The Fear Index

by Robert Harris

  RICHARD DAWKINS, The Selfish Gene (1976)

  WHAT WAS OFFICIALLY logged as a ‘general system malfunction’ occurred at Hoffmann Investment Technologies at 7.00 p.m. Central European Time. At exactly the same moment, almost four thousand miles away, at 1.00 p.m. Eastern Standard Time, unusual activity was detected on the New York Stock Exchange. Several dozen stocks began to be affected by severe price volatility of such magnitude that it automatically triggered what are known as liquidity replenishment points, or LRPs. In her subsequent testimony to Congress, the chairman of the US Securities and Exchange Commission explained that

  LRPs are best thought of as a ‘speed bump’ and are intended to dampen volatility in a given stock by temporarily converting from an automated market to a manual auction market when a price movement of sufficient size is reached. In such a case, trading on the NYSE in that stock will ‘go slow’ and pause for a time period to allow the Designated Market Maker to solicit additional liquidity before returning to an automated market.1

  Still, it was only a technical intervention, and not unheard-of, and at this stage it was also relatively minor. Few in America paid much attention for the next half-hour, and certainly none of the quants at Hoffmann Investment Technologies was even aware of it.

  THE MAN WHO had called Hoffmann over to his six-screen array was an Oxford PhD named Croker, whom Hoffmann had recruited from the Rutherford Appleton Laboratory on the same trip that Gabrielle had hit upon the idea of making art out of body scans. Croker had been attempting to put a manual override on the algorithm in order to begin liquidating their massive position on the VIX, but the system had denied him authority.

  ‘Let me try,’ said Hoffmann. He took Croker’s place at the keyboard and entered his own password, which was supposed to give him unrestricted access to every part of VIXAL, but even his request for special operator privileges was turned down. He tried to conceal his fear.

  As Hoffmann clicked the mouse in vain and tried various other routes into the system, Quarry stood looking over his shoulder, together with van der Zyl and Ju-Long. He felt surprisingly calm; resigned, even. Part of him had always known this was going to happen, just as he always half-expected, every time he strapped himself into an aircraft, that he was going to die in a crash. The moment one surrendered oneself to a machine operated by someone else, one was acquiescing in one’s own doom. After a while he said, ‘I assume the nuclear option is just to unplug the bloody thing?’

  Hoffmann replied, without turning round, ‘But if we do that, then we simply cease to trade, period. We don’t unwind our present positions: we’re just frozen into them.’

  Little cries of alarm and astonishment were erupting all over the room. One by one the quants were abandoning their terminals and coming over to watch what Hoffmann was doing. In the manner of bystanders gathered around a big jigsaw puzzle, someone would occasionally lean forward with a suggestion: had Hoffmann thought of putting that there? Might this be better if he tried it the other way round? He ignored them. Nobody knew VIXAL as he did; he had designed every aspect of it.

  On the big screens the afternoon reports from Wall Street continued as normal. The lead story was still the riots in Athens against the Greek government’s austerity measures – whether Greece would default, the contagion spread, the euro collapse. And still the hedge fund was making money: in a way that was the weirdest aspect of all. Quarry turned away for a few seconds to consult the P&L on the next-door screen: it was now up by almost $300 million on the day. Part of him still wondered why they were so desperate to bypass the algorithm. They had created King Midas out of silicon chips; in what way was its phenomenal profitability not in their human interest?

  Suddenly Hoffmann lifted his hands from the keyboard in the dramatic manner of a concert pianist finishing a concerto. ‘This is no good. There’s no response. I thought we could at least make an orderly liquidation, but that’s obviously not an option. The whole system needs to be shut down completely and quarantined until we find out what’s wrong with it.’

  Ju-Long said: ‘How are we going to do that?’

  ‘Why don’t we just do it the old-fashioned way?’ suggested Quarry. ‘Let’s take VIXAL off-line and simply call up the brokers on the phone and get them on email and tell them to start winding down the positions?’

  ‘We’ll need to come up with some plausible explanation for why we’re no longer using the algorithm to go straight to the trading floor.’

  ‘Easy,’ said Quarry. ‘We pull the plugs and then we tell them there’s been a catastrophic loss of power in our computer room and we have to withdraw from the market until it’s fixed. And like all the best lies, it has the merit of being almost true.’

  Van der Zyl said, ‘In fact we only have to get through another two hours and fifty minutes, and then the markets are closed in any case. And the day after tomorrow it’s the weekend. By Monday morning the book will be neutral, and we will be safe – as long as the markets don’t stage a strong rally in the meantime.’

  ‘The Dow’s off a full percentage point already,’ said Quarry. ‘The S and P’s the same. You’ve got all this sovereign debt crap coming out of the eurozone – there’s no way this market’s going to end the day up.’ The four executives of the company looked from one to another. ‘So is that it? We’re agreed?’ They all nodded.

  Hoffmann said, ‘I’ll do it.’

  ‘I’ll come with you,’ offered Quarry.

  ‘No. I switched it on; I’ll switch it off.’

  It seemed to him a long walk across the trading floor to the computer room. He could sense the eyes of everyone like a weight upon his back, and it occurred to him that if this were a sciencefiction movie, he would now be denied access to the motherboards. But when he presented his face to the scanner, the bolts slid back and the door opened. In the cold, noisy darkness, the forest eyes of a thousand CPUs blinked at his approach. It felt like an act of murder, just as it had at CERN when they’d closed him down there all those years ago. Nevertheless, he opened the metal box and grasped the isolator handle. It was only the end of a phase, he told himself: the work would go on, if not under his direction then under someone else’s. He flicked the handle, and within a couple of seconds the lights and the sound had faded. Only the noise of the air-conditioning disturbed the chilly silence. It was like a mortuary. He headed towards the glow of the open door.

  As he approached the cluster of quants gathered around the six-screen array, everyone turned to look at him. He couldn’t read their expressions. Quarry said, ‘What happened? You couldn’t go through with it?’

  ‘Yes, I went through with it. I turned it off.’ He looked past Quarry’s mystified face. On the screens VIXAL-4 was continuing to trade. Puzzled, he went to the terminal and began flicking between the screens.

  Quarry said quietly to one of the quants, ‘Go back and check, will you?’

  Hoffmann said, ‘I am capable of throwing a goddam switch, Hugo. I’m not so completely crazy I don’t know the difference between on and off. My God – will you look at that?’ In every market VIXAL was continuing to trade: it was shorting the euro, piling into Treasury bonds, adding to its position on VIX futures.

  From the entrance to the computer room the quant shouted, ‘The power’s all shut down!’

  An excited murmur broke out.

  ‘So where is the algorithm if it’s not on our hardware?’ demanded Quarry.

  Hoffmann didn’t answer.

  ‘I think you will find that is something the regulators will also be asking,’ said Rajamani.

  Afterwards no one was sure how long he had been watching them. Someone said he had been in his office all along: they had seen his fingers parting the blinds, staring out as Hoffmann delivered his speech on the trading floor. Someone else claimed to have come across him at a spare terminal in the boardroom with a mass storage device, uploading data. Yet another quant, a fellow Indian, even confessed that Rajamani had approached him in the communal kitchen and
asked if he would be willing to act as his informant inside the company. In the somewhat hysterical atmosphere that was about to overtake Hoffmann Investment Technologies, in which heretics and disciples, apostates and martyrs split into their various factions, it was not always easy to establish the truth. The one thing everyone could agree on was that Quarry had made a grievous error in not having the chief risk officer escorted off the premises by security the moment he had been fired; in the chaos of events, he had simply forgotten about him.

  Rajamani stood on the edge of the trading floor holding a small cardboard box containing his personal effects – the photographs of his graduation, his wedding, his children; a tin of Darjeeling tea he kept in the staff refrigerator for his personal use and which no one else was allowed to touch; a cactus plant in the shape of a thumbs-up; and a framed handwritten note from the head of Scotland Yard’s Serious Fraud Office thanking him for his help in prosecuting some tip-of-the-iceberg case that was supposed to herald a new dawn in policing the City but which had been quietly dropped on appeal.

  Quarry said hoarsely, ‘I thought I told you to bugger off.’

  ‘Well I am going right now,’ Rajamani replied, ‘and you’ll be glad to know I have an appointment at the Geneva Finance Ministry tomorrow morning. Let me warn each and every one of you that you will face prosecution, imprisonment and millions of dollars in fines if you conspire in the running of a company that is unfit to trade. This is clearly dangerous technology, completely out of control, and I can promise you, Alex and Hugo, that the SEC and the FSA will revoke your access to every single market in America and London pending an investigation. Shame on you both. Shame on you all.’

  It was a tribute to Rajamani’s self-confidence that he was able to deliver this speech over a tin of tea and a thumbs-up cactus without any loss of dignity. With a final sweeping glare of fury and contempt, he thrust out his chin and walked steadily towards reception. More than one witness was reminded of the pictures of staff leaving Lehman Brothers with their possessions in boxes.

  ‘Yes, go on, clear off,’ Quarry called after him. ‘You’ll find ten billion dollars buys us a heck of a lot of lawyers. And we’re going to come after you personally for breach of contract. And we’re going to bloody well bury you!’

  ‘Wait!’ shouted Hoffmann.

  Quarry said, ‘Leave him, Alex – don’t give him the satisfaction.’

  ‘But he’s right, Hugo. There’s a lot of danger here. If VIXAL’s somehow migrated out of our control, that could pose a real systemic risk. We’ve got to keep him on side until we can figure it out.’

  He set off after Rajamani, ignoring Quarry’s protests, but the Indian had quickened his pace. He just missed him in reception. He caught up with him by the elevators. The corridor was deserted. ‘Gana!’ he called. ‘Please. Let’s talk.’

  ‘I’ve nothing to say to you, Alex.’ He was clutching his box. His back was to the elevator control panel. He hit the call button with his elbow. ‘It’s nothing personal. I’m sorry.’ The doors opened. He turned, stepped smartly through them and plunged from view. The doors closed.

  For a couple of seconds Hoffmann stood motionless, unsure of what he had just witnessed. He walked hesitantly along the corridor and pressed the call button. The doors slid open on to the empty glass tube of the elevator shaft. He peered over the edge, down maybe fifty metres of translucent column, until it dwindled into the darkness and silence of the underground car park. He shouted hopelessly, ‘Gana!’ There was no response. He listened, but he could hear nobody screaming. Rajamani must have fallen so quickly, no one had noticed it.

  He sprinted along the corridor to the emergency exit and half-ran, half-jumped his way floor after floor down the concrete staircase, all the way to the basement and out into the subterranean garage and across to the elevator doors. He jammed his fingers into the gap and tried to prise them apart, but they kept closing on him. He stepped back and prowled around looking for some tool he could use. He considered smashing the glass on one of the parked cars and popping the trunk for its jack. Then he saw a metal door with a lightning-flash symbol and tried that. Behind it was a space for storing tools – brushes, shovels, buckets, a hammer. He found a big crowbar almost a metre long, and ran back to the elevator doors and jammed it into the gap, working it back and forth. The doors parted just enough for him to shove his foot in between them, and then his knee. He wriggled the rest of his leg into the space. Some automatic mechanism was triggered and the doors trundled open.

  Light falling from the upper floors showed Rajamani lying face down in the well of the elevator shaft. There was a puddle of blood the size of a dinner plate that seemed to be growing out of the top of his skull. His photographs lay scattered around him. Hoffmann jumped down next to him. Broken glass crunched under his feet. There was an incongruous smell of tea. He stooped and grasped Rajamani’s hand, which was shockingly warm and smooth, and for the second time that day tried to feel for a man’s pulse, but again he couldn’t find one. Behind and just above him, the doors rattled shut. Hoffmann looked around in panic as the elevator car began its descent. The tube of light shrank rapidly as the car hurtled down – the fifth floor went, and then the fourth. He grabbed the crowbar and tried to jam it back between the doors, but lost his footing. He fell backwards and lay next to Rajamani’s corpse, looking up at the bottom of the car as it hurtled at him, holding the crowbar upright in both hands above his head like a spear to fend off a charging beast. He felt the oily wind on his face. The light faded, vanished, something heavy hit his shoulder, and then the crowbar jumped and went as rigid as a pit prop. For several seconds he could feel it taking the strain. He was screaming blindly into the absolute darkness at the elevator’s floor, which must have been only inches from his face, braced for the crowbar to bend or slip. But then a gear changed, the note of the motor became a whine, the crowbar came loose in his hands and the car began to rise, accelerating rapidly all the way up its cathedral column of glass, uncovering floor after floor of fresh white light, which poured down into the pit.

  He scrambled up and shoved the crowbar back between the doors, working it into the gap, parting them a fraction. The elevator had climbed to its highest point and stopped. There was a clunk, and he heard it start to plunge again. He hoisted himself up and jammed his fingers into the narrow opening. He clung there, feet wide apart, muscles straining. He threw back his head and roared with the effort. The doors gave slightly, then flew wide open. A shadow fell across his back, and in a rush of air and a roar of machinery he launched himself forward on to the concrete floor.

  LECLERC HAD BEEN in his office at police headquarters and on the point of going home when he received a call that a body had been discovered in a hotel on the Rue de Berne. He guessed at once from the description – gaunt face, ponytail, leather coat – that it was the man who had attacked Hoffmann. Cause of death, he was told, appeared to be strangulation, although whether it was suicide or murder was not immediately clear. The victim was a German: Johannes Karp, aged fifty-eight. Leclerc rang his wife for the second time that day to say he was delayed at work, and set off in the back of a patrol car through the rush-hour traffic to the northern side of the river.

  He had been on duty for almost twenty hours and was as exhausted as an old dog. But the prospect of a suspicious death, of which there are only about eight per year in Geneva, always bucked up his spirits. With flashing light display, a piercing siren and an air of great self-importance, the patrol car roared up the Boulevard Carl-Vogt and over the bridge, cutting into the left-hand lane of the Rue de Sous-Terre, forcing the oncoming traffic to swerve out of its way. Thrown around in the back seat, Leclerc rang the chief’s office and left a message that the suspect in the Hoffmann case apparently had been found dead.

  In the Rue de Berne there was almost a carnival atmosphere outside the Hotel Diodati – four police cars with flickering blue lights, sharply brilliant in the overcast early-evening gloom; a sizeable crowd on the opposi
te side of the street, including several glossy black hookers in colourful, minimal clothes, joking with the locals; fluttering lines of stripy black-and-yellow crime-scene tape sectioning off the spectators. Occasionally a camera flashed. They were like fans, thought Leclerc as he got out of the car, waiting for a star to come out. A gendarme lifted the tape and Leclerc ducked underneath it. As a young man he had patrolled this area on foot, had got to know all the working girls by name. He guessed some of them would be grandmothers now; come to think of it, one or two had been grandmothers then.

  He went inside the Diodati. It had been called something else in the eighties. He couldn’t remember what. The guests had all been corralled in reception and were not being allowed to leave until they had each given a statement. There were several obvious hookers here, and a couple of smartly dressed men who should have known better and who stood apart, surly with embarrassment. Leclerc didn’t like the look of the tiny elevator so took the stairs, pausing on each deserted floor to recover his breath. Outside the room where the body had been found, the corridor was crowded with uniforms and he had to put on white coveralls, white latex gloves, and clear plastic slipovers on his shoes. He drew the line at pulling up the hood. I look like a damned white rabbit, he thought.

  He didn’t know the detective in charge of the crime scene – a new fellow named Moynier, apparently in his twenties, although it was hard to tell as he had his hood up and only the baby-pink oval of his face was visible. Also in the room in their white suits were the pathologist and the photographer, both old hands, but not as old as Leclerc; no one was as old as Leclerc; he was as old as the Jura. He contemplated the corpse, hanging off the bathroom door handle. Above the tight line of the ligature, which was buried in the flesh of the neck, the head had turned black. There were various cuts and abrasions on the face. One eye was badly swollen. Strung up and skinny, the German looked like an old dead crow left out by a farmer to discourage other carrion. In the bathroom there was no light switch, but even so it was possible to see the blood smeared on the toilet bowl. The shower curtain rail was hanging away from the wall; so was the washbasin.