12:05 Appraisal time. I’m back in my office,munching my sandwich and typing with one finger. The first one is Mike, whichis actually pretty easy. He’s experienced, thoroughly competent, and as far ashis interactions with spot trading are concerned he’s a model citizen. Done.Next! This one’s tougher. It’s a girl called Carla, who heads up the middleoffice functions here. I can’t say we’ve always seen eye to eye if I’m honest.We’ve had a few run ins over the delivery of P&L and risk reports (both interms of timeliness and also with accuracy). She’s not producing them herself,but my personal thought is that she’s had long enough now to whip that teaminto shape, having come over from our rivals, I heard, at no small expense todo just that, but I don’t give it both barrels. There’s almost zero upside todoing that, on any level. For a start, I’m sure she’s both well intentioned,and, knowing the approach to headcount that all banks take these days, almostcertainly under staffed. Plus I know they migrated onto all new systems sixmonths ago, which was a big part of the problem, and something she inheritedtoo late to do much about it. The other reason why sticking my oar in isn’tworth the hassle is that it counts for something like 5% of her overall appraisalmark. So I would achieve nothing by doing this really (except to royally tickher off). Plus I am deeply uncomfortable about being negative towardsco-workers around this time. Everyone has families to provide for, mortgages topay etc, so as long as people are doing what they can I will always try to playnice. I settle for some comments that, whilst highlighting the years issues,also very vocally underscore just where some of her challenges have come from.Hope I’ve hit the right mark. She is entitled to read the comments, so I’m sureI’ll find out soon enough. Right. Phew – done for another year. Haven’t evenstarted looking at my own yet, so I don’t actually know who’s doing my 360. Ohwell, that can wait. I have a touch longer to do my own, it’s just the 360’sthey need today.
12:45 Back on the desk. George is delegating themonthly non-farm payrolls prediction competition. Fivers in, winner take all,forfeits for whoever is furthest away. So Meat has two jobs. Firstly to collectthe money and secondly to take note of the predictions from the room. there areusually about 35-50 people playing so he walks round doing it on his iphone andgetting stick for it and by ten past one he’s finished. 38 people today sosomeone will do nicely out of it. We haven’t decided on a forfeit for the loseryet. Suggestions come thick and fast on the internal chat system. Some REALLYaren’t suitable for reading at work. A fair few involve Meat, usually but notalways in a sexual context. You have to be a bit careful with this kind ofthing, especially when stuff’s in writing. Fortunately Meat is pretty thickskinned but you do get the odd intern who simply can’t hack it. This is usuallywhen they take it all a bit personally, which it truly isn’t. Luke and George alsocop a bit of flack, (the worst of all actually involves Lucky, and is franklyso appalling that I am amazed that the person who typed it isn’t sacked on thespot). There are little gasps as people read it and suffice to say the winningforfeit is a little, ahem, tamer than that. The loser will have to don anoutfit similar to Mrs. Doyle from ‘Father Ted’, and, using a trolley from thecanteen, distribute tea to anyone on the floor that wants it, on the next NFPday. Meat suggests that we add a charitable angle and this is quickly agreed.Cups of tea will be a fiver for that trolley run only, and we’ll give thewinnings to the charity of the loser’s choice.
Market consensus isfor the US to have shed around 55k jobs in the past month, although all the rumourswe’re hearing this morning in the market, (and there are always rumours onpayrolls day), are for a somewhat more benign number (one US based house evengoing for a positive print, which although definitely an outlier, hasnevertheless got a few tongues wagging in the market). We’ll all find out soonenough.
13:15 Everything’s gone eerily quiet. Prices arestarting to widen out on all the electronic dealing venues and the bookiesaren’t quoting much at all down the squawk boxes. Our e-trading team havewidened the prices we are showing to our customers accordingly. They are prettymuch a self contained unit most of the time. The early versions of banke-commerce platforms were unsophisticated pricing engines, very much tied tothe rates that were visible in EBS and Reuters matching (regardless of how muchactual hard liquidity was available at those prices). Once a customer had dealton the platform, more often than not, the trade would plop into a dealersposition on a bank’s spot desk, and the dealer would manage the risk from therein precisely the same way as if he’d shouted a price to a salesperson and beenhit.
Fast forward fiveor so years and the landscape has utterly changed. The engines used to derive aprice at which a bank is happy to transact business are, for the most part,both extremely sophisticated, and blindingly fast. Frankly, 90% of the time,too much human interaction just slows the whole thing down. So the e-commerceteam operate as a separate entity (we on the spot desk are even able to tradeon the platform ourselves, to clear smaller amounts if we wish), and only whenthings go awry do they need to enlist the help of the spot desk to offset anyrisk they incur. The rest of the time they are either skewing their priceaccording to what positions they are running (if they are long, for example,they’ll be a naturally low offer to persuade other clients to buy from themthus reducing their long position). If this isn’t having the desired effect themachine will go out into the market on it’s own and ‘auto-hedge’, reducingpositions in a carefully specified manner, and again, at lightning speed. Butonce in a while it will still come unstuck, so each trading centre has a coupleof traders who’s job is to monitor any positions that fall through the cracks.Tim is the main guy in London, and NFP day is the day he hates the most everymonth. They usually make very good money on these types of days, but equally,it’s pretty easy for Tim to drop a cartload of money if he isn’t quick and decisivewhen trouble strikes. It’s a bit of a poison chalice but he’s pretty sharp atit and is considered a safe pair of hands here. I wander over to him. “Allstrapped in?” I ask. “Yep” he replies. “Seat is back init’s upright position and my table is stowed away. Should hit turbulence inabout 14 minutes.” Hopefully it’ll clear without anyone needing to reachfor the sick bags and oxygen masks I think.
13:27 We’re in trouble! We just got asked a pricein eur/usd in one hundred and fifty million and got paid for them, so my eurotrader is short more Euros than he’s easily going to be able to cover. He hadmade what he thought was a wide, defensive price that frankly was supposed todiscourage the client from trading. But it didn’t and it gets worse. Tim standsup. “RICH – I need Euros. Been paid three times here now. Not gettinganything back”. Crap. Anything even remotely dollar negative and we’redead. I sprint over and appraise him of the fact that we’re in the sameposition ourselves. He’s short a total of a hundred and thirty five millionhimself. A tad suspicious as he’s been hit three times, all equal amounts, all45 million. The threshold for what we are happy for the machine to quotewithout manual dealer intervention is usually a hundred million in normalmarket conditions. But prior to major data releases this changes. With 15minutes to go this changes to seventy-five million. Then with five minutes togo it’s fifty million. Then, in the final 90 seconds it’s something like twentymillion these days (and of course spreads are also widening out at the sametime). It’s not hard and fast – again, complex algorithms, even incorporatingrecognition of what the data release came out as, govern both when and how wewithdraw liquidity, and also how quickly we’re able to add it back in againonce the initial chaos calms down. But in any case manual intervention wasfifty million and we’ve been hit three times in just under that amount. But notime for post mortems now. I shout over to Ben “BEN – Any short dated euroin the bookies? Ship some in – we’re caught here, badly”. “Onit” he shouts. Thirty seconds to go. He stands up. “Done 80 of theovernight ats” (at the money options) and there’s another 50 of 30 deltacalls out there. Those are 3 days though, not the Mondays. “Do Em!!”I scream back. He leans over to the microphone and speaks to his broker.”YOU Got Em Rich – but that’s gonna be it for a bit – nothing else decentout there till after the numbers”. “Thanks – let meat know the spotrefs and any delta stuff asap – I need this booked asap”.
In buying someshort dated options I am hoping I have staved off at least some of the effectsof a shocking payrolls number. Unfortunately, I will have had to pay away somepremium to buy these options, so one way or another we’re taking a hit today,but at least we have offloaded some of the risk we were wearing. A six figuredown day isn’t a huge deal – these things do happen. But a seven or even eightfigure down day is definitely not what we were put here to achieve. I have agreat team of traders on the desk and for the most part I just try and leavethem to it, but insofar as I have a role to play in trading terms, it is onexactly this sort of occasion that I need to justify the title on the businesscards by making a quick decision in the interests of the bank as a whole. Ilook down at the live price and trade feed from Tim’s pricing engine that Ihave open on my desktop. He’s showing a tighter price than usual, and it’sdefinitely skewed higher. The only problem is, no-one’s taking the bait. Hecan’t tip his hand too much (and neither can the guy on our desk) as the wholeof the market will be watching for some sign of movement immediately prior tothe numbers, and will jump all over it.
13:28 My phone flashes – it’s my friend at theNew York hedge fund. “Hey, Rich. Sorry man, need a quick favour. All mysystems just went down here. Can you work a 65 offer for 90 eur/aud?”. Ilook at where it’s trading now. 58/62. Very close. “Sure mate – leave itwith me. I thumb the mute button and shout over to the commonwealth trader ‘Hey– we need to buy 140 Aussie, got an offer here in the cross – gonna lean on itwith the short Euros. I leave him to work, watching as he bids for the AussieDollars on the Machine. Tim’s also able to help out, skewing his own Aussie bida touch higher and getting given a quick 37 million worth from a variety ofhigh frequency algorithmic model accounts. My friend in New York is trying tosell eur/aud. If you break that trade down into it’s component parts. he’strying to sell Euros/ buy US dollars, and buy Aussie / Sell US Dollars. The USDollars then net out. But effectively, by way of the driveby that we justendured, the desk has already done the first ‘leg’ of my friend’s order, gettingitself short eur/usd. Now all we need to do is get long aud/usd. And thatshould hopefully be a touch easier as there hasn’t, to the best of myknowledge, just been a drive-by in the Aussie. Sure enough, we manage to getall bar maybe twenty million Aussie before the clock ticks down to thedeadline. The price went away a bit at the end so eur/aud has tracked lower asa result.
13:30 The number comes out and the room goesnuts. Headline number is for -125k jobs and the dollar immediately startsselling off against pretty much everything. The Euro, Yen, Sterling, Aussie andKiwi are all appreciating in roughly equal amounts. Suddenly Lucky screams…”This is topping out here Rich. Revisions and the U-Rate. Watch”.Lucky has a good eye for price action at times like this. And he has correctlynoted that while the headline payrolls number was a shocker, the revisions(i.e. the change to the previous month’s number once all the statistics havebeen properly verified) are actually very positive. Plus there’s been a prettyhealthy decline in the unemployment rate, well ahead of what people wereexpecting. “Turn that Aussie if you can” I shout, asking mycommonwealth guy to sell the Aussie dollars out that he bought. “Alreadyon it Rich – done fifty right here. Eighty now. Ninety five. Not getting paidany more – comes offered now”. Sure enough, Aussie has topped out andturned as people digest the story behind the numbers. So we’re no longer shortEuros and long Aussie (against my mate’s order). We’re back to being nakedshort Euros again but the market’s going our way.
Euro retreats,taking Aussie with it. Once it’s dipped back to around where we started off theAussie trader goes back in and bids to get the Aussie back again. Back to beingshort eur/aud, but now, we’ve got short at a much better average rate (if youtot up the P&L from all the ‘jobbing’ in and out in the aud. I look at thechart of eur/aud and it never went any higher than 58 after the numbers, evenin all the confusion. I phone my friend and he picks up straight away.”You get any done? I kinda blew that I guess”. He’s assuming wedidn’t fill his order as it never really traded up to 65 (and certainly not inhis amount, 90 seconds prior to the data coming out). “Done them at 61.Hope that’s ok mate”. He whoops. He’s very happy with that as the marketis now trading around 41/44. “Thanks Rich – definitely owe you dinner nowman. Book at 59 as well. Great fill. Gotta hop”. Totting up the rate ineur/usd and the all in rate for the Aussie, by our reckoning we managed toactually end up selling the eur/aud at 72 or thereabouts. We wouldn’t pass onall that improvement to my friend, no matter how good a mate he was, as we hadto take on extra risk in order to achieve that price. But in doing so we managedto sell the cross for him at the highs, just as it dumped. He certainlycouldn’t have done that for himself with the tools he has available at hisdesk.
So everyone’shappy. Looking over the various blotters I see that most of the short euro/dollarposition is now covered. Largely at a loss (as the guys couldn’t really pushthe market much in advance of the payrolls number for fear of tipping theirhand). But the options trades we did had given us some positive P&L andalso some long gamma exposure, meaning the options desk had also been tradingspot eur/usd on our behalf, selling near the highs and buying back lower tokeep the portfolio broadly delta neutral. I shout over to Ben to see where hecould sell the options back out again, (as the spot position it was hedging waspretty much covered now). He comes back with some half decent bids for both,(as would be expected given the fact that the market had gotten itself caught alittle short on the bad payrolls number), and we exit that position too.
14:15 Things are nearly back to normal now. We’vehad a few more price requests, in an assortment of currencies, as the marketdigests the days economic data. Some requests went well, some less so, butthey’ve broadly evened out. The actual proprietary positions the guys have hadon today have been fairly light, which is not unknown on payrolls day, as theprice action can be a bit of a lottery and plenty of perfectly good tradingideas get blown out of the water in the mad half hour we just had. So discretionis often the better part of valour on this particular day of the month. Havinga quick look at the desk’s P&L numbers so far it looks like we’re downaround $270k, with the e-commerce desk down another $165k. Could have been awhole lot worse. E-comms were down over $250k at the peak but a combination ofthe euro’s retracement of some of its gains and the fact that after thingscalmed down a bit the day was, as is so often the case, a good source ofrevenue for the e-commerce side of things has meant that their numbers arestill slowly but surely ticking in the right direction this afternoon. I cansee Tim standing up, blue shirt betraying him with a couple of large sweatpatches under his armpits. He’s talking to Lucky, who, not surprisingly is a lotcalmer, having seemed, in line with his nickname, to have swerved and neatlyside-stepped most of the days shenanigans today. ‘In an ever changing world…’I think.
15:35 CNBC is on all the monitors on the floor-our chief economist is being interviewed. Side bets are being taken on thefloor on all manner of things related to his appearance. Number of times hesays certain words, how often he wrings his hands, whether or not he gets anyfacts and figures wrong etc. Some wag already tried ringing him up (he wascaught out that way once before having not turned his mobile off for theinterview, but he’s reverted to being the consummate professional today, so nojoy). At the mention of one slightly odd phrase there’s a massive cheer fromthe interest rates desk, followed by some booing from the sales guys behind me.Turns out his challenge today had been to work a farmyard animal into hisinterview responses (I had been off the desk when this all transpired andno-one had mentioned it to me in the chaos). Sweepstakes were taken on whichanimal would be first to be mentioned and it looks like the rates desk came outwinners. George informs me that they had gone for pigs, and in formulating aresponse to a question about the ability of the US to respond more rapidly toeconomic and structural events than the somewhat cumbersome coalition that isthe Eurozone he had used as an example of less able economies, those ofPortugal, Ireland, Greece and Spain, otherwise known as the P.I.G.S.. Onceagain money is changing hands rapidly.
15:45 Lucky strikes again. Handed an order at15:35 for a pension fund, to sell 220m usd/jpy at the 4pm WMR fixing rate. Thisshould see him do pretty well on the day. He needs to sell the dollars and isagreeing to execute with the client at 4pm at whatever the official rate isthat is published shortly after the hour by WMR (A subsidiary of Reuters thatoffers data related services like this). But nothing says that Lucky has towait until 4pm to try and sell all the dollars. He is perfectly at will to doso earlier and so he does. Starting at a price around 94/96, he steadily sellsthem from around 15:45 onwards, seeing the price gradually fall as he does so.At 16:00 he is effectively going to be given all the dollars back by the clienthe has agreed to do the fix trade for, and will find out, shortly afterwards,what rate he’s dealt at. So the trick is to make the market end up lower thanwhere you started selling, booking a profit on the trade. From the client’spoint of view they get a transparent rate (as the fix rate is published onWMR’s website, Reuters pages etc, but the cost for that is that it is inLucky’s direct best interests to push usd/jpy as low as he can before it fixes.So the client usually doesn’t get a great rate on a larger trade. But there area few structural reasons why sometimes they still wish to transact this way(although it seems a poor tradeoff to me). In any case Lucky does a solid jobof judging just when he can start to push usd/jpy lower without running out of‘ammo’ too fast and he does the desks day no harm at all, banking around $75kon the trade.
16:20 We’re pretty much done for the day. TheGroup treasurer of the bank wanders over from his office, possibly as he sawthe running P&L numbers for the day. We have a quick chat about the daysevents and he seems relaxed. Not because he expects Tim and myself to donothing about the problem with the trades in the run-up to the numbers, butbecause he trusts us to sort it out. It’s a short conversation and given howmuch money it cost us, it’s not too bad. Post mortems will be had, just nottoday.
16:45 I power down my PC having checked all mypositions and said goodnight to a few people on assorted chats and down acollection of speakerboxes. The others are mostly doing the same, with theexception of Lucky, who is busy sorting out a lot of bookings related to thefixing trade. Turns out the Asset Manager who did the trade wanted it splitacross all sorts of different pension funds and all sorts of different dates.So he may still be there while we grab the first beer in the pub downstairs. Ohwell. Can’t live up to his nickname all the time. Where’s the fun in that?
17:20 Downstairs and most of us are there. Onpayrolls day we always have a tradition of everyone making a bit of an effortto at least have one or two drinks together before they head home. Some,(younger ones usually), will stay longer. Some with families stay an hour thenhead home. But when everyone has a drink in hand we gather in one corner of thepub and George ushers Meat into the middle of all of us. “So, Meat”he says, “Did you learn anything from your first proper full on hairypayrolls day on the desk?” Meat predictably can’t quite shake off theeager to please college boy spiel and starts launching into a little diatribeon liquidity, not trusting dodgy corporates etc etc before crumbling under thesheer weight of catcalls and taunts from the others “All right, all right,I Get it!!!” He wails “All together now…..” and as one, thesales desk, traders, head of research, Meat and all the others shout out thetime honoured six little words that, at least this time, have defined our day.. “I’D RATHER BELUCKY THAN GOOD”. For today, I think, happily we were probably both.