Arbitrage

by Colette Kebell

  CHAPTER 25

  About three hours later they had almost reached Inverness, and it was time for Amelia and Anders to head back south. On the edge of the city, they found a roadblock. A sleepy policeman beckoned them to continue.

  ‘Lucky we weren’t asked to show the car documents,’ said Amelia sighing with relief.

  ‘That would have been a problem. Usually, the police stop lorries, and often it’s just enough to look sleepy and annoyed, and they let you pass.’

  ‘You know about these things too?’

  ‘I have passed some checkpoints in the past. Do you still have Romanov’s letters?’ asked Anders.

  ‘Yes, in my jacket pocket, why?’

  ‘Because it would be extremely challenging to go back and get them. By this time Dimitra’s house will be full of police.’

  ‘I don’t want that money,’ said Amelia, ‘perhaps we should destroy them.’

  ‘And how would you explain that to the guys who are after us, if we get caught?’ Anders continued to drive into the night, without looking at his companion. ‘Maybe you should go to the police. Deliver the letters, report the matter publicly. Once the newspapers write about this story, they wouldn’t dare to harm you, they wouldn’t have any more reason to do so.’

  Amelia seemed to reflect. ‘Perhaps it would be the right thing to do. But at the moment everything scares me. Just the thought gives me the creeps.’

  ‘Let’s take a few days, then. I don’t think anyone is following us. We find an isolated village to spend the night in, and tomorrow we keep going south. At least until you have a better idea.’

  ‘Sounds like a good plan,’ said Amelia, who was making every effort not to think. Sleeping would definitely help.

  Anders drove on for about forty minutes; they arrived in a village called Aviemore and began looking around in search of a hotel. They wouldn’t waste time choosing, the first that they came across would be the one they’d pick. They parked the car in front of an old two-story building, a bed & breakfast, and entered.

  It was one of those typical places with rough wooden planks, smoothed from years of use and spilt beer. On the walls, there were low-quality paintings, evidently representing the surrounding landscape. A lady came forward to greet them, and they asked for a room. She had to repeat the price twice, due to the almost incomprehensible accent. One hundred and forty pounds for one night.

  They sat in the main hall for a beer, although both were sleepy. Only then did the full extent of what had happened hit Amelia, the tension was fading, and she became fully aware of the horror of what had happened.

  ‘You’re shaking,’ said Anders.

  ‘My God! Poor Dimitra.’

  ‘We had a lucky escape. Someone must want that money at all costs. They were not Russians, though. One looked Middle Eastern.’

  ‘From the Middle East?’ Amelia tried to remember what she’d read when going through the bank documents, but she couldn’t remember anything that could justify the attack. The customers were mostly Russians, not Arabic.

  ‘Mercenaries for sure. Maybe the same ones who killed Romanov,’ noted Anders.

  ‘Let me get this straight. We have the money belonging to the Russian mafia, and probably their thugs are in hot pursuit, and as if that wasn’t enough there are also Arabs who are chasing us.’

  ‘It is not a given they are Arabs. As mercenaries, they work for anyone with money to spend,’ replied Anders.

  ‘Then they may have been hired by the Russians, no?’

  ‘In the movies, the Russian mafia manage these things on their own. Perhaps we are in an even bigger mess.’

  Amelia couldn’t stop grinning at the comment, but it was definitely something to worry about. ‘Come on, let’s go to sleep. We are not going to figure out what’s going on tonight. I’m dead tired.’ Anders finished his beer and stood up, inviting Amelia to do likewise.

  ‘Good idea.’

  They headed slowly toward the stairs leading to the upper floors. The room was nicely decorated, and a double bed awaited them, but both were too tired to think about making love.

  CHAPTER 26

  When Logan, Splinter, and Domino arrived in London, they took a taxi to a hotel near St Paul’s Cathedral. Tim Whitley had insisted on meeting them at his office in Canary Wharf, but Logan had declined the offer. They agreed on a pub not far from the Basilica of Saint Paul, the Red Herring, between Wood Street and Gresham, because Whitley was supposed to visit a prominent client in that area. One of his last tasks before leaving everything behind and heading for the United States. Just walking through the streets of London again had invigorated Logan; it had been years since his last visit and seeing the swarm of people around moved him inside.

  ‘Shall we have a beer while we wait?’ asked Splinter.

  ‘A Coke for me would be just fine,’ said Logan. He had almost screwed up with the cognac a few nights before, he wouldn’t want the risk of relapsing at that time. ‘And for you, Domino?’

  ‘I’ll have a beer, too.’

  They hadn’t talked a lot during the trip, except Logan briefly describing the rules of arbitrage, and receiving glassy stares in return from his two stakeholders.

  A man of about fifty, red-haired, thin, and with a nose too large for his face, came into the pub, he looked around and headed towards their table. Logan rose from his chair, embraced him as he would a rediscovered brother and made the introductions. Not long after that, Whitley had ordered a beer for himself too.

  ‘Ryan says that you are interested in making investments in my brokerage firm.’

  ‘Let’s say that we will invest on behalf of third parties,’ said Splinter. ‘Is your company already operating?’

  ‘Oh sure, it has been for about a year now. I invested all my bonuses from past years, and I finally decided to take the big step. Considering only this year’s return, and believe me, we’ve had a lot of expenses, I earned more than twice what I did at Barclays. And in my industry, bonuses are substantial,’ said Whitley. The enthusiasm was visible in his eyes.

  ‘Please explain to me how this arbitrage works,’ asked Domino. ‘I don’t think I’ve understood it too well.’

  Whitley couldn’t wait any longer. ‘Well, it’s pretty simple in theory, but hard in practice.’ Then he looked towards Logan, to seek confirmation on how to proceed. Logan beckoned him to continue, a simple nod of assent, signifying you can trust them.

  ‘Don’t leave out anything.’

  ‘An arbitrage occurs when a stock is sold on several markets at the same time. There are times when the same title has different values on two markets. I’ll give you an example. An investor wants to buy one hundred stocks of Hewlett Packard at 25 dollars, the price the stock trades at that moment on the NYSE. On the BATS, another stock exchange, you can find them for sale at 24.95. In this case, the arbitrage is to buy 100 shares on BATS at 24.95 and simultaneously sell them on the NYSE at 25 dollars. Basically, you search for differences in price, you buy and sell without being exposed and, in the case above, earn 5 cents per share without any risk.’

  ‘I think I understand,’ said Domino giving him her doe eyes. ‘If I buy and sell the same title, at the same time on two different markets, I don’t run the risk that the stock price changes. But why people aren’t doing that all the time?’

  Whitley had a resonating laugh. ‘Because arbitrages will cancel out, eventually. These differences don’t go unnoticed, investors will start to buy on the more favourable market, and the price would go up. Cancelling the difference.’

  ‘Then I did not understand,’ said Domino disconsolate. Meanwhile, the waitress had brought the drinks to the table, and for an instant, the dialogue was interrupted. Whitley sought the right words to explain the issue again.

  ‘During a day in the stock market, there are billions of transactions. These differences happen all the time, but the hard part is in finding them and putting them into practice, which is what we do with our company.’

/>   Logan realised that his old colleague was talking too technically and intervened. ‘Maybe the example above has confused you. Imagine a large investor who wants to sell 10 million shares of HP in the market at twenty-five dollars; that would be two hundred fifty million dollars. If Whitley can get hold of the same number of shares at 24.95 dollars and can sell them all to that investor at twenty-five, it would be a gain, without risk, of approximately five hundred thousand dollars. And that on a single transaction.’

  Domino and Splinter’s mouths opened simultaneously, but no sound came out.

  ‘And if you fail to rake in all those shares?’ insisted Domino.

  ‘Simple. We buy everything available on the market before that investor. We buy the shares at 25 dollars, the investor won’t find anything on the market at that price I’ll then sell the same shares at 25 dollars and five cents. In fact, I’m stealing away all the available stocks from under his nose, and I sell to them at a higher price.’

  ‘Now Tim will tell you how he does it, then I can translate it into common language.’ Laughed Logan.

  Whitley began to tell of how he got into business with some colleagues in the industry. The first thing they had to do was to hire a group of programmers who specialise in that kind of financial transactions. The idea of exploiting arbitrage came at the same time as the NYSE had become fully electronic, by completely removing the human factor from stock transactions, entirely relying on computers. As a matter of fact, all the stock exchange transactions were made by computers that communicated with other computers. Of course, the dealers were part of it still, but they only entered the parameters for buying or selling onto their computers. The association between seller and buyer was dealt with automatically by a myriad of servers in New Jersey. A recently passed law also forced investors to buy stocks on markets where the price was more favourable.

  ‘But if you always have to buy where the price is more favourable, then these arbitrages go down the drain,’ said Splinter.

  ‘Theoretically yes, practically no,’ said Whitley. ‘What my company does is market on a daily basis hundreds of reasonably low-valued securities, on a specific stock exchange. Those shares serve as bait. Large investors should always buy at a more favourable price, and the shares we are selling are always the first to be purchased. When we detect an order from a big bank or a hedge fund, then we rake in all the available shares on other markets and sell to them at a higher price.’

  Marcus drank another sip of beer, to disguise his embarrassment. He couldn’t understand much of what this chap was saying, and the fate of his plan was in the hands of this individual who seemed to speak another language. It was Logan who came to his rescue.

  ‘How can you tell when a large investor comes into a market willing to invest millions?’ and then nodded to make it clear to his comrade that it was time to tell the full story.

  ‘We have maps of the internet paths that connect to the various stock exchanges. We hired a technician who worked at a telecommunication company, and when he left, he had, shall we say, stolen those maps. We know how long it would take for each individual operator to reach each stock exchange. At that point, we are in business. There is no certainty, but the odds are always in our favour.’

  ‘So, can you spot when a big investor enters a high number of shares on the market?’ said Domino.

  ‘Exactly.’

  ‘But how? I don’t understand,’ insisted the woman, ‘if I run a hedge fund and I want to buy, say, a million shares of IBM on the market, that request goes to all markets simultaneously.’

  ‘Not really, and it is for this reason only that we make money.’

  ‘I’m getting a headache,’ said Domino. ‘Tim, what do you say we get together again tonight for dinner? There are still a lot of details I don’t understand, but I seem to be getting too much information all at once.’

  ‘I’ll pass,’ said Logan, ‘I have a couple things to do while I’m here in London.’

  ‘I have another customer to visit,’ lied Splinter, leaving the field open for a dinner for two between Whitley and Domino.

  ‘That seems an excellent idea to me,’ said Whitley savouring the last sip of his beer. For dinner with Domino, no man could say no.

  CHAPTER 27

  Amelia awoke suddenly. It was morning and a faint light filtered through the shutters, revealing the wooden interior of the room. Her purse, left on the desk the night before, caught part of the sunbeams which projected an almost unnoticeable shadow towards Amelia’s hand. She tried to move, but Anders’ arm held her tightly. She made a slow movement to slip out from under the covers, causing a short moan from her companion.

  She tried again, and this time she managed to break free. Amelia prepared instant coffee and began to observe the scenery from the window. It was a cold and crisp day, perfect for taking photographs, she thought. She could see the village boundaries and, beyond, the green hills. Some isolated cottages stood on the horizon.

  It was a peaceful place; it wasn’t exactly a tourist spot, no museums, and the village had nothing special, but Amelia could understand how that place could be appreciated, even in a situation such as hers.

  The coffee was not great, but at least it was hot.

  She was immersed in her own thoughts when a voice from behind called her. ‘Have you been awake for long?’

  ‘Only about ten minutes. I was lost in the panorama of this charming village.’

  Anders smiled. ‘When you’re on the run, options are limited.’

  ‘No, I didn’t mean that. Quite the contrary, I like this village, it gives me a sense of serenity, I don’t know how to explain it, but I could live here. A small community, evenings at the bar with friends instead of my busy life.’

  ‘If it were in the south of France, I would prefer it,’ said Anders.

  ‘And stop wandering around the world? I have my doubts about that.’

  ‘I’m not kidding, that would be nice. But I admit that I might well get bored after a while. How about some breakfast?’

  ‘Great idea.’

  Anders slowly rose from the bed and headed for the bathroom, and soon after, Amelia could hear the rush of the shower. The woman walked into the bathroom moments later. She could see Anders’ shape from behind the frosted glass of the shower screen. She opened the door and joined him.

  After breakfast, the two sat at a table at the hotel bar. The liveliness of the previous evening had disappeared entirely, and they were alone, apart from a waiter moving around from time to time. ‘What do we do now?’ asked Amelia.

  ‘I have no idea, but maybe we should watch the news to see what’s said about Romanov’s daughter, things like that.’ Anders opened the computer and started looking at the news, until he exclaimed out loud, ‘What the hell?!’

  ‘What’s going on?’ asked Amelia across the coffee table.

  ‘Come and see for yourself …’

  Amelia moved her chair until she managed to peek at the computer screen. There was a chat window open saying, ‘Well awakened Amelia and Anders.’

  ‘Could it be one of our trackers?’

  ‘I doubt it,’ said Anders, ‘they would kick the main door in with a gun in their hand.’

  - Anders: who are you?

  - Guest: I am your new best friend.

  - Anders: This does not help, how did you manage to log on to this computer? What do you want?

  - Guest: Let’s start with the introductions. I am Konrad.

  - Anders: Hello, Konrad.

  - Guest: Good morning. Regarding your question, I am a hacker, and accessing computers is one of my specialities. We need to discuss business.

  Anders and Amelia looked each other.

  - Guest: The business proposition is a simple exchange of data. According to the instructions Romanov gave me, you should have part of the access to some foreign bank accounts. I have the missing information.

  - Anders: How do we exchange?

  - Guest: Simple, we do it
here in the chat window.

  Amelia and Anders looked at each other again. ‘How does he know that we also have the codes from Romanov’s daughter?’

  - Guest: Because I hacked into Dimitra’s computer too. I could see and hear you when you were in her house. I’m glad you survived the shooting, it would have been a problem otherwise.

  ‘But how does …’

  - Guest: To be honest, I’m looking at you too, from the cam built into the computer, and I can hear you speaking also. They should just change these privacy laws.

  Amelia sighed and motioned to her companion to go ahead; meanwhile, she took the letters from Romanov from her purse, ready for the exchange.

  - Guest: I go on trust, I give you the first code. Landau Bank, xxxxxx-674566456-xx GARTER975 – MRS xxxxxxxxx

  - Anders: How do we know that you are giving us the correct ones?

  - Guest: Just go on the bank website and look at the account. Follow the instructions to log in.

  Anders was ready to open a new window in his browser and then suddenly stopped. If his computer was compromised, this Konrad could redirect him easily onto a fake website. He took the phone and googled the Landau Bank website. He entered the login and looked at the bank statement. Two million dollars. He showed the screen to Amelia who nodded.

  - Anders: I think we’re in business.

  They exchanged the rest of the account details, and they were surprised when the hacker said he would only go for one of the accounts, the Colman Affiliates of Panama. That was what the deal had been with Romanov, and he didn’t intend to profit from the death of his daughter. Amelia and Anders had nine million dollars in their hands.

  - Anders: Okay, everything looks fine. It was a pleasure, Konrad.

  - Guest: My pleasure. If you need my help in the future, I’m here.

  - Anders: How do we contact you?

  - Guest: I’m always there for my clients. Use your imagination.