At this moment people began reacting very quickly

  • No School
  • AA 1
  • 172

This preview shows page 57 - 59 out of 172 pages.

At this moment, people began reacting very quickly. Even between 4:10 and 4:15, I could see on
Image of page 57
my screen that futures were ticking down: investors were selling. On Wall Street, the way traders gauge how people are perceiving any major event is by looking at the futures. If the futures are tanking, it means that the market is really scared. This market was scared. The phones were starting to ring: clients calling. “Are you guys going to be there if we need to do something when the markets reopen at four thirty?” they were asking. “We really need you to stick around,” they said. An announcement began to blare, over and over, on the PA system: “Please evacuate the building in an orderly fashion…” But almost everybody had already left. There was blood in the water; it was important that someone stay. By 4:30, Michael Daffey and I were two of the few people remaining on the fiftieth floor; the trading floor had become a ghost town. I had spoken to several clients during the futures closure, and they were talking about executing big trades—really big trades—when the markets reopened. Everybody was selling: shorting the markets, betting that the blackout was some sort of terrorist attack. One client in particular, a hedge fund, wanted to execute a significant-size trade: $2 billion in S&P futures. Yet he wanted to make the sale through a product that was not very liquid—what is called a “big futures contract” instead of an “E- mini.” The big contracts were five times the size—worth $250,000 per contract versus an E-mini at $50,000—and they were clunkier. E-mini contracts were created to give investors the ability to be nimbler and to trade in smaller increments, and they were available to be traded around the clock electronically. It was as if the client were planning to make his escape by car and had a choice between an old, dilapidated Toyota and a brand-new Lexus. In effect, the client was saying, “I want to drive this old Toyota because we’re really used to it.” Yet we knew, as experts, that he’d be much better off driving the Lexus. He’d be able to weave in and out of traffic more nimbly, he would get to his destination quicker, and the safety mechanisms on the Lexus were much better. That was the difference. The client wanted to trade a product that he was accustomed to but that was not very functional; and the trade was going to wreak all sorts of havoc on the markets, which in the end would be bad for him. I needed to get a partner involved. I went to Daffey’s desk, which was probably twenty yards from mine, and said, “The market’s about to open, this client wants to sell two yards [billion] of S&P futures, but he wants to do the wrong contract. I’ve been adamant with him—I’ve told him that it’s not in their interest, and that they’re going to move the market much more doing it in the big contract rather than the mini.” Daffey completely agreed with me. “Let’s call this guy,” he said. Daffey didn’t know the client, so we called him together. “Look,” Daffey told him. “This is
Image of page 58
Image of page 59

You've reached the end of your free preview.

Want to read all 172 pages?

  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors