(Not deafening, see above....had to go to DMV, yuk)....
Pretty good "reading between the lines" - and I'm pretty sure Mav would be pretty confident if he was here to see how we handle our overall risk.
Don
Overnight leverage
- Thread starter zenith
- Start date
(Not deafening, see above....had to go to DMV, yuk)....
Pretty good "reading between the lines" - and I'm pretty sure Mav would be pretty confident if he was here to see how we handle our overall risk.
Don
Don, a little birdy told me a while back you guys lost millions on a GM/F pair trade. I'm not trying to stir the pot, but I heard this from someone inside your Vancouver office. This is certainly more then the 30k you claim as your biggest hit.
OK, I'm stirring the pot.
Quote from Maverick74:
Don, a little birdy told me a while back you guys lost millions on a GM/F pair trade. I'm not trying to stir the pot, but I heard this from someone inside your Vancouver office. This is certainly more then the 30k you claim as your biggest hit.
OK, I'm stirring the pot.
We took a 2% "personal" loss on the GM/F deal (2% of what we keep in our personal trading accounts, not the Firm or the traders)...remember, we don't even have to use our trader's money for the whole net capital requirements....the amount Bob made alone in 2004 was several times that loss (as it says in Trader Monthly, LOL ---the number they used is a bit low.
http://www.stocktrading.com/trader10030.html
We're doing fine, the Firm is fine, the risk control is fine.... everything is wonderful...and you know that all these threads are reviewed by the regulators, so I have to be perfectly frank (which I prefer to be at all times, it makes it much easier to remember things...when you tell the truth).
Have a great evening...
Don
Quote from jeffowy:
sorry if this isn't related enough...
but what about firms who deal with the london exchange? I've heard about them but don't actually know of any.
-that's overnight trading for a lot of us
The way the "stamp tax" is levied makes it impossible for us to profit when trading the LSE. When Goldman finishes fixing that, we'll be able to do more.
Don
Don, you keep talking about how you don't use your trader's capital to satisfy net capital requirements. First of all, I don't know any firms that do use trader's capital for the net capital requirement. In fact, if I remember correctly, it is illegal to use trader's capital to stratify net capital for purposes of NASD compliance. I'm not sure why you keep bragging about it, it's the law!!!!!!!
Second, I'm happy to hear you and Bob only lost 2% of your capital, but I heard from someone inside the Vancouver office that every single pair trader at Bright took a hit on that GM/F pair trade. He said the entire firm was sized up in that trade. So the damage to you as an individual might have been small, but as a firm, you guys took a real bath on that.
In fact, when I heard the story, I was quite surprised that you would have everyone in your firm leaning so heavily on one single pair. So much for diversification. LOL.
Quote from Maverick74:
Don, you keep talking about how you don't use your trader's capital to satisfy net capital requirements. First of all, I don't know any firms that do use trader's capital for the net capital requirement. In fact, if I remember correctly, it is illegal to use trader's capital to stratify net capital for purposes of NASD compliance. I'm not sure why you keep bragging about it, it's the law!!!!!!!
Second, I'm happy to hear you and Bob only lost 2% of your capital, but I heard from someone inside the Vancouver office that every single pair trader at Bright took a hit on that GM/F pair trade. He said the entire firm was sized up in that trade. So the damage to you as an individual might have been small, but as a firm, you guys took a real bath on that.
In fact, when I heard the story, I was quite surprised that you would have everyone in your firm leaning so heavily on one single pair. So much for diversification. LOL.
OK, here goes....the info you have is simply wrong about Vancouver, never a problem with risk...never even in to BT money, never in the red, no account with loss more than $30K, Yes, losses, never bug...no aggregate over a $million in anything outside BobDonportfolio, period.
As you know, people in our industry love to exaggerate (both ways)...all I can post here is reality, not rumors.....
Prior to FASB 150 rule changes, all firm's "could" use their traders capital, and therefore add to the overal amount of $$ the firm could use for overnights (6.67 times cash)...Since the fade in of December 2004, firm's cannot use traders money without traders signing away their rights (a few firm's did that, most just limited overnights or went out of business...you can check NASD for even Etrade who was the first in violation of this rule)....
FWIW, we don't have to bother with NASD membership since we're exchange members.
Example of how FASB150 changed accounting.
If Firm A owners have $5million (as some smaller firms may have)..
and their traders put up $30million. They have 6.67 times $35 million to use ($200Mil +1)....this was how it "used" to be.
Now, they get 6.67 times $ 5 million, and have to list their traders money as a liability, much like a bank does. (I've always loved how banks "brag" about having $100billion in assets...well, they have a $100 billion in liabilities as well...the depositor money). You can see now that traders could effectively be 1:1 with their money, not a good thing.....as it turned out, we picked up a few groups who were being restricted in their capital use by the other firms....good for us, safer for the traders.
I'm not trying to beat this to death, but we've worked really hard to get to the place we are today, and we're pretty happy that our traders feel safe and secure while trading with us.
Heading to Anaheim today, I'll check back in a day or two...
Don
Bright is very well capitalized.
Let's say Bright has $30 million and their traders come up with ZERO.
Naked common stock gets a 15% haircut... hence the 6.67 leverage figure.
However, the Net Capital Rule is applied to the total holdings of the Firm...
So ALL the holdings of, say, 400 traders are viewed as one Portfolio.
Now an exact 50/50 long/short position of common is haircut ** only on one side **...
So if entire firm is 50/50 long/short... haircut 7.5% = leverage goes to 13.3333
But many securities such as convertibles, bond type stuff, etc take smaller haircut... perhaps 5% hedged.
Let's assume one third of Portfolio is lower haircut... 2/3 of haircut for common.
So now Bright's entire Portfolio requires as little as a 6.5% haircut.
Meaning under NASD Bright can legally leverage $30 million about 15 times...
Assuming their Clearing Firm or Bank will lend them $450,000,000.
It all depends on keeping the total positions of all traders 50/50 long short.
Then they dole out this leverage in such a way as to ** maximize profits **.
They don't even need the trader's capital to do this... but that is Bright.
Any smart market pro can do this... but it takes 10-20-30 years to build such an enterprise.
rm+
Let's say Bright has $30 million and their traders come up with ZERO.
Naked common stock gets a 15% haircut... hence the 6.67 leverage figure.
However, the Net Capital Rule is applied to the total holdings of the Firm...
So ALL the holdings of, say, 400 traders are viewed as one Portfolio.
Now an exact 50/50 long/short position of common is haircut ** only on one side **...
So if entire firm is 50/50 long/short... haircut 7.5% = leverage goes to 13.3333
But many securities such as convertibles, bond type stuff, etc take smaller haircut... perhaps 5% hedged.
Let's assume one third of Portfolio is lower haircut... 2/3 of haircut for common.
So now Bright's entire Portfolio requires as little as a 6.5% haircut.
Meaning under NASD Bright can legally leverage $30 million about 15 times...
Assuming their Clearing Firm or Bank will lend them $450,000,000.
It all depends on keeping the total positions of all traders 50/50 long short.
Then they dole out this leverage in such a way as to ** maximize profits **.
They don't even need the trader's capital to do this... but that is Bright.
Any smart market pro can do this... but it takes 10-20-30 years to build such an enterprise.
rm+
Quote from RedManPlus:
Bright is very well capitalized.
Let's say Bright has $30 million and their traders come up with ZERO.
Naked common stock gets a 15% haircut... hence the 6.67 leverage figure.
However, the Net Capital Rule is applied to the total holdings of the Firm...
So ALL the holdings of, say, 400 traders are viewed as one Portfolio.
Now an exact 50/50 long/short position of common is haircut ** only on one side **...
So if entire firm is 50/50 long/short... haircut 7.5% = leverage goes to 13.3333
But many securities such as convertibles, bond type stuff, etc take smaller haircut... perhaps 5% hedged.
Let's assume one third of Portfolio is lower haircut... 2/3 of haircut for common.
So now Bright's entire Portfolio requires as little as a 6.5% haircut.
Meaning under NASD Bright can legally leverage $30 million about 15 times...
Assuming their Clearing Firm or Bank will lend them $450,000,000.
It all depends on keeping the total positions of all traders 50/50 long short.
Then they dole out this leverage in such a way as to ** maximize profits **.
They don't even need the trader's capital to do this... but that is Bright.
Any smart market pro can do this... but it takes 10-20-30 years to build such an enterprise.
rm+
Ask Don about the 20k short naked puts he has in GM. Then get back to me on the risk.