Trading Reality

by Michael Ridpath

  ‘Oh Mark, I’m sorry. I promised my mother I would see her again this weekend. It was such a disaster last time, I think I owe it to her.’

  ‘OK,’ I said, disappointed. I had been looking forward to spending the time with Karen before beginning my three-month stint in Scotland. But I knew better than to meddle in the relationship between her and her mother.

  ‘Come on,’ said Karen, nudging me. ‘Let me look at that hand, and then let’s go to bed.’

  After Karen had carefully changed my bandage, we went to bed and made love. It was a bit of a disappointment, less spontaneous and exciting than usual.

  That bothered me. Although Karen had been very supportive since Richard’s death, I didn’t feel quite so close to her. But, I thought bitterly, that wasn’t surprising. Richard’s death had affected me in all sorts of ways, both consciously and subconsciously. I shouldn’t be surprised if it disrupted my sex life as well as everything else. I just hoped Karen would be understanding about that as well.

  ‘So I’d like to take the next three months off. Unpaid, of course.’

  I looked Bob Forrester directly in the eye as I said this. He sat in his sofa in a position of relaxed authority, broad shoulders and a wide chest under an immaculately starched and ironed white Oxford shirt. Although he had spent ten years in London, he was American through and through.

  He turned to the agitated Frenchman sitting next to him. ‘Etienne?’

  ‘I don’t like it,’ he said. ‘The market is horrible out there. We need all the experienced traders we have. I think it would set a very bad precedent if we allowed Mark to go. Soon we would have no one left.’

  Forrester turned to me. ‘He has a point, don’t you think?’

  ‘I wouldn’t ask this lightly,’ I said. ‘This is important to me. FairSystems is all that’s left of my brother. I owe it to him, and to myself, to see it through.’

  Forrester listened politely, but he wasn’t impressed. He paused.

  I knew what he was asking, and I answered him.

  ‘I’ve received a lot of calls over the last few months. So far I haven’t returned them.’

  It wasn’t subtle, but then Forrester didn’t like subtlety. And it was true. I had turned down Barry’s offer to join BGL, but I had his phone number should I ever change my mind. There were others I could call too. In the bond markets, news of success spreads quickly. So, too, does word of failure, but fortunately I had had no cause to experience that first hand. My losses on ‘Black Tuesday’, as the day Greenspan had hiked rates was now called, were as nothing compared to those sustained elsewhere in the City.

  Forrester knew my request came from a position of strength. ‘OK, three months, and three months only. But I want you back in your desk by August first, or you never come back. And make sure that kid Ed doesn’t make any screw-ups.’

  ‘But Bob . . .’ Etienne started.

  Forrester stood up and moved back to his desk, the signal for us to leave.

  ‘Thank you,’ I said and walked out, leaving Etienne to remonstrate in Forrester’s office. I knew it wouldn’t do him any good. Bob Forrester took decisions and stuck to them.

  I told Ed. He took the news with a mixture of fear and excitement. It would be very good for him. It would give him a chance to trade his own book for a bit. I was confident he wouldn’t cock it up. He would err on the side of caution, which was the right side to be when you were starting out.

  I called Sorenson to tell him my decision.

  ‘That’s great to hear,’ he said. ‘Can you get up here next Monday?’

  ‘I’ll be there.’

  ‘Good, we need you.’

  I smiled as I put down the phone. I knew he was just trying to encourage me. But it was working.

  I wanted to take the opportunity to try to find out more about the price action in FairSystems shares over the last few months. Richard had thought it was important, and Donaldson was taking it seriously, too. Although Karen had been unable to pick up any gossip in the market, there was one other person I could try.

  Steve Schwartz sat only a few desks away from Karen. He was American, with curly hair, a big fat stomach, and a couple of chins. He had traded small-cap stocks for Harrison Brothers in New York before coming over to London to do the same thing with small European companies. Although he had been in London for over a year, he still felt unfamiliar with the quaint European way of dealing in small stocks.

  I told him what I wanted, and he was happy to help. He enjoyed the opportunity to get stuck into familiar territory. He looked at a copy of Richard’s analysis.

  ‘This is fascinating,’ he said. ‘I’ve never seen anyone do anything like this.’

  ‘Does it make sense?’

  He thought for a moment. ‘I guess so. He’s checked the price and volume patterns in FairSystems shares against those of similar companies in their first six months of trading. I think what he’s saying is there’s a ninety-five per cent chance that something outside normal stockmarket behaviour is affecting his shares.’ He studied it for a minute longer. ‘Huh. Can I keep this?’

  ‘I’ll give you a copy.’

  ‘Good. I’d like to try this out on some of my stocks.’

  ‘But is he right? Is there something odd about the trading in FairSystems’ shares?’

  ‘According to this, there is,’ Steve said, tapping Richard’s papers. ‘But let’s take a look.’

  He tapped a few keys on the Bloomberg computer in front of him, and quickly came up with a complicated graph. He sucked through his teeth.

  ‘Jeez. That’s weird.’

  ‘What’s weird?’ I was used to looking at complicated graphs, but of bonds not equities.

  ‘Here, let me show you.’ He pointed to the graph. ‘OK, the stock did real well in the first couple of days of trading. Up twenty per cent on good volume from ten dollars to twelve. That was November last year. Then nothing until February.’ He pointed to a flat line on the graph, which ran along the twelve-dollar line. ‘Well, no activity in a stock this size isn’t surprising. In fact, it’s the norm.

  ‘Then in February the stock begins to slide, see?’ The line did indeed begin to fall, from twelve dollars down to six in April. Then it lurched down a further dollar and a half to four and a half dollars. ‘Was there any news to cause this?’

  ‘None at all. Until of course Richard died. That will explain the last fall.’

  ‘No, it’s the decline from February to April that’s odd. The volume figures look strange. See these figures here,’ he pointed to a row of bars under the graph. ‘Those volumes are high for such a small stock. With this share price action and only one real broker, you would have expected much smaller volumes. Let me check the prints.’

  ‘The prints?’

  ‘Yeah. Here, this screen shows you the size of each “print”, that is each trade. Look, they’re nearly all just a few hundred shares, or maybe a couple of thousand. And Wagner Phillips is the broker each time.’

  ‘So what’s happening?’

  He sat back in his chair and stroked his chin. Deciphering price action was his forte. I waited.

  ‘Well, volumes like this mean either that a big holder is selling out to a lot of small buyers, or that someone is building up a stake, buying from a lot of small sellers. Normally, sales by a big holder cause prices to fall, and steady buying from one source causes prices to rise.’

  ‘So there must be a big seller?’ I asked.

  ‘Maybe. Looking at this graph, I would guess we’re talking about twenty to thirty per cent being either bought or sold by one individual investor. Who owns that kind of stake?’

  I thought. ‘At that time, just Richard. And I know he didn’t sell any shares. In any case, all the original shareholders signed undertakings at the time that FairSystems went public not to sell their holdings for two years.’

  ‘So if we don’t have a big seller, we must have a big buver.’

  ‘Will that show on the share register? Do
n’t investors have to file with the Securities and Exchange Commission when they’ve bought a ten per cent stake?’

  ‘Five per cent,’ said Steve. ‘Technically you’re right, but it’s easy to hide, especially if your broker turns a blind eye. There’s not much the SEC can do about it.’

  ‘And you think Wagner Phillips would do that?’

  Steve snorted. ‘It would certainly fit their reputation.’

  ‘So how do you explain the fall in price? Wouldn’t that sort of buying drive the price up?’

  ‘It’s got to be manipulated,’ Steve said. ‘Wagner Phillips must have forced the price artificially low for their favoured buyer. They’re probably scaring their existing customers into selling.’

  ‘Why would they do that?’

  ‘Depends who the buyer is. A favour made, a favour owed.’

  ‘Are you sure that the fall in price isn’t just investors suddenly getting scared that FairSystems might go bust?’

  ‘Should they be?’ Steve asked.

  ‘Maybe.’

  ‘But there’s been no public information to make them think that?’

  ‘No. The only bad news has been Richard’s death, but we’re looking at the price movements before then.’

  ‘Well, investors might have suddenly got scared. But they would need some encouragement, probably from Wagner Phillips. And these volumes suggest that someone has been buying a lot of stock. No, I’d be willing to bet that your stock is being manipulated for the benefit of one buyer.’

  ‘So how can we find out who the buyer is?’

  ‘Let me make a couple of calls. I’ll let you know if I turn up anything.’

  ‘Thanks, Steve.’

  ‘Oh, and why don’t you try the gorgeous Karen Chilcott? She’s well plugged in to the American markets. You know her, don’t you?’

  ‘Yes, I do,’ I said, suppressing a smile.

  I wandered over to Karen. She was writing a ticket. More stock sold, more commission earned.

  ‘Fucking asshole!’ Jack Tenko slammed down the phone. ‘Hey, Karen! You got influence with Forrester. Can’t you get him to give us a proper trading limit?’

  Karen ignored him.

  ‘C’mon Karen! We know he’s got his eye on your ass.’ A painful wheezing sound came from his chest. Perhaps it was a laugh.

  ‘Jack,’ she smiled sweetly at him, ‘if I were Bob Forrester, I wouldn’t let you trade more than two packs of Smarties a day. Now, can you check those prices, please?’

  I glared at Tenko. He shrugged. ‘What’s your problem?’ he said, turning back to his screen.

  Sally, sitting between us, suppressed a giggle.

  Karen looked up, and grinned when she saw me. ‘God, you’d think he’d get tired of it. Anyway, what are you doing here?’

  We usually made a point of avoiding contact with each other at work. ‘Steve Schwartz said I should come and talk to you, so here I am.’

  I explained Steve’s theory. She frowned and shook her head. ‘I’m afraid most of that technical analysis is just looking at tea-leaves. The stock went down because the company is in trouble. It’s that simple.’

  ‘But how did the investors find out?’

  ‘Who knows? Someone met someone at a conference who passed on some gossip. Markets find out these things. That’s why they work.’

  ‘But what about the volume? Steve said that was highly unusual. Richard’s analysis showed it was strange.’

  ‘I asked around. No one knew anything. Sorry, Mark.’

  ‘Can you try again?’

  She smiled and shrugged. ‘OK. I’ll give it one more go,’ and she picked up the phone.

  I went back to my desk, and returned a couple of hours later to find out how they had got on. But neither Steve nor Karen had heard anything strange.

  I gave Steve my number at Glenrothes. ‘Give me a ring if you hear something, won’t you?’

  ‘Sure,’ said Steve. ‘I’m kinda curious myself. Something smells. I’m sure of it.’

  Friday was my last day. I spent it looking at the markets with Ed, checking on my existing positions and considering some new ones. Any positions I put on would have to be solid, long-term trades that would survive the market turbulence I was sure was just round the corner.

  I tried out Bondscape to get an overview of the market since the crash of three weeks before. It really was amazing to see the market actually move. What most impressed me was the way that a number of relationships that had been shaken out of line after Greenspan’s fateful announcement had slowly worked their way back to their pre-crash levels. The Renault building that I had spotted earlier, for example, was back to the height it had started at. That translated into a million dollars’ profit for our desk, by the way. It was good money that I didn’t want to risk, so we sold our bonds. We had made back over half the $2.4 million we had dropped on that one day. Bob Forrester still had reservations about Bondscape, but he had to admit it was working well so far.

  The ten-year two-year treasury trade still had further to go, so I kept the position on, agreeing a level with Ed where he would take it off. I told him to call me if he was stuck, and, if it was an emergency, to talk to Greg. I was worried about Etienne interfering when I was gone.

  Greg was intrigued by the news of my new temporary career, and wished me luck. He promised he would look after Ed for me.

  I strolled over to the water-cooler, and poured myself a cup. Karen was on the phone. She caught my eye, and mouthed ‘Good luck’. I took one last look round the trading room, and left in time to pack and catch the last flight up to Edinburgh.

  So, I began my career as a managing director of a high-technology company.

  And I didn’t have a clue what I was doing.

  11

  It would be an understatement to say I was nervous as I parked the BMW in the car park in front of the factory. This was a first day at work with a difference. I was scared, but in some strange way confident. I was determined to work out what made FairSystems tick, and then to make it tick better.

  The board meeting was at nine. It was held in the high-tech conference room I had seen earlier. The board consisted of Rachel, David, Willie and the two non-executive directors, Sorenson and Nigel Young. Young was one of Scotland’s great and good, a director of the distinguished Edinburgh merchant bank of Muir Campion, and a non-executive director of half a dozen other Scottish companies besides. He was tall and urbane, with only a tiny trace of Scots in his plummy public-school accent. Richard had told me that Young didn’t really understand, or approve of ‘high-tech’, and deferred to Sorenson on everything.

  The atmosphere was formal. Everyone was wearing suits, apart from Rachel, who was wearing a black jersey, hanging loosely down over black leggings. Sorenson called the meeting to order, and instantly stamped his authority on proceedings.

  ‘This is the first board meeting we have held since Richard was killed,’ he began soberly. ‘I know his death has been a shock to every single person in this company, not least the people round this table. I’m not going to pay a formal tribute to him. We all knew him well, and I can’t begin to express the sadness we all feel.

  ‘But now we have to look forward. Richard had a vision, and it is left to us to achieve it. We have a difficult few months ahead of us, but if we all pull together, we can make that vision a reality.’ He paused to let his words sink in. There was silence round the table.

  ‘Now, to the agenda.’

  He swiftly dealt with the minutes and a couple of formal resolutions.

  ‘OK, let’s move on to the business. How’s our product pipeline coming, Rachel?’

  ‘It’s coming on fine. We are on, or ahead of schedule on most of the major projects. The new virtual glasses have been successfully beta-tested by customers. There are still one or two problems, but we can easily sort them out. Our new simulation manager, FairSim 2, should be ready for shipment in July. And FairRender, the graphics system, continues to look very exciting. We
still have a couple of bugs in the software for it, but once again, nothing we can’t sort out.’

  I was interested that she had made no mention of the mysterious Project Platform.

  ‘Very good. So your people are still working hard after Richard’s death.’

  ‘I’d say they’re working harder,’ said Rachel defiantly.

  ‘David?’

  ‘We’ve had lots of calls from customers asking what’s happening now Richard’s gone. None of them are taking their business away, they’re all willing to give us a chance. I’ve assured them we can continue to deliver a quality product without Richard.’

  ‘Good.’ Sorenson nodded his approval.

  ‘The order book is still building, but until we get the price of our product down, we can’t expect any really large orders. Ones and twos, that’s all.’ He didn’t actually look at Rachel when he said this, but the inference was clear. Her fault, not his.

  ‘Well done, David. You’re doing a good job in difficult circumstances. By the way, I bumped into Arnie Miller last week. He said your presentation was impressive. I think he has a real interest in virtual reality. That’s great work. It’s tough for a company our size to get exposure to guys at his level.’

  Arnie Miller was chief executive of one of America’s big three auto manufacturers. Sorenson was right. It was quite an achievement.

  ‘Willie?’

  Willie coughed nervously. ‘Er, well, you’ve all seen the forecasts. Unless some sizeable business comes in from somewhere, we run out of cash in August, or maybe September if we’re lucky.’

  There was silence. It was bad, but we all knew the situation.

  ‘Well, that’s the challenge. Let’s all keep looking for new business and new opportunities.’ Sorenson raised his hand as David opened his mouth to speak. ‘I know you’re unhappy about our current prices, David, but you’ll have to do the best you can. In this business, you never get the perfect product at the perfect price. The world just doesn’t work like that. You’re doing a good job guys, just hang in there. September is still four months away. Yes, David?’

  David was still eager to say something. ‘Shouldn’t we consider selling the company?’