can’t mention Jeopardy! without a “Potent Potables” reference.  Trading is incredibly lean these days because no one makes unforced errors although in the days of the trading floor it certainly wasn’t the case.  I don’t typically include any stories that were told to me by others but will make an exception in this case, vaguely, since it showcased an extreme of someone who worked on the floor.

There was one conversation on the trading floor, well over a decade ago, with a clerk who was telling me what a mess the pit broker he worked for was.  On a regular basis, the broker, who held a large institutional deck, would go drinking from the market close until the bars closed.  Afterwards he’d pull up to the drive through at White Castle and bark out “gimme twenty dollars worth of food, I don’t care what” and after getting his food he’d park somewhere, eat what he could and then pass out for a few hours.  When the sun would rise, so would he and on the drive downtown to the exchange he’d toss the White Castle leftovers on the front of his dashboard and crank the heat to warm up the remaining sliders as his breakfast, gross.

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Last week in SF, I went to a local bookstore to listen to an author event with Mary Pilon speaking of her excellent NYT best seller The Monopolists and Mark Braude speak on his new release Making Monte Carlo.  To hear authors share the story of their writing, process and book subject matter was a great way to spend an hour, certainly the type of thing I plan to do more often.

I first came familiar w/the work of Ms. Pilon when the WSJ ran a profile she authored on the trading pit hand signal preservation this website focuses on.  Because I believe self promotion to be bad juju for actual trading, in the five and a half years since the article ran in the WSJ, I actually never even mentioned it on this site or linked it.  However enough time has passed that I think it’s ok to put it here incase anyone is interested further in the backstory of how this all came about:

Trader Keeps Hands in History WSJ July 10, 2010

One positive result from the article was a lot of hand signal submissions which came about due to the exposure.  Additionally, it was also educational to learn of the media cycle and how a story in a global publication like the WSJ is picked up in so many regional outlets worldwide and rewritten as if the regional author originated the story.  The only change I’d make to the article would have been to inserted the word “American” before “citizens tour to North Korea,” perhaps it was cut to fit the print properly.

At the authors event I walked out with the new paperback copy of The Monopolists and a hardback of Making Monte Carlo which I spent the weekend reading.  The most intriguing character of the book was the man who was the driving force behind developing Monte Carlo as a gaming resort, Francois Blanc.  Early in the book, Mr. Blanc is described to have developed a scheme to get an informational edge in the Parisian bond market for which he eventually faced court charges for.  In his 1837 testimony which remains just as true today, Mr. Blanc stated that, “If you want to play on the Exchange you must keep up your guard, because there you will only meet two kinds of people, the cunning and the easily duped, and if you don’t want to be a dupe then you had better be cunning.”

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best surfer

The best surfer out there is the one having the most fun

I’m short on a fifth entry so will just post up a great piece of art that I enjoy seeing a couple times a day when going to get coffee at my usual coffeeshop in SF.  “The best surfer out there is the one having the most fun.”  I’d consider the best trader the same way, not based on P/L, AUM or anything of that sort but how much fun they have enjoying it which is a sharp juxtaposition to how the entire financial industry operates.  While winning trades are the biggest part of having fun in trading, it’s certainly not the only component and imagine others who started out on the trading floor would tend to agree.  Now that I think of it, there’s a friend of mine whose mnemonic on LIFFE was actually FUN so I’ll have to pass this photo his way.

Greatest futures broker in history (from a client perspective)

I was recently thrilled to get the business card of who can be considered one of, if not the greatest execution broker in the history of the futures trading industry….Nick Leeson of Baring Futures (Singapore) Pte Ltd.

Nick Leeson Barings

Nick Leeson Barings Bank business card

A lot of people would be puzzled for me to bestow that title upon a man who was known for rogue trading, however to his clients, Leeson was providing amazing fill prices on a regular basis, especially in futures and option spreads.  Of course the reason why this was possible is because he would often leg spreads and if the price was favorable to the client, he would proudly pass the good fill to them whereas if he was caught on a leg, that trade would get buried in the Barings 88888 error account.   Such subsidies to customers were estimated by FT journalists, Nick Denton (yes the Gawker founder) and John Gapper in their book All That Glitters, to have comprised tens of millions of GBP over a couple years.

It’s understandable why Leeson was under pressure to provide the best execution prices possible to his clients in order to maintain client flows which would help obfuscate the growing positions he was trying to trade out of in the 88888 account.  Institutional clients would often break up orders amongst different desks on the floor to make them compete against each other and Leeson was able to edge out other brokers by taking these risks which weren’t possible by others.

For those of you who haven’t read Leeson’s book Rogue Trader, I urge you to because it’s a truly a case of reality being far more bizarre of any fictional thriller and also to supplement it with a book like All That Glitters will provide an objective perspective.  Personally, my opinion is that Leeson was simply a young man who was overwhelmed by circumstances and things got carried away.  It’s the type of behavior which has happened to many in the trading pits and in his case, there just wasn’t any oversight to stop it sooner.   I actually have a lot of respect for Leeson with how he’s gotten on in life after so many tragedies such as the Barings debacle, divorce and cancer that he followed up Rogue Trader with the book Back From the Brink:  Coping with Stress.

This original Nick Leeson business card was provided by a contact who worked on the SIMEX trading floor at the same time and took some from the Barings desk after news broke of the scandal.  I’ve taken liberty to hide the phone numbers because a financial firm actually still uses the phone number today!  To the gentleman who provided the card to me for free (!), I intend to show my appreciation with a gluttonous dinner befitting the golden era of pit trading whenever travels take me to his city.

1865 Chicago Board of Trade membership card

CBOT membership

1865 Chicago Board of Trade membership card

Every collector can relate to the excitement of obtaining a highly significant item to add to their collection and I was immensely thrilled to purchase this 1865 CBOT member’s ticket from one of the world’s great financial memorabilia collectors.  I have many similar tickets from different years, even earlier than this, but 1865 is particularly significant because it was the year that the CBOT began trading standardized futures contracts and instituted margin requirements.  For many years prior, makeshift futures agreements were transacted by members, but the formality of these contracts were finally recognized and written into the CBOT rulebook in late 1865.  The name on the ticket is Mr. F.S. Day, who was listed as a commission merchant (broker) in a Chicago directory of that era I also researched.  Unfortunately, I have no idea how this piece was originally obtained and survived the 1871 Chicago fire.

To further get a sense of the 151 years since the membership ticket was issued, 1865 was the year that the Civil War ended, President Lincoln was assassinated, the population of Chicago was roughly 250k and the Union Stockyards opened in December of the year.

For a perspective on how immense the exchange traded futures markets have grown since 1865, the notional value traded on futures exchanges peaked in 2007 at $95 trillion and have since pulled back to only $69 trillion in 2013 when I was last able to find figures.  In comparison, the US stock market has a capitalization of roughly $20 trillion w/global equities at a roughly $70 trillion market cap.

Collecting this type of stuff is admittedly a nerdy hobby but much more interesting than baseball and hockey cards I grew up spending my odd job money on.  Compare this to the T206 Honus Wagner baseball card, which is the most rare ball card but has about five dozen copies in existence and the market cap of MLB baseball franchises, subjectively estimated by Forbes to be roughly $35 billion, is pretty close to the CME Group’s $32 billion value.  It’s simply a piece of cardboard, but to me this 1865 ticket is a very rare link to the origin of such an amazing industry.

Constructing the Chicago Board of Trade Building

The CBOT building, like most older financial institutions, was imposingly built to provide a sense of permanence and financial stability.  It’s such an iconic building that it’s hard to think of Chicago without it at the end of the LaSalle Street canyon.  Because of how synonymous the CBOT building is with Chicago architecture, to see photos of it’s construction is disorienting, especially with it’s horological cavity empty.   (Just looked on google and “horological cavity” seems to have never been used in the English language before, but what else to call it when the clock is missing?)  I’ve got a lot of historical items tied to this CBOT building and it’s prior incarnations, this cache of 28 photos I purchased years back and just got around to batching the uploads. If the Scribd embed doesn’t load then the direct link is here.

If those walls could talk, I imagine the CBOT building could say more than any other structure in the world about all the stuff it’s seen and heard.

CBOT building construction photos by tradingpithistory

The Real Smug Trader

Trading been pretty uninspiring lately so in such market environments, I always find it better to decamp on travels whenever possible and made a quick return to Paris, which always is energizing.

Midweek after the late night Globex close (11pm local), with my wife and daughter already asleep, I left for my usual nocturnal stroll but also felt the need to stop off at a bar for the buzz of a cocktail or two.  I’ve never been to Harry’s New York Bar before and considering it’s a very historic bar, that’s about the most out of character thing I could ever omit doing.  During many previous visits to Paris, I’d guess with a very conservative estimate, that I’ve walked by the front door of Harry’s a minimum of 200 times but just never felt like going in.  Can’t explain it but nonetheless decided that it was time to drop in finally last week.

My first drink at Harry’s was great and as I settled in to soak in the environment, I saw the photo over my right shoulder of someone I knew very well….smug trader.

Real Smug Trader Harry's Paris

Real Smug Trader

As those who’ve read this blog for years know, I’ve been intrigued by a piece of trading art which I bought randomly years ago and entitled Smug Trader, including writing more about it in this 2014 post linked here.  Here is a side by side comparison of the two pictured together:

Smug Trader and original photo

Smug Trader & original photo

I asked the bartender at Harry’s if he knew anything of the photo and he didn’t so I extensively searched the internet to discover that it apparently is of an anonymous Irishman in 1899.  For such an iconic photo, there is actually little to be found of it on the net with just a reference from tublr via what appears to be a Russian vintage photo uploader.  How the artist who crafted Smug Trader found the photo in what would’ve been the early 1970s can be anyone’s guess.

So furthermore, Smug Trader is really nothing but a meme before memes were a thing….very disappointing but if I had to learn the truth then this was the best possible scenario.  Either way, whether it’s Smug Trader or the drunk Irishman, one thing I always believe is that market advice from the drunk at the end of the bar is no worse than any self proclaimed experts.

Nick Leeson’s Barings trading jacket for sale (again)

Leeson Barings jacket

Nick Leeson Barings Trading Jacket from Authenticate It

It’s been nine years since KPMG, the bankruptcy liquidator for Barings, sold some trading jackets from Barings’ SIMEX operation as one of the final duties to wind down the estate.  Included in that batch of jackets was most notably,  what was purported to be Nick Leeson’s personal jacket which was sold for 21,000 GBP to fund manager Paul Taylor.  The remaining other jackets of the Barings brokers and clerks were sold off individually and I believe a couple were donated for charity auctions.  I have a couple Barings jackets that I’ve bought from the initial purchasers and it’s a unique piece of trading floor memorabilia as I’ve often blogged in the past about it.

Nick Leeson has brought forth the jacket pictured above, then describes in a statement, that it was in his possession on the day he fled and was part of his personal property which was boxed up.  What I find most interesting is that in Nick’s statement, he debunks the idea that the jacket which Paul Taylor bought was actually a jacket which Nick wore.  Seeing that Mr. Taylor is so secretive that no photo exists in the public domain of him, I don’t expect this to be contested publicly if Mr. Taylor were to even believe otherwise.

The jacket is currently for sale at this link and I hope to learn of it’s eventual sale price once it’s purchased.

 

The greatest LIFFE trading floor video

Here is an excellent, must watch 38 minute LIFFE video from the early 90s which, unfortunately, does not have sound.  Although I never made it to the LIFFE floor before it closed, this video gives an excellent visual sense of both the scale of the floor and a lot of tight shots to isolate individual roles.

For those of you who wanted to identify which pit is which, the following trading floor map is pictured from pages 264-265 of the book LIFFE: A Market and its Makers by David Kynaston.  This book can be found online easily for a nominal price still.

LIFFE trading floor map

LIFFE trading floor map

Also for quick reference on the basic LIFFE hand signals, here is a simple guide that this website commissioned for print illustration by Mike Nudelman.  There still are some of these prints in inventory although they aren’t listed on the shop page.

Hand Signals of the London Trading Pits by Mike Nudelman

Hand Signals of the London Trading Pits by Mike Nudelman