Thursday, July 24, 2008

Shock - Horror!! - Trading Firm Manipulated Prices!

An SEC press release detailed with shock, horror (and awe) the luciferian machinations and manipulations of Optiver BV in the US energy markets. OK, admittedly my language is overblown, and no one is, or should be surprised by such revelations. At least anyone whose seen the smartest guys in the room, or witness the torpedoing of Amaranth.

But perhaps the most amusing thing about such a firm (compared in the same breath with Susquenhanna, and DE Shaw) who ironically vocally boasts about recruiting A-1 mathematicians from the best schools who also are "the smartest guys in the room", is that (according to the SEC) these geniuses left a slime trail of e-mails detailing their bold exploits in vivid colourful splendidiferous language, thus violating a cardinal rule of market-based "crime": vaporizing your own plausible deniability. For there are lots of reasons why participants do seemingly sub-optimal and uneconomic types of trades, including ignorance and stupidity. But when you hang yourself by bragging about it in emails, one's length of rope with the authorities demonstrably shortens.

Clearly business and engineering schools in America (and apparently elsewhere) are failing their students by NOT properly educating them in the subtleties of contrapreneurship. It seemingly happens over and over again - across the spectrum of firms, spanning industries. The groundrules are simple: Cover your tracks. Always have a Plan B. Retain multiple outlets to describe the appropriate plausible deniability. Certainly do not brag about it to friends or associates. Know when to fold, when to walk away, and when to run. Don't count your money, when your sitting at the table. And Never, NEVER refer to any such activities in any written electronic communication except in the most obscure of coded language indecipherable to prosecuting authorities.


plainfont said...

C, I would disagree that Optiver and Susquehanna recruit from the same places as D.E. Shaw. In fact, I am not surprised that Optiver employees left a paper trail because their recruiting process emphasizes mental math and logic patterns, rather than looking at a recruit's performance in college. Quite often, I think they end up with "lazy" geniuses, who are simply too confident in their own invincibility.

Anonymous said...

Plainfont -

Points accepted. The comparison was more for dramatic effect (though I DO see them recruiting in the same places even if the characteristics of their intake differs in practice).

My point in any event was to highlight the paradox of the apparent stupidity of apparently smart people.

Thanks for the comment!