About puppeteers

Tyler Derden
Published by 03 April 2013 G., 18:58 -0400

As previously reported, 34-summer matt taylor, MIT graduate (MIT) and former trader at Goldman Sachs, bank trader, surrendered to the authorities this morning. Later, in US federal court, he pleaded guilty to one case of “telephone or telegraph fraud” (under US law - an aggravating circumstance), Stating, that he “exceeded internal risk limits and lied to Goldman Sachs executives to cover up his performance”. He was subsequently released after posting bail of $ 750.000 and guarantees of his appearance in court, given by two guarantors. Hearing of the court, on which he will be sentenced, assigned to 26 July. Taylor faces jail time from 33 to 41 months, plus a fine of $7500 to $75.000. He, probably, will receive on the lower border of these already very mild punishments, literally "slaps on the hands", will be released from prison with a minimum regime (even if we assume, that he will get a real prison sentence) - and will be able to access your money again, some of which are safely hidden in offshore bank accounts (и уж конечно, not in Cyprus). Taylor earned this money over many years of market manipulation - at first he did it for the Goldman Sachs bank., and later - for Morgan Stanley. And we can say with confidence that, that he really manipulated the market – because thanks to the investigation by the news agency Reuters, we now know all the details of his crime.

Fact one: Motivation.

In court, Taylor testified, that he was secretly increasing the open position, to restore your reputation in the bank – and increase your annual bonus. He received a fixed salary in $150.000 in year – and expected to receive a bonus in the amount of $1,6 million. (according to the materials of the case published by the court).

M. Taylor now 34 year - out, в 2007-м, when he was counting on cumulative compensation of almost $2 million. a year - he was only 28 years. What was he willing to pay such money for?? The answer is for, that he was one of the few people, whose duties included organizing daily inexplicable jumps of quotations and "hunting for stops" of other market participants - that is, for those features, for which this irrational market is so widely known.

Taylor was recruited by Goldman in 2005 year. He worked in a group of 10 a person called CSFT (Capital Structure Franchise Trading), and was responsible for equity derivatives transactions.
After that, like at the end 2007 years, the profit from his trading operations decreased – his supervisors told Taylor, that his bonus will be reduced – and instructed him to reduce the risk, indicated in the indictment documents.
Instead he “accumulated position, significantly exceeded in volume all trading and risk limits, established by Goldman Sachs bank - and not only for individual traders … but also for the entire CSFT unit”, the indictment says.

These actions are pretty much the same as, what did JPMorgan trader Bruno Ixil do (Bruno Iksil), which was called the "London whale" (London Whale), when his portfolio of large open positions suddenly went "against him" –  first due to the market situation, and then, code news of the size and direction of his position leaked to the market – various "funds- vultures "began to open positions against him, trying to drive him into a situation of "maximum pain". As a result, B. Ixil tried to make a desperate bet - to double his position, and then he doubled it down again, and then - further increased, understanding, that if something bad happens - there is always JPMorgan behind him with his "bottomless balance sheet" – и банк, of course, will support its trader "if something happens" and will provide funds for another increase in the position. Unfortunately, endless application of the Martingale strategy, in which, to compensate for previously incurred losses, you can always double the rate again (using state support funds - that is, in fact – taxpayer funds) Is a luxury, inaccessible to anyone - except traders, working in the "holy of holies" – Wall Street Banks.

How big a position did M. Taylor hold then??

The events described here took place 12 And 13 December 2007 of the year.
If you believe for a second the absolutely idiotic claims of Goldman Sachs that, what is the world's most advanced hedge fund, with the strictest risk control rules, didn't know about, making him a 28 year old trader (which the, судя по словам Goldman Sachs, worked alone - i.e.. well, completely without guidance and even without any supervision) - then we will see, what M. Taylor actually bought almost 1/5 daily turnover in financial derivative ES (фьючерсе на контракт E-Mini) Is a tool with one of the highest leverage values (leverage), a change in quotations of which can affect the market prices of many other instruments. Taylor's actions had the same purpose., what later was at the trader of JPMorgan bank: open a position of this size, to be able to "drive the market into a corner" – dictate the direction of price movement in the market on their own and "bend the market for themselves", and other participants.
This plan didn't work – and the consequences of Taylor's actions have already gone down in history.
Because Matt Taylor was loved by everyone - while he was making money for the bank, and he was expecting to receive millions in bonuses (although he just graduated from college). As soon as the process of making money misfired - Goldman immediately stated, that he had no other choice, except to throw out Taylor "to be devoured by the wolves". Or, more precisely, Morgan Stanley. Taylor somehow got to work at Morgan Stanley - and for the next four years, no one asked him any questions.. Можно только гадать, how many times has Taylor opened multibillion-dollar positions in ES in the period 2008-2012 years, "Tilting" the market at will – only this time he managed not to get caught ... We will never know: simply because, what we understand, что «Morgan Stanley» – this is such a solid company, that she, естественно же, will never allow traders to trade full-tilt (no risk limits), и будет, undoubtedly, control all your traders, даже тех, whom Morgan Stanley fired according to “unrelated to a claim” reasons just a few months before, how the CFTC industry regulator filed its claim. It is also interesting to note, that Morgan Stanley hired Taylor - despite, that his previous employer was Goldman Sachs Bank –  recorded Matt Taylor in U-5 form (public card of information about any person, licensed professional participant in the securities market) comment about, that Taylor opened an "unacceptably large futures position in the bank's trading account" – although it is possible, such an entry on his personal card even increased that compensation, offered to him by his new employer - Morgan Stanley ..?
Certainly, the only remaining question is that, exactly what events in the market made Taylor close his deal and, finally, "Throw a towel into the ring" – surrender and give an order to close your position "by the market" – then, what is called "blow up" in market circles ("explode")? Как получилось так, that the margin requirements have become too high (and the consequences of that deal were acutely felt throughout Goldman Sachs, trading)? We invite the reader to independently find the "point of maximum pain" in the graph below., – price change for ES instrument 12-13 December 2007 of the year (Yes, and then, too, there was a feeling on the market, that “everything goes up, only up and will always go up ").

And here's what conclusion can be drawn from all this.: turns out, sudden mega-movement on 50 points down ES (от верхней до нижней точки) in just a few hours was enough, to "put on stops" even a trader from Goldman Sachs with a position volume (on the underlying asset) futures contract ES in the amount of 8,3 billion. Doll.
(according to a Reuters investigation, the closure of the position brought Goldman Sachs a loss in 118 million. Dollars).