Authors: Carey Green
“You made this when you were fifteen? That’s pretty young to be studying the brain.”
“Maybe,” Josh said. “The human mind has always been a hobby of mind.” “I know that. You designed your own major at Harvard: Neural networking and computational models. It sounds very impressive.”
“It was way ahead of its time.”
“I know a little about the subject,” Dylan said. Josh snickered.
“Really Dylan, how little?”
“Neural networks are software paradigms that attempt to model the neurons in the brains to create artificial intelligence. In theory, the software can therefore mimics intelligence, by being able to learn or adapt to certain constraints.”
Josh nodded his head. “Not bad. Not very good, but not bad either.”
“I did a little research on this years ago. I looked at neural networking trading software that tried to model price action and predict trends. It didn’t work well then. It’s probably better now.”
“We’ve been using neural networks in our trading here from day one.”
“I know you have. Binky told me.”
“Binky? Oh, you mean your little friend out there,” Josh gestured towards where Binky was sitting on the trading floor.
“Yeah, him.”
“Funny guy, he is. But to answer your question … we’ve had lots of success with financial pattern modeling. In fact most of our current models are neural-network-based.”
Dylan looked up from the brain and caught the expression on Josh’s face. Josh was looking for some type of confirmation either way. Dylan turned away and continued to examine the model.
“To each his own. Neural networks are not my technique. Binky and I use some different models: wave patterns, retracements, volume displacements in the market. Instead of trying to just figure out where the market is going to go, we try to isolate our risk levels. Therefore, we always know where we are in the trade. What we do is not for everybody, just as your neural networks are not for everybody.”
“My brother used a piece of software that I wrote to make his first million. The pattern recognition software picked up the 1987 crash three days before it was going to happen. We sold puts against the S&P. Five days later, my brother was a multi-millionaire.”
“I’m sure you did well that year also.”
“Huh. I think my brother gave me a twenty grand bonus.”
“That’s it?”
“I was just a programmer at the time. He didn’t feel I was worth more than that.”
“Still, that’s paltry. You couldn’t have been happy.”
“What can I say? My brother can sometimes be a bit of a prick.” Josh paused and considered his words. “My brother
is
a prick; but I respect him. He is the face of this organization. I don’t pretend for one second that I could do what he does.”
“True. But he couldn’t do what you do either.”
“I know that. That’s why I haven’t left.” Those words hung in the air for several seconds. Ray then entered, and they all took a seat.
Dylan spoke. “Well, as you know, we want to make some changes to the trading system, basically to alleviate some of the slowness we are seeing.”
“Yeah, yeah. Ray mentioned something about that. Your trades are clogging up the network pipes, creating a bottleneck.”
“That’s how our trading works: high-volume.”
“That’s what I heard. So what exactly do you have in mind?”
“We want to overhaul the trading models and much of the current systems that the traders use.”
“What’s wrong with the existing systems? They’re less than a year old. Perhaps there are some simple changes you can make, rather than throwing the baby out with the bath water.”
“Well, we did think about that. We performed some very basic systems analysis. We’ve looked through some of your stuff, and though we think it’s good, we also feel that we can improve on much of the structure of the system. That would help speed it up.”
“Who looked at it?”
“Binky.”
Josh looked at him with blaring condescension. “Who gave you access to all those systems? I sure as hell didn’t.”
“What can I tell you? Binky is good at computers. He knows how to gain access to the things that he needs to gain access to. He’s very adept at that kind of thing.”
“In other words, he hacked my files.”
“Personally, I wouldn’t think of it in those terms.”
“I didn’t give him permission.”
Ray finally chimed in with all of the subtlety of a bull. “
I
granted him permission, Okay? Again, I’m not here to be Simon Legree. We’re all batting for the same team. So we can sit here and argue about Binky, and file access, and world peace, but the bottom line is, I am giving Dylan the authority to do what he has to do. So we can find a way to work together, or we can find a way to work apart. You know what I mean?” Josh tried to compose himself before speaking again.
“So what are your plans?”
“My plan over time,” Dylan said, “is to rebuild much of the system from scratch. This means we need access to everything: file servers, computer systems, development tools, etc. We’re also going to want to see any written documentation you have on software development and trading procedures.”
“And then what?”
“First, we take note of everything you have and assess how much of it is useable. Then, we make a project plan. Afterwards, we redo the current trading system, trading models, and historical databases.”
“It took us years to build that stuff.”
“I understand that.”
“And you intend to just throw all that work away?”
“If the system isn’t working, we don’t have a choice.”
“And what makes you think you know anything about trading systems?”
Ray spoke up. “He has a track record, Josh, millions of dollars of revenue produced at his old firm.”
“Then why the hell is he here?” After a moment of stunned silence, Ray broke the ice by laughing.
“You could learn a lot from Dylan.”
“Yeah,” Josh smirked. “Like what?”
“How to be a real trader.” The words stung Josh like a punch in the face.
“Look,” Ray continued, “I’ve made a decision. I think you should report to Dylan for a while.”
“Me?” Josh asked incredulously, as if he were a deer staring into headlights. Dylan’s facial reaction showed that he was as surprised as Josh was.
“Yes. Until we get through this iteration of the system. I want you to report to him, and to send status reports to me.”
Josh was steaming now. His face had become redder, with an expression of disbelief. Dylan could even detect a slight twitching motion in his left hand. Ray began to speak again, this time softly and quietly, as though speaking to a child.
“Again, this is only temporary. We will see how things go, and then make adjustments accordingly.”
`“I will not be a party to this travesty.”
“I’m not asking for permission,” Ray said. “I’m letting you know what I intend to do.”
“Then I guess you’ll have to get what you want from Binky.”
“Well, then. I guess so,” Ray said.
Josh got up and stormed out of his office, slamming the door behind him. Dylan could see the traders turn and look in their direction. He and Ray were like mannequins behind a glass display.
“That went well,” Dylan said.
“I know. I had been meaning to have a word with you about Josh.”
“Good, because I’ve been wondering… what’s going on with you two?”
“How do you see it?” Ray asked.
“You know, people always say there’s a friend who’ll hang closer than a brother. But you two don’t even talk. And that would be bad enough, except you two work together.”
“You think I don’t know this?”
“I’m sure you do. Now, add me into the mix, and we have a major problem. So, my question is, what gives?”
“Well, there’s really no easy way to say this, but my parents never liked Josh, although I guess you could say it was mostly my father. You see, my old man was a New York City beat cop, tough and strong; a brawler. He always saw Josh as lazy, unkempt, especially when you compared him to me. I was always athletic, a ball player, while Josh was indoors reading books and playing with brains. Never mind that Josh was brilliant, in some ways more brilliant than myself, but his qualities did not appeal to his old man.”
“Where was your mother?”
“Good question, well, my parents had him much later than me, a good ten years later, but before that I had a younger sister who died, and Josh was my mother’s attempt to replace her. The old lady, well, I didn’t even think she could have a child at that point. But somehow she did. And by then, my old man was a shadow of what he once was, probably from having to deal with my mother all those years. All she did was pray each night, pray that God would give her a girl. And he didn’t of course. And she took it out on Josh.”
“How?”
“Every day, she told him he was a curse for the first fifteen years of his life.”
“And then what happened?”
“Well, my old man died. That pretty much shut her up. She spent the last ten years of her life commuting between Queens and Bellevue. By the time she died, I was already on Wall Street, and I took care of Josh.”
“That’s a heavy story,” Dylan said.
“The American dream isn’t always as heartwarming as people make it out to be.”
“I know that. But I don’t understand how you and Josh have worked together all these years.”
“It is what it is. It’s just evolved over the years.”
“And I guess I have to accept that, but I don’t want to be in the middle of you two. But I do need his help.”
“He’ll calm down. Then, I’ll speak to him privately.”
“Okay,” Dylan said. Both men got up and left the office.
That afternoon the markets climbed up slowly and steadily. The trading model had reached its plateau sometime that afternoon, and very little trading was done. Dylan and Binky were content to monitor their processes and to tally their results afterwards. Before they could leave, some operations work had to be done, and Binky hammered through it like a machete in the jungle. Before a final settlement of the day’s positions was available, Dylan had generated a preliminary P and L. On paper, they had generated profits of two hundred and twenty thousand dollars. Not bad, Dylan thought, for a day’s work. Dylan turned off his monitor and grabbed his briefcase.
“You hanging?” Dylan asked Binky.
“I got a little more to do.”
“Good. But you
are
coming to the gallery party tonight, right?”
“Uh, no,” Binky said sheepishly, putting his head down and averting Dylan’s eyes. “My parents blew into town, and our closest family friends just returned from Europe, so I couldn’t get out of it.”
Dylan nodded, as he tried as best he could to hide his disappointment.
“No worries.” Three minutes later, Dylan was out on the street.
The afternoon sun was hazy in its disposition, warm but not too humid, summery without the swelter. Dylan had on his wayfarer sunglasses. He had removed his jacket and slung it over his shoulders as he walked across the avenue towards the subway. His iPod was cranked up loud, his only insulation from the noisy and crowded streets. He was so in tune with his music that he hardly noticed a gentleman standing on guard as he reached the subway station. The man grabbed Dylan’s arm as he reached the subway entrance. Dylan was annoyed as he removed his headphones.
“Why the hell are you grabbing me? What do you want?” Dylan asked.
“Are you Dylan Cash? I am FBI special agent Tim Conroy. I was wondering if I might have a word with you?”
Dylan gyrated through a series of emotions within the span of seconds. For a moment he thought Conroy might be an insane person, trolling the streets and subways of Manhattan. But when Agent Conroy flashed his I.D., and Dylan examined him further, the khakis, crew cut and forceful demeanor, Dylan knew he had to be else than law enforcement. Dylan dropped his headphones before speaking.
“What do you want?”
“Now that is an interesting question. What do you know about naked short selling?”
“I know a bit about it. Why?”
“It’s come to our attention that Ray Corbin has been executing naked short sales.”
Selling short was the practice of borrowing and then selling a stock at one price, then buying it back later at a cheaper price, thus achieving a profit on the difference. In order to sell a stock that you didn’t own, you had to borrow it from another broker, with the agreement that you would return it later. This agreement to borrow and loan a stock was commonly referred to as a locate. Because many of the most desirable stocks to short were often hard to borrow, disingenuous brokers often sold stocks short without the locate, thus creating downward price pressure on the securities. This was the practice called naked short selling. Though it was illegal, it was difficult to catch, and even more difficult to prosecute.
At first, Dylan was worried that the improprieties of his old job were the source of an investigation. Now, it was clear that his new one was the issue.
“Listen, Mr. Conroy, I haven’t seen any naked short selling at the firm. That’s what you want to hear, right?”
“Are you sure?”
“Are you sure? You’re the one asking questions, not me pal. Get a search warrant and search the place if you’re so certain.”
“Dylan, I just want to talk.”
“You want to talk? Buy a cell phone.”
“We just want to ask you a few questions. No one is accusing
you
of anything.”
“But you come hassling me like it’s a right and a privilege? And why did you approach me, Tim?”
“Do you know what Eisenhower said to Nixon?”
“No, I don’t.”
“He said, ‘You better be clean. Clean as a hound’s tooth.’ We think that you are as clean as a hound’s tooth. I think that you are a man who likes to do the right thing.”
“So this is how the FBI does business?”
“I’m just leveling with you. You make the choice. We just want a few minutes of your time.”
“When?”
“No time is better than the present.”
“How do I know you’re really FBI?” Dylan asked, casting some doubt on the situation. “Maybe your I.D. is fake.”