One Child

by Jeff Buick

  And it was unregulated. No laws existed to stop the HFT firms from paying the fee and accessing crucial information before the other 18,000 trading firms that played by the rules. The Securities and Exchange Commission was under fire from politicians like Senator Charles Schumer who was threatening to enact laws to bring fairness back to the business of trading stocks. But to date, nothing was in place. Which meant Platinus Investments was raking in cash faster than they could count it. Billions of dollars a year.

  Billions. Unregulated.

  It still amazed Carson Grant that something so fundamental could be so screwed up. Americans embraced democracy and capitalism, so long as everything was fair. Every American had the right to own a house, to start a business, to live the dream. Many chose the safe route and worked for a company, drew a wage and went home at five o'clock and forgot about the job. They were fine with the system, because no one was cheating. At least, they weren't getting caught. But Carson knew that assumption was absolutely false. Platinus, Goldman Sachs, Citigroup and the rest of the HFT firms were exploiting a loophole. Legally. But it was exploitation nonetheless. And it was very profitable.

  It bothered him. But not enough to say anything. Or refuse his bi-weekly paycheck or yearly bonus.

  Thursday, July 29th dawned sunny, and Carson caught a cab from his Soho apartment to the office. The subway was so crowded. So mundane. The taxi gave him time to think about his first day as the head of the HFT department at Platinus. He reached inside his suit pocket and withdrew the folded 8.5 x 11 sheet of white paper. An e-mail from William Fleming. It was simple and to the point.

  Carson,

  Hope you enjoy your first day as division head. There is something I'd like you to look at immediately. Somebody is gaming us and we need to front-run them. Probably Goldman. Trim the algo. Beat them at their own game.

  ~Bill

  He tucked the memo back in his pocket and stared out the window as the congestion of Manhattan slipped past. One of the big players was running a faster algorithm and sniffing out the buy/sell orders from the slower traders quicker than Platinus. Then they were offering flash orders on a specific exchange for a few milliseconds, making them a poster, not a responder. Being a poster was a much better position to be in, especially if another trader jumped in and grabbed the order. If they did and a sale went through, the flash-order trader was in a position to receive the rebate. And although the rebates weren't huge, if a company had millions of them coming in every year, they were making serious money.

  Bottom line was - another firm was making the money. Something Fleming wanted stopped immediately.

  The cab pulled up in front of 1177 Avenue of the Americas. Carson paid the driver and took the elevator to the forty-sixth floor, one level below Fleming's private domain. The top of the financial food chain was coming into focus, and he liked what he saw. The elevator opened and he glanced about. It was different from the eighteenth floor, where he had been sequestered with nine other mid-level players in the HFT division. The eighteenth floor was where the algos were devised and written into computer code, and it was a bullpen-style office, with desks scattered around a central group of whiteboards. Here, on the forty-sixth floor, where the code was applied to the real world and turned into gains and losses, soft music played on the sound system and the floors were covered in thick carpet.

  "Good morning, Mr. Grant." The woman was young, maybe twenty-five, and dressed conservatively in a white blouse and mid-length grey skirt. Her shoes were polished and her fingernails painted a light shade of blue, which matched her belt perfectly. "I'm Nadine Strang. Welcome to forty-six."

  "Thanks."

  "Your office is this way," she said, not extending her hand, nor expecting him to offer his. She pointed down a hallway to the right and started walking. "The coffee room is tucked in behind this false wall, but if you want anything, just call me and I'll bring it to you. We have a latte machine if you prefer. There are sandwiches, muffins and salads brought in every day. If you want lunch delivered from a local restaurant, let me know the day before and I'll put in the order."

  They reached the end of the hall and Nadine continued into the corner office. The opposing wall looked north and had the same view of Central Park as William Fleming's. To the right of the door, the wall was fitted with ebony bookshelves. Carson glanced at the books and pictures that filled about half of the shelves. There were six pictures of Nicki and him and his math and physics texts were neatly arranged by category. He looked at Nadine and shrugged.

  "We had everything moved up from eighteen last night," she said.

  "Very efficient."

  She smiled. "You have no idea."

  "What's that?" he asked, pointing to a door on the wall to the left of the entrance.

  "Your private bathroom."

  Carson walked across the soft carpet and poked his head through the doorway. It was far more than just a sink and toilet. An open closet butted up against the oversize shower. Three suits hung over polished shoes, with six shirts of varying colors next to them. He turned and looked at Nadine.

  "These are mine?"

  She nodded. "Mr. Fleming has a tailor who can custom fit suits from your image on the security camera. Overnight. Not really rocket science, but impressive."

  "Very," Carson said. He returned to the office and sat in the leather chair behind the desk. A flat screen monitor and a pad of paper with a pen were the only items on the surface. He looked out the bank of windows. The view of the park was stunning.

  "Is there anything else?" Nadine asked.

  "Yes," Carson said. He slid the paper in front of him and jotted down six names. "Could you have these people meet me at nine tomorrow morning in the boardroom?" He handed her the sheet of paper. "We do have a boardroom on this floor, don't we?"

  Another smile. "Yes, we do. I'll reserve it for you for nine o'clock tomorrow morning. How long will you need it for?"

  "Probably one to two hours."

  "I'll slot you in from nine to twelve. That way you won't have to worry about hurrying."

  "Thank you."

  Nadine disappeared into the hall and Carson leaned back in the chair. Yesterday he had walked into William Fleming's office, nervous and hopeful. Today, his dreams had gelled. The countless thousands of hours spent hunched over math and physics books at MIT. Stressing out at exam time. Eating poorly, driving a rusted-out Toyota with no spare tire. All memories now. This was his new reality. Forty-six floors above the congestion and noise of Manhattan. A million a year in salary and bonuses. This moment justified the rigor of seven years in one of the nation's most prestigious and demanding schools.

  He reached out and dialed his home number. There was little doubt that his first call, from this new perch in his life, would be to the woman he loved. Nicki answered the phone and he smiled. He was happy. Truly happy. And that was something not everyone could say.

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  Chapter

  7

  Day 4 - 7.30.10 - Morning News

  Midtown Manhattan, New York City

  Five men and one woman were seated at the table when Carson Grant entered the boardroom at precisely nine o'clock Friday morning. He greeted each of them by name and shook their hands. Then he took the chair at the head of the table and opened a thin file.

  "I'm glad you could all make it," he said.

  One of the younger men, Asian with a thick thatch of jet-black hair and a wide face, said, "You're the boss now, Carson. You ask, we come."

  "We're still a team, Chui," Carson said. "In fact, you guys are lucky. If one of those other guys had snagged this job, you'd be in deep trouble. Nobody from outside the group could ever understand how you guys think." He looked at the lone
female. "And by guys, I mean you too, Alicia. Especially you."

  "Same old Carson," she said. "Except you're dressing a bit better and..." she looked around the ebony and glass room, "...living in some kind of nice digs."

  Alicia Crane had been with Platinus three years longer than Carson, and they had worked alongside each other almost every day. She was Harvard educated and second only to Chui Chang in her skill at cutting math-based code, but her biggest challenge was fitting into the nattily dressed Manhattan landscape. Carson had told her on more than one occasion that she resembled fashion road kill. She couldn't have cared less.

  "If you think this is nice, you should see my office," he grinned.

  "Are you inviting me to your office, Carson?" Alicia asked. She was a fit and vibrant African-American woman with a sharp mind. And she liked to tease. "That could be grounds for a monster sexual harassment lawsuit."

  "Dream on," Carson said. "You and I have spent a thousand hours together in one office or another and nothing happened. I don't think you stand much of a chance of milking any easy money out of the firm. You're going to have to earn it."

  "Damn," she said.

  Carson scanned the people at the table. In addition to Chui and Crane, who were whizzes in pure and applied math, there were four men, all between thirty and forty-five. Dan Loewen was a programmer who analyzed the tapes from the previous day's trading on the NASDAQ, BATS, Direct Edge and the New York exchange. NASDAQ alone generated fifty gigabytes of data on any given trading day. It was measured in nanoseconds, which is a billionth of a second. The amount of data was staggering, but it revealed other firms' trading strategies. Knowing what the competition was doing was crucial. As was Dan Loewen's legendary expertise.

  Arthur Black was a forty-year-old bachelor who lived at Platinus. They all kidded him that he didn't have a place in Manhattan, and the couch in his room was actually his primary address. He spent his waking hours at Platinus reviewing Dan Loewen's reports and structuring their trading strategies accordingly. His group, totaling thirteen people, issued flash orders and immediate or cancel orders, or IOCs, to help establish Platinus as a market-maker. By being recognized as a market-maker - a firm that drove the market valuation - they were considered to be one of the big fish in the pond. A highly important role to play in the cutthroat trading business.

  Allan Dannos and his team operated in the dark pools - exchanges where almost every order was iceberged. Iceberged orders were entirely anonymous, and it was in the dark pools that gamers sniffed out the large orders by using a mathematical equivalent of sonar to ping them. Once they located a large incoming order, they initiated a series of trades to front-run it, and grabbed the stock before the larger order, submitted by a slower trading firm, had time to close. If one was to compare Platinus to the US government, Allan Dannos's team was the CIA. Covert and dangerous.

  What Ray Moore did at Platinus was much more visible. His team monitored global trends. They analyzed the tapes from Toronto, Tokyo, London and every other major exchange. Global positions were becoming increasingly important in the commodities and derivative markets, and Platinus was on top of every trend. Usually before the trend showed itself.

  "Fleming thinks we're being gamed," Carson said to the group. "That someone is beating us to the punch." He let the words sink in for a few seconds. To the people in that room, being gamed was the equivalent of an Olympian running a good race and coming in second. Silver wasn't the goal. Silver was the first loser. "They're seeing the patterns and initiating their algos before ours kick in. We're losing somewhere in the range of six to twelve million shares a day. That's about twenty to forty million a year in lost revenue, not counting the lost rebates from the exchanges. And that's only one other trader beating us by a millisecond or two. I'm sure we're being gamed in more than one arena right now." He looked around the silent table. All eyes were on him. "Fleming feels we're losing about a hundred million a year. We need to stop the bleeding."

  "What's the approach?" Allan Dannos asked.

  "Multi-pronged, as I see it. You guys are welcome to share whatever strategies you have, but I think the key to getting competitive is the algorithm."

  "We have the best in the business," Dannos argued.

  "We had the best," Carson corrected him. "Someone built a better mousetrap. We need to catch them."

  "Who is them?" Ray Moore asked.

  "We suspect it's Goldman."

  "Thought so," Alicia said tersely. "It's hard to keep up to them. They throw a shitload of money at research."

  "So do we," Carson shot back.

  "You said the approach to fixing this is multi-pronged," Chui said. "What else, aside from the algos?"

  "Trading strategies. We need to front-run more. To sniff out the big orders and jump in front of them."

  "The algos cover that," Chui pointed out.

  "To some degree," Carson said. "But there's a human factor here that we need to address. We need to point the computers in the right direction. Identifying the highest liquidity is a key. And the lowest latency. Nothing replaces the human mind for seeking the big picture. We're looking for trends that are too big for the algos to see."

  "I guess that's me," Ray Moore said.

  "That's you, Ray," Carson said.

  "Shit. I wanted a week off with the girlfriend."

  "Well, you can have one. But not until November."

  "It's July, Carson." Moore rolled his eyes and shook his head. "It looks like Fleming picked the right guy to crack the whip."

  Carson grinned. "If you need a break, Ray, you let me know. The same goes for everyone at this table. We're going to kick some Goldman ass, and we can't do that if you're not at the top of your game."

  The meeting ran for fifty minutes, then Carson shut his file. "That's it, we're done." He glanced at Alicia. "Can you hang back for a couple of minutes?"

  They filed out and when the door was closed, Carson said, "I need you to strip a millisecond off the algo."

  She looked confused. "We talked about that. It's a process-driven thing. Chui and I and our teams will work through it."

  Carson toyed with his pen. "I want you to shave off a couple of iterations. Streamline it."

  Alicia stared at him. The edges of her mouth curled down slightly. "That's a quick-fix, Carson. And it's dangerous. It'll attack the integrity of the whole thing and possibly destabilize it."

  Carson rose from his chair and dropped into the one next to her. "Maybe, but I doubt it. We use seven iterations now. We sample the data seven times and take the average. Like a bell curve. If we cut it down to five we have the same curve. And we're a millisecond faster."

  "It'll save a mil, but five iterations is sketchy. The algo needs seven to properly sample the data. A couple of glitches and we'll be basing our trades on erroneous information. You know this, Carson, I don't need to tell you. This algorithm is your baby."

  Carson waved his hand. "Like you said, it's a short term fix. We'll find another way to save time. But for right now, I need you to take two iterations out of the loop."

  She was silent, her eyes boring into his. "Are you telling me to do this?" she finally asked.

  "Yes."

  Alicia gathered up her papers from the meeting and slipped them into her briefcase. "Anything else?" she asked.

  He shook his head. "When can you have the changes made and implemented?"

  "Today is Friday. I can spend some time working on it over the weekend and if there are no problems, it'll be modified, tested and functioning by Monday morning."

  "Perfect," he said, then added. "I know this isn't the best fix, but it's temporary. We'll have a new, faster algo in no time. It's not like we're cutting back to three iterations. Slicing two out of the algo isn't the end of the world."

  She managed a small smile. "I hope not."


  Carson watched her leave, then walked over to the window. The view of the park was from a different perspective than the one from his office, but equally as impressive. There was something about being forty-six floors above the sidewalk that gave him a warm feeling. It was difficult to define. Detachment. Entitlement. Power. Maybe just knowing that he had arrived. That he was part of the inner circle that shaped the financial lives of countless millions. That he had finally achieved the privileged position he had dreamt of for so long. He remembered one of his professors at MIT talking about privilege. That many of the school's graduates would find some degree of that in their lives. The man had linked another word to privilege. Responsibility. One didn't arrive without the other.

  Carson glanced down at his watch. Five minutes to ten. Not bad. Six teams of highly educated men and women were scrambling to find a solution to the problem he had laid out in the boardroom a scant fifty minutes ago. This was power. And privilege. He liked it.

  "Responsibility," he said quietly to himself. "I'll get on that next week."

  He left the boardroom, a smile on his face.

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  Chapter

  8

  Bryant Park, New York City

  Bryant Park was quiet. An oasis in the giant slab of concrete and glass that was Manhattan.

  A handful of the tables and chairs between the lawn and the library were taken, but at ten in the morning, most were empty. In two hours, the lunch rush would descend on the park and finding a place to sit on anything but the grass would be tough. A thick wall of trees blocked out most of the buildings that towered over the park on three sides. To the east, the massive windows of the New York Public Library reading room watched over the park. That was the direction William Fleming approached from.