The Last Hedge

by Green, Carey

  “Maybe Wikileaks will tell us.”

  “Yeah,” Dylan said sarcastically, “Maybe you’re right.”

  The wildcard in this scenario had been Josh’s code. Pak had spent some time looking and examining much of the code. He deemed it to be extraordinary.

  “So?” Stewart asked. “What are we doing today?”

  “What we’ve been doing for the past ten days. We wait, watch the system, make test trades, order lunch...” “Looks like your lunch is already here.”

  “Oh,” Dylan said, as he turned around. Vanessa was standing behind him holding a sandwich bag.

  “Hungry?”

  “How did you ever guess? Pull up a chair.” “Let’s go downstairs.”

  “It’s raining,” Dylan pleaded.

  “It stopped an hour ago. Besides, if it is, we can eat in my car; like in high school.”

  “I didn’t have a car.”

  “Well, I did, so pretend.”

  “Okay.”

  Outside, it had stopped raining and the sky was clear. There was a tiny marina next to the office, and a series of benches outside. They took seats next to each other and unwrapped their sandwiches. Dylan’s BlackBerry, set to silent, was buzzing, and Dylan ignored it as he began to eat.

  “So,” Dylan said, “Always nice to have visitors.”

  “That’s what they say in prison.”

  “That’s why I’m saying it.

  “I know you’re bored.”

  “I am that. I want to help my friend, but as time goes on, it becomes less likely…”

  “Don’t think like that.”

  “I feel like I’m wasting my time here. There’s nothing for me to do.”

  “You’re helping. It’s a job.”

  “I should be out there trying to find Binky. That’s where I should be.”

  “There’s not much more you could do.”

  “I know that. Still, it doesn’t make it any easier.”

  “I know it doesn’t.”

  Dylan’s BlackBerry continued to buzz, and he pulled it out of his jacket pocket. When he saw the number of text messages, he frowned.

  “What is it?”

  “It’s Stewart.”

  “From upstairs?”

  “Yeah, it is.”

  “What is it?”

  “The market is down over 400 points in the last fifteen minutes.”

  “What happened?”

  “It’s not so clear. But we better take a look.” Without hesitating, they dumped their sandwiches, urned and walked briskly towards the office entrance.

  Chapter 54

  Dylan hurried back up to the office with Vanessa in tow. Stewart was standing by the computer with his mouth agape. Dylan slid by him as he manned the chair in front of him.

  “What the hell is going on?”

  “I was just sitting here watching and all hell broke loose.”

  Dylan jumped into the swivel chair and turned toward his computers, where panic was reigning on all three screens before him. All of the global market indices were beginning to roll over. The DOW was off three and a half percent and so was the S&P. He scanned the clock in front of him. It was 2:35.

  Dylan scanned the Bloomberg headlines for news. There was no market news or event to cause such a steep decline. There were no obvious reasons why the market was tanking. He checked the Internet and market chatter on Twitter, but even the experts were bemused. He turned towards Stewart with a concerned look.

  “This looks odds to me.”

  “Why?”

  “The move looks completely random and irrational.”

  “So now what?” Vanessa asked.

  “I need to take a look at something.”

  Dylan loaded up the Motive software. A graph on the screen began displaying a chart of the S&P. Dylan changed the chart to show a one-hour projection. The price pattern over the last seven was like a flat plane followed by a series of high mountains peaks becoming progressively narrower. It was like a mountain range that was running out of land.

  Dylan took his mouse and began to draw a series of lines between the highest and lowest price points over the last several hours, a type of connect the dots between the mountain-like price ranges that appeared on the screen. As he drew the lines, the computer would draw parallel lines above it. It was like Etch a Sketch for the iPod generation.

  “What are you looking at?”

  “I’m doing a wave count. Give me a minute.”

  Dylan finished drawing the lines and clicked the send button. The hourglass cursor appeared as the computer began to calculate. Then, a series of numbers and projections appeared on their screens.

  “What are those?” Vanessa asked.

  “These are the Fibonacci projections of where the S&P should be.”

  “Could you speak English?”

  “I count the waves: the high points and low points of prices. Markets don’t usually go straight up or down. They move up a little, retrace, or down a little and retrace. The Fibbonacci sequences help us understand where the price points should stand based on market conditions. They should be near either the highs or lows. See how random the points are? The price moves are neither impulsive, no corrective”

  “So what does that mean?”

  “See? Its’ saying that this market drop makes absolutely no sense. If it was any country but ours, I’d swear it was some type of government intervention.”

  “So now what?”

  “I think you need to call Conroy. I have a funny feeling about this one.”

  By the time Dylan had finished his sentence, Vanessa was already reaching for her phone.

  Chapter 55

  Dylan and Stewart continued to monitor the screens in front of them, while Vanessa worked her cell phone with the speed of a cheetah.

  “Holy shit,” Dylan said, “we are now down five hundred points.” After a few seconds, he added, “And falling.”

  “Can’t they hit the switch?”

  “There’s no switch on the NASDAQ, Stewart. It’s a computer.” Dylan continued to watch as the market chaos began to flow across the three screens. His Bloomberg screen had begun a blur of instant messages, and Twitter was exploding. Every trader working in the current time zone was messaging, as the financial markets began to spin into a web of chaos.

  “The Dow is down 600.”

  Dylan was speechless. With all the financial tools that he had at his disposal; all that he had learned as a chartered financial technician, all of his technical abilities had been deemed useless in seconds. All that he could do was sit back and watch.

  “This is insane,” Dylan muttered under his breath.

  “What going to happen?”

  “I don’t know,” Dylan said. “We have to see what happens.”

  Dylan glanced at his watch. Roughly thirty minutes had past. Trading curbs, the electronic equivalent of a parachute, had kicked in on the New York Stock Exchange, but this was only to delay the inevitable. Vanessa slammed her cell phone closed andgrabbed her purse while not even bother to acknowledge them.

  “I gotta’ go” Vanessa said.

  “Where?”

  “They’ve isolated two places where the bulk of the trades seem to be coming from.”

  “Are they legitimate?”

  “What’s your definition of legitimate? They’ve found two boiler rooms that were supposedly out of business a year ago. The fact they are now doing heavy business is itself an issue.”

  “I want to come with you.”

  “Absolutely not. Stay near the phone.” In seconds, she was gone. Stewart turned towards Dylan quizzically.

  “So what do we do now?”

  “Nothing.”

  They both turned back to their monitors as the market continued to fall.

  Dylan watched as the market continued to fall, alternating between his Bloomberg screen and the replica of the trading system he had used at Corbin Brothers. He had entered several test trades into the system earlier tha
t day, and ironically, they were making money. He had gone short for the fun of it, and now the positions were rising. He double-clicked on one of his positions, and it showed him the dummy company in whose name the bogus trade had been booked. Dylan stared at it. He then turned towards Stewart whose eyes were glued to the screen.

  “Stewart, I’m going to show you something, but don’t tell anybody you ever saw what I'm about to do.”

  “Why?”

  “Because it's illegal.”

  The patch into the order routing system of the Chicago Mercantile Futures exchange was a little known bug that only a handful of programmers had been able to exploit. In the interest of transparency, the exchange had made available the actual order flow and size of executed trades as they occurred in real-time. To protect the privacy of the clients, the names were withheld. They hacked into the system that Binky and company had developed permissible partial viewing of the actual client names, though often the names were masked in the form of a CIF, a customer identifier. It took a blend of technical wizardry and market savvy to interpret, but it was possible to decipher who was buying and selling as it occurred in real-time.

  Dylan reloaded the trading system, starting with a unique command sequence that would invisibly load the hacked patch. Once the system had loaded, Dylan typed in the mnemonic of the E-mini contract of the S&P Futures.

  “There it is.”

  The screen quickly began to fill simultaneously as the orders began to scroll by

  “This is fantastic!” Stewart said. “There are thousands of orders! If you had this software, you could make a fortune.”

  “I know that. That's why it's illegal. Do you have a way to capture the output?”

  “I'll turn on the screen scraper.”

  Stewart clicked a button that would capture all the trades on the screen into a text file. They would then be able to download them and analyze them.

  “Let it run for a few minutes.”

  Dylan nervously turned back towards his Bloomberg monitor. The Dow was now down 600 points. Dylan emptied the text file that the screen scraping software had produced in Excel. There were over one thousand trades that had occurred in the last five minutes. Dylan sorted the transactions by the highest to lowest quantity of trades.

  The bulk of the trades belonged to three counterparties. Some of the names were readable; others were still in their mnemonic form. Dylan trolled down the list slowly. He deleted the names that he recognized as legitimate firms.before honing in on his target

  “You recognized that list of mnemonics. How did you do that?”

  “It’s a gift.”

  Dylan isolated the trades that were mostly likely fraudulent into four distinct firms, and sorted them separately.

  “Now what?” Stewart asked.

  “I’m not sure.”

  Dylan began to scroll through the list of trades. Nothing seemed amiss. The trades were in large lot sizes of hundreds or thousands: Standard. All were, except the trades from one firm. Those were in a sequence that he easily recognized: 144,233,610,987. Dylan stopped scrolling and peeled his eyes even closer to the screen.

  “Why did you stop there?”

  “Look at that series of trades: It’s a perfect Fibonacci sequence.”

  “How did it get there?”

  “I know exactly how it got there, and the person whot put it there.”

  Dylan then looked at the mnemonic and closed his eyes and thought. He recognized it as a tiny broker dealer who was barely on the brink of existence.

  “Mnemonic 5216. Stewart, Can you Google ‘Schafer Capital’?.”

  “Of course,” Stewart said, as he began to type. “It’s in Englewood, New Jersey.”

  “How far is that from here?”

  “Twenty minutes.”

  “Is your car downstairs?”

  “Of course.”

  “Let’s go.”

  Chapter 56

  Dylan and Stewart took Route 4 in New Jersey towards Englewood Cliffs. The cloudless sky gave them no idea of what was ahead, and Stewart drove silently as he approached their destination. Dylan was not very familiar with this part of New Jersey, but the limo’s global positioning system efficiently guided them towards their target.

  He had called Vanessa from his cell phone. Shaffer Capital was not one of the firms that the FBI was intending to raid that day. He had informed her of his destination, and Vanessa warned Dylan to not get involved. He immediately hung up the phone.

  As Stewart drove through the gates of the industrial office park, a series of large buildings were arranged like dominoes.

  “Which one?”

  “I think it’s the one on the end.”

  “Are you sure?”

  “It’s what the computer says.” Just for fun,” he added, “and computers don’t lie, right?”

  Stewart stopped the car fifty yards short of the door and turned off the ignition.

  “What exactly is your plan?”

  “I don’t have one,” Dylan said. “Do you have a gun?”

  “Do I look like a guy who carries a gun?”

  “Guess not. But I bet you have a light saber in the trunk.”

  “How did you know?”

  “Wait here. If I’m not back in twenty minutes, well …”

  “I know: Call.”

  Dylan got out of the car and headed towards the building. It was a one story roach-motel of a building. For a broker dealer who was executing millions of dollars in bets against the S&P, the building was surprising desolate. No cars were in the parking lot. Dylan wandered up to the vestibule of the building, and it was dark. The outer door was open and Dylan stepped inside. A short corridor led to another door, and Dylan approached it cautiously. The door was locked. Dylan examined the lock. It was of the cheaper household variety.

  Then, the alarm went off.

  “Shit!”

  Dylan ran back towards the parking lot. Two men were running towards him. He could see Stewart’s car driving away in the distance. Dylan held up his hands.

  “You looking for something?”

  “Home Depot.”

  Dylan could see the two of them reaching for their weapons. They yelled back at him as they rose into firing position. Then guards grabbed him, and soon had him in a painful full-nelson. The guard who had Dylan in a headlock began to edge slowly forward as they entered the building. Dylan could see in the distance three men walking towards them.

  “Save me Harry Potter,” Dylan said slowly, as the men drew closer.

  From the way the three men walked, it was clear who was boss. The man in the center was wearing a commando suit, all black. The two men flanking him were in camouflage, with walkie-talkies in their hands. They were enforcers, plain and simple. They walked briskly as they got closer. The man in the middle was the first to extend his hand. Dylan couldn’t shake it, as his hands were bound by the two goons.

  “McGarity.”

  Vanessa’s car was racing through New Jersey, across the Pulaski skyway towards lower Manhattan. In her gut, she had a feeling of trepidation. Something about her brief cell phone conversation with Dylan told her that he was right, and it was not a good feeling. The FBI’s discovery had seemed too obvious, too calculated. Perhaps it was something in Dylan’s voice, the icy logic of his knowledge that made her stop and turn the car around. If she was going to go down, it was going to be with him.

  When Vanessa arrived at the industrial office park, an hour had passed since her last conversation with Dylan. She removed a backpack from the trunk and checked her weapon. When she saw that all was good, she headed towards the building door.

  Dylan had been dragged down a lengthy corridor into a large open area. He looked around. He could see a host of people, buzzing with activity. Whatever had once existed of Shaffer Capital had been gutted. Several banks of computers had been set up, and several people were huddled around screens. A large plasma screen displayed the financial news from around the world. Dylan could tell
from the setup that it was a makeshift trading floor. Technicians were boxing some of the equipment as if the shop were about to close. McGarity turned and smiled at Dylan.

  “Welcome to my hedge fund. We were expecting you. Fortunately, the fund is closed to new investors, as we weed out the dead weight, such as you.”

  “I came to find my friend.”

  “Ah, yes; your clever little friend.” McGarity said. “He tried to run, but he couldn’t get far.”

  “Where is he?” Dylan asked.

  “Do you want to see your friend?” Dylan said nothing.

  McGarity gestured towards some of his minions.

  “Bring him out.”

  They wheeled Binky out from an area behind a large moving crate. His lifeless and inert body was slumped in a wheelchair. The only sign that he was still alive was the loudness of his breathing.

  “Binky!” Dylan said, as he struggled to break free. The guards were much too strong.

  McGarity laughed. “He should be the least of your concerns. He’s sedated. It will wear off soon. Of course, perhaps it would be better if he didn’t …”

  “Why Binky? He’s not like Ray.”

  “Ray Corbin was a government tool. We thought that he could help us attract and maintain large sums of money. Of course, the great Ray Corbin managed to lose most of our money, spoiling our operation, and our connections.”

  McGarity then pointed to a group of figures seated at several of the computers. “When your friend ascertained the situation, he was able to scramble our trades and bank accounts beyond recognition. After we tracked him down, we had to call in some of the best minds in the hacker world to figure out what he had done. We would have killed him a long time ago, but we kept him around as insurance. Now that our data is safe and he was able to configure your system for us, it’s time for him to die also.”

  “Listen, nothing has to happen. Just let me wheel him out of here, and you can fly off into the sunset. We can forget this ever happened.”

  “That is not possible.”

  “I didn’t think so, but I thought I’d test a trial balloon.”

  Josh and Highland suddenly appeared. Dylan’s eyes were bigger than saucers.