closes. Imre, will you and Dieter help out with fixed income and currencies? Franco and Jon, take three or four guys each and divide up stocks and sector bets. Kolya, you do the same with the indices. Everyone else in their normal sections.’
‘If you encounter any problems,’ said Quarry, ‘Alex and I will be here to help out. And can I just say: don’t anyone think for a second that this is a retreat. We took in an additional two billion in fresh investment today – so this shop is still growing, okay? Is that clear? We’ll recalibrate over the next twenty-four hours and move on to even bigger and better things. Any questions?’ Someone raised their hand. ‘Yep?’
‘Is it true you just fired Gana Rajamani?’
Hoffmann glanced at Quarry in surprise. He’d thought he was going to wait until the crisis had passed.
Quarry didn’t miss a beat. ‘Gana has been wanting to rejoin his family in London for some weeks.’ A general exclamation of surprise arose from the meeting. Quarry held up his hand. ‘I can assure you he’s completely on side with everything we’re doing. Now does anybody else want to ruin their career by asking me a tricky question?’ There was nervous laughter. ‘Right then…’
Hoffmann said, ‘Actually, there is one last thing, Hugo.’ Staring out across the upturned faces of his quants, he felt for the first time a sudden sense of comradeship. He had recruited every one of them. The team – the company – his creation: he guessed it might be a long while before he had another chance to speak to them collectively, if ever. ‘Can I just add something to that? It’s been, as some of you have probably guessed by now, an absolute bitch of a day. And whatever happens to me, I just want to tell you all – every one of you…’ He had to stop and swallow. To his horror he was welling up, his throat thick with emotion, his eyes brimming. He looked down at his feet, waiting until he had himself under control, then raised his head again. He had to rush to get through it or he would have broken down completely. ‘I simply want you to know I’m very proud of what we’ve done together here. It’s never been just about the money – certainly not for me and I believe not for most of you, either. So thanks. It’s meant a lot. That’s it.’
There was no applause; simply mystification. Hoffmann stepped down from the chair. He could see Quarry looking at him in a strange way, although the CEO recovered quickly and called out, ‘All right, everyone, that’s the end of the pep talk. Back to your galleys, slaves, and start rowing. There’s a storm coming in.’
As the quants began to move away, Quarry said to Hoffmann: ‘That sounded like a farewell speech.’
‘It wasn’t meant to.’
‘Well it did. What do you mean, whatever happens to you?’ But before Hoffmann could answer, someone called out, ‘Alex, have you got a second? We seem to have a problem here.’
16
Intelligent life on a planet comes of age when it first works out the reason for its own existence.
What was officially logged as a ‘general system malfunction’ occurred at Hoffmann Investment Technologies at 7.00 p.m. Central European Time. At exactly the same moment, almost four thousand miles away, at 1.00 p.m. Eastern Standard Time, unusual activity was detected on the New York Stock Exchange. Several dozen stocks began to be affected by severe price volatility of such magnitude that it automatically triggered what are known as liquidity replenishment points, or LRPs. In her subsequent testimony to Congress, the chairman of the US Securities and Exchange Commission explained that
LRPs are best thought of as a ‘speed bump’ and are intended to dampen volatility in a given stock by temporarily converting from an automated market to a manual auction market when a price movement of sufficient size is reached. In such a case, trading on the NYSE in that stock will ‘go slow’ and pause for a time period to allow the Designated Market Maker to solicit additional liquidity before returning to an automated market. ^ 1
Still, it was only a technical intervention, and not unheard-of, and at this stage it was also relatively minor. Few in America paid much attention for the next half-hour, and certainly none of the quants at Hoffmann Investment Technologies was even aware of it.
The man who had called Hoffmann over to his six-screen array was an Oxford PhD named Croker, whom Hoffmann had recruited from the Rutherford Appleton Laboratory on the same trip that Gabrielle had hit upon the idea of making art out of body scans. Croker had been attempting to put a manual override on the algorithm in order to begin liquidating their massive position on the VIX, but the system had denied him authority.
‘Let me try,’ said Hoffmann. He took Croker’s place at the keyboard and entered his own password, which was supposed to give him unrestricted access to every part of VIXAL, but even his request for special operator privileges was turned down. He tried to conceal his fear.
As Hoffmann clicked the mouse in vain and tried various other routes into the system, Quarry stood looking over his shoulder, together with van der Zyl and Ju-Long. He felt surprisingly calm; resigned, even. Part of him had always known this was going to happen, just as he always half-expected, every time he strapped himself into an aircraft, that he was going to die in a crash. The moment one surrendered oneself to a machine operated by someone else, one was acquiescing in one’s own doom. After a while he said, ‘I assume the nuclear option is just to unplug the bloody thing?’
Hoffmann replied, without turning round, ‘But if we do that, then we simply cease to trade, period. We don’t unwind our present positions: we’re just frozen into them.’
Little cries of alarm and astonishment were erupting all over the room. One by one the quants were abandoning their terminals and coming over to watch what Hoffmann was doing. In the manner of bystanders gathered around a big jigsaw puzzle, someone would occasionally lean forward with a suggestion: had Hoffmann thought of putting that there? Might this be better if he tried it the other way round? He ignored them. Nobody knew VIXAL as he did; he had designed every aspect of it.
On the big screens the afternoon reports from Wall Street continued as normal. The lead story was still the riots in Athens against the Greek government’s austerity measures – whether Greece would default, the contagion spread, the euro collapse. And still the hedge fund was making money: in a way that was the weirdest aspect of all. Quarry turned away for a few seconds to consult the P amp;L on the next-door screen: it was now up by almost $300 million on the day. Part of him still wondered why they were so desperate to bypass the algorithm. They had created King Midas out of silicon chips; in what way was its phenomenal profitability not in their human interest?
Suddenly Hoffmann lifted his hands from the keyboard in the dramatic manner of a concert pianist finishing a concerto. ‘This is no good. There’s no response. I thought we could at least make an orderly liquidation, but that’s obviously not an option. The whole system needs to be shut down completely and quarantined until we find out what’s wrong with it.’
Ju-Long said: ‘How are we going to do that?’
‘Why don’t we just do it the old-fashioned way?’ suggested Quarry. ‘Let’s take VIXAL off-line and simply call up the brokers on the phone and get them on email and tell them to start winding down the positions?’
‘We’ll need to come up with some plausible explanation for why we’re no longer using the algorithm to go straight to the trading floor.’
‘Easy,’ said Quarry. ‘We pull the plugs and then we tell them there’s been a catastrophic loss of power in our computer room and we have to withdraw from the market until it’s fixed. And like all the best lies, it has the merit of being almost true.’
Van der Zyl said, ‘In fact we only have to get through another two hours and fifty minutes, and then the markets are closed in any case. And the day after tomorrow it’s the weekend. By Monday morning the book will be neutral, and we will be safe – as long as the markets don’t stage a strong rally in the meantime.’
‘The Dow’s off a full percentage point already,’ said Quarry. ‘The S and P’s the same. You’ve got all this sovereign debt crap coming out of the eurozone – there’s no way this market’s going to end the day up.’ The four executives of the company looked from one to another. ‘So is that it? We’re agreed?’ They all nodded.
Hoffmann said, ‘I’ll do it.’
