The Fear Index

frowned, puzzled. These enormous bets on the down side were unlike VIXAL’s normal complex pattern of hedged trades.
    ‘Well that one truly is amazing to me,’ said Klein, ‘because they had Q1 growth up from seven-forty million to nine-oh-nine, with a cash dividend of twenty-five cents a share, and they’ve got this great new resort in Macau that’s literally a licence to print money – it turned over twenty billion in table games in Q1 alone. May I?’ Without waiting for permission, he leaned past Hoffmann, seized the mouse and started clicking through the recent trades. His suit smelled like a dry-cleaning store; Hoffmann had to turn away. ‘Procter and Gamble, six million short at sixty-two … Exelon, three million short at forty-one-fifty … plus all the options … Jesus, Hoffmann – is an asteroid about to hit the earth, or what?’
    His face was practically pressed against the screen. He produced a notebook from his inside pocket and began scribbling down the figures, but Quarry reached over and deftly plucked it from his hand. ‘Naughty, Ezra,’ he said. ‘You know this is a paperless office.’ He tore out the page, screwed it into a ball and put it in his pocket.
    François de Gombart-Tonnelle, Elmira’s lover, said, ‘Tell me, Alex, a big short such as any one of these – does the algorithm put it on entirely independently, or does it require human intervention to execute?’
    ‘Independently,’ replied Hoffmann. He wiped the details of the trades from the screen. ‘First the algorithm determines the stock it wishes to trade. Then it examines the trading pattern of that stock over the past twenty days. Then it executes the order itself in such a way as to avoid alerting the market and affecting the price.’
    ‘So the whole process is really just fly-by-wire? Your traders are like pilots in a jumbo jet?’
    ‘That’s it exactly. Our system speaks directly to the executing broker’s system, and then we use their infrastructure to hit the exchange. Nobody telephones a broker any more. Not from this shop.’
    Iain Mould said, ‘There must be human supervision at some point, I hope?’
    ‘Yes, just like there is in the cockpit of a jumbo – there’s constant supervision, but not usually intervention, not unless something starts going wrong. If one of the guys in Execution sees an order going through that worries him, naturally he can put a stop on it until it’s cleared by me or Hugo, or one of our managers.’
    ‘Has that ever happened?’
    ‘No. Not with VIXAL-4. Not so far.’
    ‘How many orders does the system handle a day?’
    Quarry took over: ‘About eight hundred.’
    ‘And they’re all decided algorithmically?’
    ‘Yes. I can’t remember the last time I did a trade myself.’
    ‘Your prime broker is AmCor, I assume, given your long relationship?’
    ‘We have various prime brokers these days, not just AmCor.’
    ‘More’s the pity,’ said Easterbrook, laughing.
    Quarry said, ‘With the greatest respect to Bill, we don’t want one single brokerage firm knowing all our strategies. At the moment we use a mix of big banks and specialist houses: three for equities, three for commodities and five for fixed income. Let’s take a look at the hardware, shall we?’
    As the group moved off, Quarry pulled Hoffmann aside. ‘Am I missing something here,’ he said quietly, ‘or are those positions way out of line?’
    ‘They do look a little more exposed than normal,’ agreed Hoffmann, ‘but nothing to worry about. Now I think of it, LJ mentioned that Gana wanted a meeting of the Risk Committee. I told him to talk to you about it.’
    ‘Christ, is that what he wanted? I didn’t have time to take his call. Damn it.’ Quarry glanced at his watch, then up at the tickers. The European markets were holding on to their early gains. ‘Okay, let’s grab five minutes while they’re all having coffee. I’ll tell Gana to meet us in my office. You go on ahead and keep them happy.’
    The computers were housed in a big windowless room on the opposite side of the trading floor, and this time Hoffmann led the way. He stood in front of the face-recognition camera – only a few were cleared for access to this inner sanctum – and waited for the bolts to click back, then pushed at the door. It was solid, fireproof, with a pane of reinforced glass in the centre and rubber vacuum seals on the sides, so that it made a slight whoosh as it opened, the bottom of the seal