
How One Goldman Sachs Trader Made More Than $100M - chollida1
http://www.wsj.com/articles/how-one-goldman-sachs-trader-made-more-than-100-million-1476869402
======
lordnacho
Like the article says, it's very hard to distinguish between market making and
prop trading. Especially in illiquid stuff like corporate bonds, the MM needs
to hold positions for extended durations, so they have a valid excuse to not
be closed down entirely by Volcker.

The real reason they make all that money is flow. The guy on a desk like that
knows what customers are calling, what they're concerned about, roughly how
easy it is to get rid of stuff, and so on. It's not surprising he has a good
idea of what's going to happen, and he's in a good position to take advantage.

Surprised their VAR (which is a crap way to measure risk) is not even halved
in relation to before the crisis. People were definitely chucking it about
back then, and the mood these days is like a morgue.

~~~
jhulla
Market making is inherently prop trading - the firm's capital is at risk -
unless trades are paired or hedged immediately. For thinly traded stuff that
may take a while to unload, it is just prop trading.

I personally think Banks should be incredibly boring utilities. But that ship
sailed a long time ago.

Lots of great stuff was thrown out the window in January. My winning bet for
the year was to start buying EWC (ishares Canada) during the market lows.

You say "and the mood these days is like a morgue". Please elaborate.

~~~
smallnamespace
If you prevent banks from doing the riskier forms of market making, then that
responsibility will move to firms that don't have access to customer deposits.

Because their capital base is less stable, they will be more prone to stop
making markets precisely when you need them most. That will probably make
extreme volatility events like flash crashes much more likely.

This is already happening today to some extent:

[1] [https://www.bloomberg.com/view/articles/2016-10-07/flash-
cra...](https://www.bloomberg.com/view/articles/2016-10-07/flash-crashes-and-
insider-trading)

[2] [https://www.bloomberg.com/view/articles/2015-06-03/people-
ar...](https://www.bloomberg.com/view/articles/2015-06-03/people-are-worried-
about-bond-market-liquidity)

'In the new system, the market makers are computers, and when things get hairy
they just stop buying pounds and walk away with their computer hands in their
computer pockets, whistling a jaunty tune out of their computer speakers.'

~~~
Retric
Volatility can be highly valuable in the long term to keep markets honest.
Without that there is a tendency to add leverage until something far more
significant breaks down.

~~~
smallnamespace
Generally not this sort of volatility though:
[https://en.wikipedia.org/wiki/2010_Flash_Crash](https://en.wikipedia.org/wiki/2010_Flash_Crash)

~~~
Retric
_The S &P 500 erased all losses within a week, but selling soon took over
again and the indices reached lower depths within two weeks._

So, arguably the rebound is what was odd not the dip. There is a bias when
looking at stock markets that says up is good and down is bad. However,
accuracy is vastly i more important for the overall economy.

------
nstj
@dang - the profits were for the firm, so the title is clickbaitish.

Suggested alternative: "How One Goldman Sachs Trader Made His Firm More Than
$100m"

~~~
Sarki
"The gains were the work of Tom Malafronte, a managing director on the bank’s
high-yield-bond desk in New York."

A "Managing Director" so I'm pretty certain that he didn't do it himself, his
team(s) did. Frankly annoyed by this recurrent praise for management people,
at this level such a guy never dips a toe in the trenches.

~~~
osullivj
MD on a major bank trading floor is very much a hands on job. Probably
supervising between 2 & 20 junior traders, ultimately tesponsible for their
positions, and setting strategy. An IT MD in a bank would have headcount in
the 100s.

~~~
zump
What's their bonus like?

~~~
osullivj
I know a trading Director for a rates desk who got GBP2.2M EOY 2007. MD would
be more.

~~~
dizzylight
not too much for fix income sector

------
trequartista
The market making exemption of the Volcker Rule is based on RENTD - Reasonably
Expected Near Term Demand. So Goldman has to prove that this was the case for
the high yield bonds. Proving this could be quite tricky though - because they
have to factor in a whole lot of parameters (market maturity, depth,
liquidity, product holding periods, macro-economic outlook and the trading
desk's estimation of client demand). But I'm sure Goldman has models to track
each of these. So all in all, this is quite a windfall

~~~
jhulla
Yeah - given the size and market environment during the trade, I'd imagine
there were many people looking over trader shoulders to keep everything legit.
Someone is going to have a nice Xmas.

------
edutechnion
Short version: banker provides liquidity to the markets and buys up junk bonds
from panicked sellers at 40 cents on the dollar. Banker then sells the bonds
for more money as the panic dissipates. Some people wonder if important banks
like GS should still be making volatile bets like this.

~~~
dogma1138
GS has about 90 bln in total equity and nearly a trillion dollars in total
assets.

100m sounds high but 100m is a rounding error especially if spread across 100s
or even 1000s of trades.

~~~
JumpCrisscross
Note that they _made_ $100 million. I did not see a value at risk, gross
notional or netted, presented.

~~~
zaroth
TFA says billions bought and sold before fading out to ads.

I guess making 5% returns isn't such a big deal when you are playing with
billions of other people's money.

------
jgalt212
The genius of this guy's trade was not buying cheap and selling dear, but his
ability to convince his boss (and boss's boss) to allow him to buy so many
bonds (well beyond the amount almost all of his peer's risk limits would
dictate).

------
eurg
Related discussion by Matt Levine:
[https://www.bloomberg.com/view/articles/2016-10-19/bond-
trad...](https://www.bloomberg.com/view/articles/2016-10-19/bond-trades-and-
merger-codenames)

------
zazpowered
Is this that amazing if he bought billions of dollars worth of bonds? Serious
question

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ankit70
For anyone who can't ready this article, search for 'Tom Malafronte' from your
mobile and read the full 'AMP' version. Thanks Google!

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fweespeech
[http://archive.is/rIBZT](http://archive.is/rIBZT)

For anyone that wants to avoid the paywall.

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polskibus
Did he make 100 m in profits for the company or did he earn 100 m for himself
from GS as renumeration?

~~~
alfalfasprout
He'll likely get something in the ballpark of 5-10% as bonus. That's the
typical rate at a desk where he's primarily making money from flow.

~~~
ksec
So he make 5-10M Bonus? Is this a lot in Investment Banks? ( Absolutely no
idea about their payscale. )

~~~
zump
Question.. if employees at a bank are making these kind of salaries, why
doesn't everyone do it?

~~~
totalZero
You need access to capital and balance sheet, brokers who help you, salesmen
who wine and dine your clients to bring trades in the door, and a lot of other
artifacts of the trading floor. It's tough to buy a billion dollars of bond
notional below fair value if you can't afford it and there's nobody to sell it
to you.

There are huge advantages that the institutions have built for themselves.

Not only that, but these guys are often some of the quickest, toughest, most
perceptive people you will ever meet.

~~~
dizzylight
the fund is not big issue,i suppose,because they may borrow from the cheap
source to leverage the trade. the insider info should be the key to their
successes, and exploited by the big invest firm.

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temuze
How to get around the WSJ paywall:

\- Copy the URL

\- Paste the URL into the Facebook textbox where you would create a post

\- Click on the preview, so the referrer url is Facebook

Could probably make a Chrome extension for this...

~~~
snarfy
Or stop posting them to HN?

Seriously, would we tolerate any other subscription required site? Why does
WSJ get a pass?

~~~
teh_klev
I know this has been done to death, but...

[https://news.ycombinator.com/newsfaq.html](https://news.ycombinator.com/newsfaq.html)

 _Are paywalls ok?_

 _It 's ok to post stories from sites with paywalls that have workarounds._

 _In comments, it 's ok to ask how to read an article and to help other users
do so. But please don't post complaints about paywalls. Those are off topic._

