This page has been archived and commenting is disabled.
How A 28 Year Old Ex-Goldman Trader, Who Accounted For Up To 20% Of E-Mini Volume, Blew Up
As previously reported, former Goldman prop trader and MIT-grad Matt Taylor, 34, handed himself over to authorities earlier today and subsequently pled guilty in Federal Court to one charge of wire fraud "saying he exceeded internal risk limits and lied to supervisors to cover up his activities." He subsequently posted bail in the amount of a $750,000 bond with two co-signers. His sentencing hearing is set for July 26, when he faces a prison sentence between 33 months and 41 months and a fine of $7,500 to $75,000. He will likely get the lower end of both wristslaps, and come out from minimum security prison, that is assuming he even spends one day inside, to some cash stashed away in an offshore bank account (not Cyptus) courtesy of his many years manipulating massing the market first at Goldman and then at Morgan Stanley. And manipulating massing he did, because courtesy of Reuters we now know the full details of his transgressions.
First: his motivation:
In court, Taylor said he covertly built the position in an effort to restore his reputation and increase his bonus. He earned a $150,000 salary and expected a bonus of $1.6 million, according to court documents.
Taylor, who is now 34, was thus was a paltry 28 at the time when he was expecting nearly $2 million in all in comp. For what? Why being one of the designated few responsible for the daily inexplicable swings and stop hunts that the irrational market is so well known for.
Taylor, who joined Goldman in 2005, worked in a 10-person group called the Capital Structure Franchise Trading (CSFT), and was responsible for equity derivatives trades.
After his trading profits plunged in late 2007, his supervisors told Taylor his bonus was going to be cut and instructed him to reduce risk-taking, the charging documents said.
Instead, he "amassed a position that far exceeded all trading and risk limits set by Goldman Sachs, not only for individual traders ... but for the entire CSFT desk," according to charging documents.
This is pretty much exactly what JPMorgan's Bruno Iksil was doing when the massive Whale Trader's portfolio starting going against him, first due to the market, and then when news leaked of his positions, as various vulture funds start going against his maximum pain positions: he doubled down, then doubled down again, then doubled down some more with the knowledge that if anything bad were to happen he has a massive balance sheet behind him on which to fall back on and double down again. Sadly, an infinite Martingale strategy where one can always double down (with taxpayer funds) to offset prior losses is a luxury few outside of the sanctified walls of Wall Street trading floor are exposed to.
How big did Taylor's position become?
A person familiar with Goldman's equities trading business said Taylor's trading position was significant - representing roughly 20 percent of e-mini trading volume the day it was established. The market moved against Taylor's position, leading to the loss, said the person, who declined to be named.
For perspective, the $8.3 billion position Taylor took in the e-mini futures market was twice the size of the $4.1 billion trade the U.S. Securities and Exchange Commission highlighted in a report on the causes of the May 6, 2010, "flash crash" in which a series of e-mini trades caused the Dow Jones Industrial Average to plunge 700 points in a matter of minutes.
All this happened on the days of December 12 and 13, 2007.
Ignoring for a second the absolutely idiotic statement from Goldman that the world's most sophisticated hedge fund, with the strictest of risk controls, had no idea what the 28 year old trader (seemingly completely unsupervised) was doing, what Taylor basically did was that he ended up accumulating nearly one fifth of the most levered, market-moving derivative security - the E-Mini futures contract - in an attempt to do what JPM also did: have enough scale to be able to corner the market at will, and bend it to his demands.
It didn't work, and the rest is history.
Because while Taylor was making money, everyone loved him and he was expecting millions in bonuses fresh out of college. The second it failed, however, Goldman had no choice but to throw him at the wolves. Or Morgan Stanley as the case may be, where he somehow ended up working for the next four years without anyone asking questions. One wonders how many multi-billion ES positions Matt built up in the period 2008-2012, allowing him to bend the market at will, only this time without getting caught? We will never know: simply because Margin Stanley is such a more reputable firm, it would naturally never allow this kind of full tilt trading, and would certainly supervise all of its traders, even those whom it fired for "unrelated" reasons a few months before the CFTC launched its suit (hired previously despite Goldman adding on his U-5 that he took "inappropriately large proprietary futures positions in a firm trading account" - perhaps it actually boosted his comp?).
Of course, the only question remaining is what in the market caused Taylor's trade to finally throw in the towel, and force cover his position, i.e., blow up, when the margin demanded against him was just too much, and sent ripples across Goldman's trading floor. We will let readers find the point of maximum pain on the chart below, which shows the ES trading pattern on December 12-13, 2007 (yes, the market was only going up, up, up back then too).
Take home lesson: it appears that that 50 point ES mega-swing from hi to low in a matter of hours was enough to stop out even a Goldmanite with an $8.3 billion gross notional ES position.
A copy of Matt Taylor's FINRA brokercheck report can be found here.
»
- 36287 reads
- Printer-friendly version
- Send to friend
- advertisements -
I could easily blow less money than this guy, do i get the same salary?
People who grow the wrong kinds of plants and fungi get more time and bigger fines than this guy. Typical.
It is not about blowing money or getting a salary. It is more about doing blow and paying hooker's salaries.
kid never got this much of most anything on the Cambridge side of the Charles River.
Fucking Tech assholes.
- Ned
{and to finish it off, they are sucking the effluent fed from the World's Most Perfect University!}
gotta love guys like this
done more public service to bring down GS than SEC's entire history
Goldman should hire more traders like this and finally crash within.
Now, even buffett is playing with options. Who is going to bail him out? Aliens?
This guy is a completely clueless douche, scum bag, financial tool, GS stooge, who likely believes he did nothing wrong, who will serve a pittance of time and pay a nominal fine, and then reemerge with several $MMs stashed aside having done the bidding of former masters and sign on with some hedge fund to reak further 2/20 expropriation from sheeple too complacent to know better. 28 year olds with trading book P/L responsibility are a microcosm of all that is wrong with the financial world today. F*ck this guy!
This guy got 25 years for selling a few pills to a undercover cop using entrapment "friend,"
http://www.theatlantic.com/politics/archive/2013/04/a-heartbreaking-drug...
+1
I have seen so many of them and 99.99 of the time they get away with a murder. not enough people out there to try and catch these MFers in the act or after the fact. punishment when caught is not a deterrent- WTF WTF WTF
Indirectly this guy brought on the HFT %$&@! we see today. When Goldman analysed what went wrong they concluded "It would have worked except those pesky retails and hedgies got in the way".
One down and very soon the hedgies get toasted.
In a nutshell, in a nutshell. When this young guy gets his 1.6 to 2 million bonus that year what is the first thing he does. Gets high end escorts and play all weekend with them (heck and possibly does it two weekends a month, he has the money).
Don't worry. The inmates who grow the wrong kind of happy have easy time. The inmates who ripped off granny get fucked, hard. Even in minimum security. Sometimes so hard they rat out their fellow gang members to get out. And if he's got a stash, his new friends will find out.
chart looks more like an SEC agents EKG print on midget tranny porn
and the same "slap on the wrist" ?
Next an appointment to the SEC.
He's a token toss by the squid to reduce the chances of further investigation ( not like the regulators would do any gd thing anyway ).
There's more dirt here.
He's more than likely got a massive bonus in a numbered account somewhere as his retirement when he gets out for taking one for the team.
henry gets pinched........
https://www.youtube.com/watch?v=DBPly1aT8y0
Comes with the territory, bitchez
5 million ES contracts, wtf!
Where is Escape Key? This is exactly the kind of manipulation I was writing about earlier today. If it works on the /ES, it'll work on mtgox/BTC.
please explain... should be a hoot
@dark pools of soros
L-O-Fucking-L. BTC isn't 5 years old and already one of it's "financial institutions" has pulled a Bank of Cyprus. Your Instawallet balance over 50 BTC? Fuggetaboutit! Here, have a few laughs:
http://arstechnica.com/business/2013/04/in-wake-of-bitcoin-spike-mt-gox-...
I would like to know the gold futures contract exposures at JPM
Just buy it and be thankful someone was stupid enough to trust these kids to trade. These children traders have no experience in life. The move into Gold is going to harvest them so badly it will look like Sandy Hook part 2. These kids can't even remember what gold did in 2008, much less 1980.
It's 6.6 to 1. And aches all over .
I'm a 50 year old contractor and I'm hoping for a bonus of bankers, insurance agents, government agencies and deadbeat customers only stealing 85% of my hard earned money instead of 90%.
That's a strange hope, have you shot at any lawmakers lately??
I did not shoot the sheriff, or the deputy.
Is it really a strange wish?
If it is, then I'm farther down the rabbit hole than I realized and thanks for the reality check Mr. Rates.
i think i could lose less than this guy too
but even if i was wrong so what
wheres the check
Well congrats to whoever took the money away from Goldman. Well done, mates!
Crime payz bitchez
For a good laugh, have a look at one James Dimon's BrokerCheck report: http://brokercheck.finra.org/Search/Search.aspx . Search "James Dimon" and click Broker>Get Detailed Report. He has quite a few events on his record. Especially strange is the summary of the last "disclosure event."
Nice job by the CFTC monitoring position limits.
What position limits. There aren't any where it really counts. But don't give up hope. I hear they're going to be holding their 20th anniversary hearing on the subject at the Waldorf this year.
Hmm ... CSFT ... what did that really stand for, i.e., what could Goldman e-mails reveal if hacked? :
Crushing Stops to Fuck Traders
Channeling Stocks to Fed Targets
Can Somebody Fund Taylor?
Colassally Stupid Futures Trading
Compensation Strategies for Fledgling Traders
Constant Supervision Fetters Talent
Career Suicide For Traders
Christ, Somebody's Fucking Toast
You missed one.
Cock Sucking For Traders
FINRA Broker Check Report Alleged Allegations: "Alleged conduct related to inappropriately large proprietary futures positions in a firm trading account."
And Morgan still hired him. Unbelievable. Then again, I’m surprised they didn’t assign him to their training department. This industry is structurally, culturally, and hopelessly self destructive.
Self regulation my ass.
Exactly....... They ALL knew-
It's preposterous to believe that G-S didn't know on a DAILY basis what his trades were- what, his supervisors suddenly stopped keeping a trade blotter?
They let him run until he blew it up, and then probably traded against him at the end, knowing they would toss him to the wolves when they got busted.
G-S always plays a couple moves ahead- for them to plead ignorance in this matter is worth the price of admission alone.....
Well, there is one obvious difference between Matt and Bruno the whale. GS caught Matt after he lost $118 million. JPM didn't stop the whale until he lost $6 billion.
That's just great. He says he acted alone, the 'authorities' will of course 'believe' him, he gets a light sentence, and his accomplices (who paid him handsomely, we can be sure) will get off entirely free. See. The System Works!
I bought the first break; I bought the second break; I was the third break.
http://www.vegasxau.blogspot.com
"he doubled down, then doubled down again, then doubled down some more"
Blowing up is the result of anyone investing in such a stupid manner. Everyone needs a stop level when to get out.
Just like the copper trader in Japan back in the day and now Paulson who keeps doubling down in gold as it continues to puke, they will all end up blowing up.
Lookie here, US Ambassador to Canada is going to be an ex-Goldmanite.
http://www.cbc.ca/news/politics/story/2013/04/03/pol-us-ambassador-to-canada-obama.html
ES minis were "on sale", so he backed up the truck. At the end of each day, despite his "paper" loss, he counted all his contracts and yup, they were all still there. Happens in every market, every asset, every investment.
Losers average losers.
What is truly (not so) shocking is that this guy manually entered some of his non-trades into Goldman's system. Manually. Of course that has all been fixed since the crash and much more strict controls over risk have been implemented....well, except perhaps in JPM and their whale trade, and......
Nothing has been fixed. The systems still have holes. The risk models still have errors. Management is still completely in the dark regarding how the math/models supposedly work, which means Senator Carl Levin will get another chance to show off for the C-Span cameras while ultimately doing absolutely nothing.
Incidentally, if $118 million equates to 33-41 months behind bars, what does that make $1.2 billion, Jon? Poor poor Matt...if only there was a near-term Presidential election for which he could bundle contributions.
Re ES minis were "on sale", so he backed up the truck.
Yeah I was wondering what that 18-wheeler behemoth was doing backed-up into the lobby of 55 Broad for weeks on end a few years back.
Used to pass it every day on the way to my asst-manager's hot-dog stand job on Broad & Beaver.
At first I thought it - the truck, not the beaver - might have been an improvised cube-farm for some of those Bangalore techies that always seemed to be swarming around that block.
Than again, I figured it mighta been a criminally clever way of hiding a new tunneling project to the NY Fed just a few blocks away..
Had no idea that some dude was stuffing it to the gills with ES Mini contracts - and neither would you, if his passport hadn't somehow miraculously floated down from the 28th floor and landed smack in the middle of that pile of smoldering, stinking detritus...
Goldman wanted to settle this quietly - somehow it got out of their control and the deals are amazing. They didn't want anyone to see this - was it reported in their annual report?
Meanwhile, Jon Corzine is fundraising for Hilary...
F'ing Porn is easier to watch.............
Circuit beakers in place for flash crashes or massive sell offs but no protection versus traders going on tilt? Hmmmm....
Golum punk-trader done for fraud?
Sniff, sniff.... something doesn't smell right here...
Or as one snowman said to the other:
Is it just me - or can you smell carrots as well?
VERY INTERESTING TO SEE THAT BOTH SG'S "JEROME KERVIEL" AND THIS GUY BLEW UP AT ABOUT THE SAME TIME : JANUARY 2008 AND DECEMBER 2007...
WHEN THE SMOOTH BUY-ALL-THE-DIPS ERA THAT STARTED WHEN THEY GOT TO TRADING FRESH OUT OF COLLEGE FINISHED.
A GOOD LESSON FOR ALL ASPIRING TRADERS : A MASSIVE ACCOUNT DOES NOT PROTECT FROM BLOWING UP BIG TIME IF YOU DON T APPLY STOPS LOSSES AND KEEP ON DOUBLING DOWN
Benny ramp the fucking market every fucking day ..
this is a poor fallguy
More Ivy League criminals...
What I want to know is how dumb do you have to be to lose money in the stock market when you get to cheat? Between manipulation and HFT's and sheer volume he could utilize he must be dumber than shit. It's like playing head's up poker while getting to see the other guy's cards and still getting your ass beat.
Chart tells it all. Never throw money at a losing position. Everybody knows that ES ramps just 10 points at a time. He was trying for 20+ and when rumors got out that GS was heavily long stocks, it was like sharks smelling blood. That's predatory capitalism at its best, giving smart day-traders a lot of easy money that day. "Exploratory trading" has been around for eons. Jesse Livermore described how he would test a market's strength by sending "probes" opposite of his intended direction sending simultaneous orders to four different brokers ... in the 1920s.
Tyler, you're so cute. Acting and postulating like any of this little shit matters whatsoever.
Printers on?
Check.
Bailout crime?
Check.
Make an example out of the guy going 56 in a 55 and deem the guy doing a 100 in 30 "too dangerous to catch" yeah that makes sense...
Somebody punked his ass out.