12:05 Appraisal time. I’m back in my office, munching my sandwich and typing with one finger. The first one is Mike, which is actually pretty easy. He’s experienced, thoroughly competent, and as far as his 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 middle office 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 in terms 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 team into shape, having come over from our rivals, I heard, at no small expense to do just that, but I don’t give it both barrels. There’s almost zero upside to doing 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, almost certainly under staffed. Plus I know they migrated onto all new systems six months ago, which was a big part of the problem, and something she inherited too late to do much about it. The other reason why sticking my oar in isn’t worth the hassle is that it counts for something like 5% of her overall appraisal mark. So I would achieve nothing by doing this really (except to royally tick her off). Plus I am deeply uncomfortable about being negative towards co-workers around this time. Everyone has families to provide for, mortgages to pay etc, so as long as people are doing what they can I will always try to play nice. 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 sure I’ll find out soon enough. Right. Phew – done for another year. Haven’t even started looking at my own yet, so I don’t actually know who’s doing my 360. Oh well, that can wait. I have a touch longer to do my own, it’s just the 360’s they need today.
12:45 Back on the desk. George is delegating the monthly non-farm payrolls prediction competition. Fivers in, winner take all, forfeits for whoever is furthest away. So Meat has two jobs. Firstly to collect the money and secondly to take note of the predictions from the room. there are usually about 35-50 people playing so he walks round doing it on his iphone and getting stick for it and by ten past one he’s finished. 38 people today so someone will do nicely out of it. We haven’t decided on a forfeit for the loser yet. Suggestions come thick and fast on the internal chat system. Some REALLY aren’t suitable for reading at work. A fair few involve Meat, usually but not always in a sexual context. You have to be a bit careful with this kind of thing, especially when stuff’s in writing. Fortunately Meat is pretty thick skinned but you do get the odd intern who simply can’t hack it. This is usually when they take it all a bit personally, which it truly isn’t. Luke and George also cop a bit of flack, (the worst of all actually involves Lucky, and is frankly so appalling that I am amazed that the person who typed it isn’t sacked on the spot). There are little gasps as people read it and suffice to say the winning forfeit is a little, ahem, tamer than that. The loser will have to don an outfit similar to Mrs. Doyle from ‘Father Ted’, and, using a trolley from the canteen, distribute tea to anyone on the floor that wants it, on the next NFP day. 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 the winnings to the charity of the loser’s choice.
Market consensus is for the US to have shed around 55k jobs in the past month, although all the rumours we’re hearing this morning in the market, (and there are always rumours on payrolls day), are for a somewhat more benign number (one US based house even going for a positive print, which although definitely an outlier, has nevertheless got a few tongues wagging in the market). We’ll all find out soon enough.
13:15 Everything’s gone eerily quiet. Prices are starting to widen out on all the electronic dealing venues and the bookies aren’t quoting much at all down the squawk boxes. Our e-trading team have widened the prices we are showing to our customers accordingly. They are pretty much a self contained unit most of the time. The early versions of bank e-commerce platforms were unsophisticated pricing engines, very much tied to the rates that were visible in EBS and Reuters matching (regardless of how much actual hard liquidity was available at those prices). Once a customer had dealt on the platform, more often than not, the trade would plop into a dealers position on a bank’s spot desk, and the dealer would manage the risk from there in precisely the same way as if he’d shouted a price to a salesperson and been hit.
Fast forward five or so years and the landscape has utterly changed. The engines used to derive a price 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-commerce team operate as a separate entity (we on the spot desk are even able to trade on the platform ourselves, to clear smaller amounts if we wish), and only when things go awry do they need to enlist the help of the spot desk to offset any risk they incur. The rest of the time they are either skewing their price according 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 them thus reducing their long position). If this isn’t having the desired effect the machine will go out into the market on it’s own and ‘auto-hedge’, reducing positions in a carefully specified manner, and again, at lightning speed. But once in a while it will still come unstuck, so each trading centre has a couple of 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 every month. 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 decisive when trouble strikes. It’s a bit of a poison chalice but he’s pretty sharp at it and is considered a safe pair of hands here. I wander over to him. "All strapped in?" I ask. "Yep" he replies. "Seat is back in it’s upright position and my table is stowed away. Should hit turbulence in about 14 minutes." Hopefully it’ll clear without anyone needing to reach for the sick bags and oxygen masks I think.
13:27 We’re in trouble! We just got asked a price in eur/usd in one hundred and fifty million and got paid for them, so my euro trader is short more Euros than he’s easily going to be able to cover. He had made what he thought was a wide, defensive price that frankly was supposed to discourage the client from trading. But it didn’t and it gets worse. Tim stands up. "RICH – I need Euros. Been paid three times here now. Not getting anything back". Crap. Anything even remotely dollar negative and we’re dead. I sprint over and appraise him of the fact that we’re in the same position ourselves. He’s short a total of a hundred and thirty five million himself. A tad suspicious as he’s been hit three times, all equal amounts, all 45 million. The threshold for what we are happy for the machine to quote without manual dealer intervention is usually a hundred million in normal market conditions. But prior to major data releases this changes. With 15 minutes to go this changes to seventy-five million. Then with five minutes to go it’s fifty million. Then, in the final 90 seconds it’s something like twenty million these days (and of course spreads are also widening out at the same time). It’s not hard and fast – again, complex algorithms, even incorporating recognition of what the data release came out as, govern both when and how we withdraw liquidity, and also how quickly we’re able to add it back in again once the initial chaos calms down. But in any case manual intervention was fifty million and we’ve been hit three times in just under that amount. But no time for post mortems now. I shout over to Ben "BEN – Any short dated euro in the bookies? Ship some in – we’re caught here, badly". "On it" he shouts. Thirty seconds to go. He stands up. "Done 80 of the overnight ats" (at the money options) and there’s another 50 of 30 delta calls 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 decent out there till after the numbers". "Thanks – let meat know the spot refs and any delta stuff asap – I need this booked asap".
In buying some short dated options I am hoping I have staved off at least some of the effects of a shocking payrolls number. Unfortunately, I will have had to pay away some premium 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 figure down day isn’t a huge deal – these things do happen. But a seven or even eight figure down day is definitely not what we were put here to achieve. I have a great team of traders on the desk and for the most part I just try and leave them to it, but insofar as I have a role to play in trading terms, it is on exactly this sort of occasion that I need to justify the title on the business cards by making a quick decision in the interests of the bank as a whole. I look down at the live price and trade feed from Tim’s pricing engine that I have open on my desktop. He’s showing a tighter price than usual, and it’s definitely skewed higher. The only problem is, no-one’s taking the bait. He can’t tip his hand too much (and neither can the guy on our desk) as the whole of the market will be watching for some sign of movement immediately prior to the numbers, and will jump all over it.
13:28 My phone flashes – it’s my friend at the New York hedge fund. "Hey, Rich. Sorry man, need a quick favour. All my systems just went down here. Can you work a 65 offer for 90 eur/aud?". I look at where it’s trading now. 58/62. Very close. "Sure mate – leave it with 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 it with the short Euros. I leave him to work, watching as he bids for the Aussie Dollars on the Machine. Tim’s also able to help out, skewing his own Aussie bid a touch higher and getting given a quick 37 million worth from a variety of high frequency algorithmic model accounts. My friend in New York is trying to sell eur/aud. If you break that trade down into it’s component parts. he’s trying to sell Euros/ buy US dollars, and buy Aussie / Sell US Dollars. The US Dollars then net out. But effectively, by way of the driveby that we just endured, the desk has already done the first ‘leg’ of my friend’s order, getting itself short eur/usd. Now all we need to do is get long aud/usd. And that should hopefully be a touch easier as there hasn’t, to the best of my knowledge, just been a drive-by in the Aussie. Sure enough, we manage to get all bar maybe twenty million Aussie before the clock ticks down to the deadline. The price went away a bit at the end so eur/aud has tracked lower as a result.
13:30 The number comes out and the room goes nuts. Headline number is for -125k jobs and the dollar immediately starts selling off against pretty much everything. The Euro, Yen, Sterling, Aussie and Kiwi 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 correctly noted 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 have been properly verified) are actually very positive. Plus there’s been a pretty healthy decline in the unemployment rate, well ahead of what people were expecting. "Turn that Aussie if you can" I shout, asking my commonwealth guy to sell the Aussie dollars out that he bought. "Already on it Rich – done fifty right here. Eighty now. Ninety five. Not getting paid any more – comes offered now". Sure enough, Aussie has topped out and turned as people digest the story behind the numbers. So we’re no longer short Euros and long Aussie (against my mate’s order). We’re back to being naked short 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 the Aussie trader goes back in and bids to get the Aussie back again. Back to being short eur/aud, but now, we’ve got short at a much better average rate (if you tot up the P&L from all the ‘jobbing’ in and out in the aud. I look at the chart of eur/aud and it never went any higher than 58 after the numbers, even in 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 we didn’t fill his order as it never really traded up to 65 (and certainly not in his 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 market is now trading around 41/44. "Thanks Rich – definitely owe you dinner now man. Book at 59 as well. Great fill. Gotta hop". Totting up the rate in eur/usd and the all in rate for the Aussie, by our reckoning we managed to actually end up selling the eur/aud at 72 or thereabouts. We wouldn’t pass on all that improvement to my friend, no matter how good a mate he was, as we had to take on extra risk in order to achieve that price. But in doing so we managed to sell the cross for him at the highs, just as it dumped. He certainly couldn’t have done that for himself with the tools he has available at his desk.
So everyone’s happy. Looking over the various blotters I see that most of the short euro/dollar position is now covered. Largely at a loss (as the guys couldn’t really push the market much in advance of the payrolls number for fear of tipping their hand). But the options trades we did had given us some positive P&L and also some long gamma exposure, meaning the options desk had also been trading spot eur/usd on our behalf, selling near the highs and buying back lower to keep the portfolio broadly delta neutral. I shout over to Ben to see where he could sell the options back out again, (as the spot position it was hedging was pretty 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 a little short on the bad payrolls number), and we exit that position too.
14:15 Things are nearly back to normal now. We’ve had a few more price requests, in an assortment of currencies, as the market digests the days economic data. Some requests went well, some less so, but they’ve broadly evened out. The actual proprietary positions the guys have had on today have been fairly light, which is not unknown on payrolls day, as the price action can be a bit of a lottery and plenty of perfectly good trading ideas get blown out of the water in the mad half hour we just had. So discretion is often the better part of valour on this particular day of the month. Having a quick look at the desk’s P&L numbers so far it looks like we’re down around $270k, with the e-commerce desk down another $165k. Could have been a whole lot worse. E-comms were down over $250k at the peak but a combination of the euro’s retracement of some of its gains and the fact that after things calmed down a bit the day was, as is so often the case, a good source of revenue for the e-commerce side of things has meant that their numbers are still slowly but surely ticking in the right direction this afternoon. I can see Tim standing up, blue shirt betraying him with a couple of large sweat patches under his armpits. He’s talking to Lucky, who, not surprisingly is a lot calmer, having seemed, in line with his nickname, to have swerved and neatly side-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 the floor on all manner of things related to his appearance. Number of times he says certain words, how often he wrings his hands, whether or not he gets any facts and figures wrong etc. Some wag already tried ringing him up (he was caught out that way once before having not turned his mobile off for the interview, but he’s reverted to being the consummate professional today, so no joy). At the mention of one slightly odd phrase there’s a massive cheer from the 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 his interview responses (I had been off the desk when this all transpired and no-one had mentioned it to me in the chaos). Sweepstakes were taken on which animal would be first to be mentioned and it looks like the rates desk came out winners. George informs me that they had gone for pigs, and in formulating a response to a question about the ability of the US to respond more rapidly to economic and structural events than the somewhat cumbersome coalition that is the Eurozone he had used as an example of less able economies, those of Portugal, Ireland, Greece and Spain, otherwise known as the P.I.G.S.. Once again money is changing hands rapidly.
15:45 Lucky strikes again. Handed an order at 15:35 for a pension fund, to sell 220m usd/jpy at the 4pm WMR fixing rate. This should see him do pretty well on the day. He needs to sell the dollars and is agreeing to execute with the client at 4pm at whatever the official rate is that is published shortly after the hour by WMR (A subsidiary of Reuters that offers data related services like this). But nothing says that Lucky has to wait until 4pm to try and sell all the dollars. He is perfectly at will to do so earlier and so he does. Starting at a price around 94/96, he steadily sells them 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 client he 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 than where you started selling, booking a profit on the trade. From the client’s point of view they get a transparent rate (as the fix rate is published on WMR’s website, Reuters pages etc, but the cost for that is that it is in Lucky’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 are a 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 job of 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 $75k on the trade.
16:20 We’re pretty much done for the day. The Group treasurer of the bank wanders over from his office, possibly as he saw the running P&L numbers for the day. We have a quick chat about the days events and he seems relaxed. Not because he expects Tim and myself to do nothing about the problem with the trades in the run-up to the numbers, but because he trusts us to sort it out. It’s a short conversation and given how much money it cost us, it’s not too bad. Post mortems will be had, just not today.
16:45 I power down my PC having checked all my positions and said goodnight to a few people on assorted chats and down a collection of speakerboxes. The others are mostly doing the same, with the exception of Lucky, who is busy sorting out a lot of bookings related to the fixing trade. Turns out the Asset Manager who did the trade wanted it split across 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. Oh well. 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. On payrolls day we always have a tradition of everyone making a bit of an effort to 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 then head home. But when everyone has a drink in hand we gather in one corner of the pub 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 hairy payrolls day on the desk?" Meat predictably can’t quite shake off the eager to please college boy spiel and starts launching into a little diatribe on liquidity, not trusting dodgy corporates etc etc before crumbling under the sheer weight of catcalls and taunts from the others "All right, all right, I Get it!!!" He wails "All together now….." and as one, the sales desk, traders, head of research, Meat and all the others shout out the time honoured six little words that, at least this time, have defined our day..
"I’D RATHER BE LUCKY THAN GOOD". For today, I think, happily we were probably both.