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Showing posts from 2008

The New Arms Race and the Coming Revolution

Note: This feature length story by Chris McMahon originally appeared in the November 2008 issue of Futures Magazine. Link to original @ Futures Magazine Back in the old days, runners, the people who grabbed orders and ran them into the pits where trades were executed, were called the "wheels on the bus," and speed was of paramount importance. Today that responsibility falls to the software, hardware and network infrastructure that connects traders around the world with the exchanges. And as electronic trading matures, trade execution times are measured not in seconds, but in milliseconds. In this new electronic trading environment, the need for speed is still there, but it is increasingly a given as independent software vendors (ISV), brokers, futures commission merchants and other technology providers battle to create and market superior technology and traders search for new ways to establish or keep their edge. In the new world of electronic trading, traders operate

Rescuing the Bailout

Note: This news story by Chris McMahon originally appeared in the November 2009 issue of Futures Magazine. Link to original @ Futures Magazine To say the first iteration of Treasury Secretary Henry M. Paulson's $700 billion bailout plan was poorly received understates the case. In a closed-door meeting, House Minority Leader John A. Boehner (R-Ohio) reportedly referred to the bill as a "crap sandwich." Even after President George W. Bush addressed the nation to explain the looming catastrophe and the potential effects of the credit crisis on Main Street, the House of Representatives rejected the bill, sending the Dow Jones Industrial Average into a 774-point nosedive. Days later, another version of the bill was passed by the Senate and the House and signed by the president, and the Dow dropped 342 points. The bill authorizes a total of $700 billion for the Treasury secretary to purchase troubled assets, with an initial outlay of $250 billion. The president could then

Jamie Charles: Discretion in Management

Note: This profile by Chris McMahon originally appeared in the November 2008 issue of Futures Magazine. Link to original @ Futures Magazine In college, Jamie Charles, chief investment officer of Greenwave Capital, began trading with money he earned over summers waiting tables in the Catskill Mountains; and in 1980, during his junior year in college, he studied economics in Brussels, Belgium where his interest in currency trading took hold. On weekends, he would travel from country to country, the same way he would travel from state to state while growing up in New York. "It was not uncommon for someone I would meet to have a wallet full of different currencies. Not for any sort of show," he says, but to spend while bargain hunting as they traveled from one country to the next. "As a starving student, any sort of marginal change gets your attention," he says. "If there was a way for me to save $10, well, that's a day's worth of meals back then.&quo

Scything Up the Grain Markets

Note: This feature length cover story by Chris McMahon originally appeared in the November 2008 issue of Futures Magazine. Link to original @ Futures Magazine Scything Up the Grain Markets During planting season, the grain situation looked grim. Inventories were perilously low and large agricultural production areas were drought stricken. In the Midwestern United States, cold wet weather delayed corn and soybean planting, then punishing rains followed. Flood damaged fields and food riots were fixtures on the evening news and grain prices skyrocketed. Then something miraculous happened: The markets worked. Spurred by high prices, farmers worldwide increased acreage, and despite the fact that demand continues to increase faster than production, grain prices began to moderate after peaking in July. Growing conditions were near ideal in the United States and according to the Sept. 30 USDA quarterly stocks numbers, there will be 1.624 billion metric tons of corn, compared to 1.304

U.S. Dollar: Misery Finds Company

Note: This feature length cover story by Chris McMahon originally appeared in the September 2008 issue of Futures Magazine. Link to original @ Futures Magazine USD: Misery Finds Company The Federal Reserve Bank cut 325 basis points from the Fed funds rate from September 2007 through April of this year in an effort to stimulate our flagging economy and to shore up the banking industry in the face of subprime related fallout. The effort may have staved off full blown recession, however it has accelerated inflation and undercut the value of the world's reserve currency. The outgoing administration of George W. Bush has spent nearly two full terms in a state of denial regarding the weakening U.S. dollar. The U.S. dollar index has declined from a high of 1.2190 in 2001 to trade consistently below 0.7500 for most of this year. Now there is growing concern that sovereign governments, ever more squeamish about the erosion of their massive dollar holdings, could lighten their posi

The Ballad of Sam and Phil

Two long-running dramas in the futures industry came to an end in July when former Refco CEO Phillip R. Bennett was sentenced to 16 years in prison for his role in the fraud that resulted in the bankruptcy of the giant commodity brokerage firm in October of 2005. Bennett was facing 130 years in prison for his role in the series of round trip loans used to hide $430 million in losses. He pleaded guilty to all counts and is helping prosecutors locate assets on behalf of Refco creditors. Meanwhile, in upstate New York, Sam Israel III went on the lam rather than begin serving a 20-year sentence for his role in the Bayou hedge fund frauds. Three weeks after he faked suicide, Israel turned himself in to officers in Massachusetts. "It was interesting how differently the two matters were handled," muses David A. Kettel, a partner at the law firm of Venable LLP and a former assistant U.S. attorney. The government set a very high bond for Bennett, including his Park Avenue penthouse, a

Recession Hurts

Note: This feature length cover story by Chris McMahon originally appeared in the July 2008 issue of Futures Magazine. Link to original @ Futures Magazine Recession Hurts Call it a slowdown, call it recession, but don't call it a depression. Not yet, anyway. In the first quarter of 2008, real U.S. gross domestic product increased by 0.9%, beating initial estimates of 0.6%, according to the Bureau of Economic Analysis. And while that is far from stellar performance, it could help to undermine the persistent pessimism that has dogged the United States and hammered the greenback. "While the latest employment report showed a big jump in the unemployment rate, the details behind the rise, with some of it due to stronger labor force growth, were not quite as alarming. Meanwhile, Q1 GDP was slightly positive and the ISM reports have not been as weak as expected. So the overall economy has not collapsed yet," says James O'Sullivan, senior economist for UBS. He exp

Tone Grant convicted

In mid April, former Refco owner Tone N. Grant was convicted of all five charges related to the $2.4 billion Refco fraud. He faces 85 years in prison. Grant and former CEO Phillip R. Bennett staged round trip transactions to hide hundreds of millions of dollars in trading losses. Grant received $16 million from a leveraged buyout of the firm. On Oct. 10, 2005, Refco revealed that an entity owned by Bennett owed Refco $430 million, initiating Refco's plunge into scandal and bankruptcy. Grant is scheduled for sentencing on Aug. 7; Bennett faces 130 years and sentencing is scheduled for May 20. Joseph P. Collins, former partner with law firm Mayer Brown, is still awaiting trial on fraud charges related to the Refco case.

No More Second City

Chicagoans jokingly refer to their hometown as America's second city, but that sort of self deprecation is probably more the norm outside the exchange space. For 160 years Chicago has been the center of futures and derivatives trading, but with the consolidation of Chicago's two futures giants into the CME Group, accounting for 85% of U.S. futures volume in 2007, CME Group is now a global player capable of competing in the over-the-counter space on a global basis. Just for perspective, the nearest competitor was the New York Mercantile Exchange, with 10.85% of the futures volume. The Intercontinental Exchange's piece of the futures pie is less than 2%; and now CME Group and Nymex have announced their plans to merge.

Refco Execs go to Jail

In the latest court move by former Refco officers, Robert Trosten, Refco's former chief financial officer, is the third Refco executive to plead guilty to charges of fraud and conspiracy. He is cooperating with prosecutors and faces up to 30 years in prison for bank fraud and 20 years for securities- and wire-fraud. In mid February, Phillip Bennett, former CEO of Refco Inc., pleaded guilty to 20 counts of fraud, conspiracy, securities fraud, bank fraud and falsifying filings with the Securities and Exchange Commission (SEC). He was sentenced to 315 years in prison. This follows executive VP Santo Maggio's confession in December, which led to him giving back $23 million. Former Refco President Tone N. Grant and Mayer Brown lawyer Joseph P. Collins still are facing charges and are maintaining their innocence.