This means in effect that a Prague-based firm, supervised by the Czech National Bank, is responsible for a signficant part of the market-making in the world’s three largest derivatives markets: Chicago, Frankfurt and London. This has upset small traders, who say that they are being squeezed out by RSJ and other algorithmic traders.
Andrew Bailey, the chief executive of the FCA, warned last year that algorithmic traders were “very important” and that the regulator would crack down on those who put their system to “inappropriate use”. However, Megan Butler, the FCA’s director of supervision, admitted that no inspection had taken place of the computer code used by traders such as RSJ. Even if the FCA asked for such information, its staff would have no direct jurisdiction.
The extent of RSJ’s presence in Britain is its computers nestled as close as possible to the servers that run the world’s largest derivatives markets, a practice called co-location.
While some high-frequency traders have hired staff in the UK, and other big markets in which they operate, RSJ’s sole physical connection with London consists of expensive computers sitting in Basildon, the home of ICE Futures Europe’s data centre. Inside these servers are what RSJ describes as its “homemade” algorithms, built on models honed over 15 years that enable it to best even the world’s most sophisticated investors.
How RSJ achieves such incredible returns is a closely guarded secret. In common with other algorithmic traders, the firm jealously guards its trading models, but in pages now no longer on its website it explained the principle of how its mathematicians use advanced statistics and the law of large numbers to beat the market.
RSJ explained that its investment strategy came down to the same principle as betting on the toss of a coin. However, rather than odds of 50-50, RSJ’s “long-term observation” had achieved the financial market equivalent of discovering a 50.5 per cent bias in favour of tails.
Toss the coin again and again and this small advantage in their favour builds into an almost certain money-making scheme. As the firm put it: “With each subsequent game, the probability of you making a profit will get higher. If you toss the coin 100 times, this probability will be approximately 54 per cent. If you toss the coin 1,000 times, this probability will rise to approximately 62 per cent.
“If you toss the coin 100,000 times, this probability will be approximately 99.9 per cent. There is, nevertheless, always risk. We may have got it wrong, the probability of the coin landing tails-up is lower than 50 per cent and we have lost our bet.”
In RSJ’s case, replace the toss of a coin with millions upon millions of “buy” and “sell” orders and the essence of its strategy is displayed.
And it looks like the coin toss is very much in RSJ’s favour.
ARE YOU TOUGH ENOUGH FOR ‘RADICAL CANDOUR’ AT WORK?
Helen Rumbelow
JANUARY 16 2017
TODAY I WILL be “radically candid”. Today will be different because I will tell people what I think of them at work. Then when they tell me what they think of me I will say: “Thank you.” Today, in short, I will become a sado-masochistic German.
I start by asking a colleague on the features desk what I could do better. He said: “Stop asking me stuff to provide material for your articles.” I thanked him. I then offered to critique his performance. He put his head in his arms in a sort of foetal or brace position. I wasn’t sure whether to continue, so I called Kim Scott.
Scott is the founder of “Radical Candor”, the latest business trend from Silicon Valley. To illustrate it in action she tells this story. She was new to her job at Google when she gave a presentation to the company’s most senior staff. This was important to her because Scott had spent years trying to start or join businesses that were “bullshit-free” zones and she thought she had finally come home.
Yet was she ready for it? After a successful presentation she was taken aside by Sheryl Sandberg (then Scott’s immediate boss, now the Facebook executive). Scott thought she was about to take a victory lap with Sandberg, but no. Sandberg told her she had said “um” too much. Scott brushed it off, a minor detail. Sandberg persisted: what if Google were to get Scott a voice coach? Scott said she was too busy for that. Finally, Sandberg said: “You know, Kim, I can tell I’m not really getting through to you. When you say ‘um’ every third word, it makes you sound stupid.”
The words hung in the air as Scott felt their sting. Of course, if Scott sounded stupid, this makes Sandberg sound rude — and which is worse? Yet Scott says that was the “kindest thing she could possibly have done for me”. Sandberg cared enough to speak directly. Scott reflects on an incident on the street when she was struggling to get her dog to sit at the kerb. A stranger walked past and managed it with a harsh “SIT!” in the dog’s face. As he walked off he told Scott, “It’s not mean, it’s clear.”
So Scott’s idea of “Radical Candor” was born. A useful little mantra for those struggling to be radically candid in practice, me included, is: “It’s not mean, it’s clear.” Put the thought that this relates to a dog out of your mind. Scott laughs when I mention her dog. “Yeah, the point I learnt was the dog didn’t understand nuance. It wasn’t helpful to the dog to say: ‘Would you mind sitting please?’”
To say that Scott’s approach is generating a buzz in tech companies is to put it mildly. Scott is an influential figure. She went from Google to Apple, developing the “managing at Apple” course. She has coached the chief executives of Twitter and Dropbox. Her new book, Radical Candor, has a glowing endorsement from Sandberg on the cover. There are tech companies all over London using the technique and I talk to some of them, including one where they hold a weekly meeting to share all the harsh-but-fair feedback they have received. I can also attest, if Sandberg is interested, that Scott does not say “um” once when I talk to her.
In fact, she is pretty good at selling the technique. It is often mistaken as people being “brutally honest” with one another, but Scott resents that. Telling people where they fail may be tough, but it is performed in the spirit of generosity: “It’s not OK to be a jerk.” That’s why it is important to say thank you afterwards or, as I like to be old-fashioned, “Thank you, sir, can I have another?”
There’s a neat little axis that sums this up. If you challenge people but don’t care, you’re “obnoxiously aggressive”. For British readers this may bring to mind a boss like Gordon Ramsay. If you’re too nice, you’re not doing anyone any favours, which is a “ruinous empathy”. Perhaps a Hugh Fearnley-Whittingstall. However, a non-evil frankness, let’s say Mary Berry: that’s the sweet spot.
What about crying? I ask Scott if that means you are doing it wrong. Not at all, she says. Don’t let the fear or reality of workplace sobbing put you off as long as the intention of the candour was good. “If somebody’s fly is down or they have spinach in their teeth — sometimes these simple examples are helpful — if you care about them you’ll point it out. If you’re so worried that they won’t like you if you tell them, then you’re not doing the best you can for them.”
This was the spirit of one of the founding fathers of Silicon Valley, Andrew Grove, who was chief executive of Intel when, Scott says, “Intel was on top of the world”. Grove cultivated an atmosphere of what has been described as “ruthless intelligence”. He didn’t mind being berated by a junior if he had made a mistake. Loved it, in fact. “He was very well known for telling people what he thought and very open to other people saying what they thought,” says Scott. “In many ways Grove was the godfather of Radical Candor.”
At the end of the conversation I push Scott to be radically candid with me. Go on, I say, how was my interview technique? We have a useful little discussion about interruption, but she softens it by saying she likes being interrupted. All these years and I have never asked an interviewee how I did. Why not? I feel as though this is a breakthrough. I feel high on criticism.
But then I try to corner one of my bosses into some radical candour. Go on, I say
, hit me. We say lots of radically candid things about other people who are out of earshot. I recognise this as my comfort zone, so I stop. Please, I say, be as rude about me as you like. We go on like this for a while, me begging to be insulted and him withholding. It’s like a particularly kinky scene from a David Lynch film.
I need Scott’s help. Are we, I ask her, just unable to override our British factory settings? One BuzzFeed journalist observed that Radical Candor “sounds to your average Brit like a waking nightmare”. There is a time and a place for radical candour and that is the Christmas party at 3am. If we say what we really think we fear that the entire fabric of our civilisation will be destroyed.
Scott isn’t having any of it. Sure, we find it hard to override our manners. A lot of Americans find it hard too, because they want so much to be liked. “But I think you’re better at it than we are in this country,” she says. “I found when I was managing an international team at Google, the Brits on the team were more candid than the New Yorkers. Which is not the reputation but, partly as a result of the education in the UK, which stresses oral argument, you don’t shy away from it.”
I wonder if she is here referring to our House of Commons, which surely falls into the obnoxiously aggressive quadrant. Scott hopes Radical Candor has a role in 2017 to improve politics beyond office politics. By which I think she means Trump etc, but she won’t be drawn. “We’ve seen, in your country and mine, communications styles that are obnoxious: they sell, but they’re terrible for civil discourse. I believe this can get us to a better place.”
And the British really can do this. I speak to Kieran O’Neill, who founded his first company aged 15, sold it aged 19 for $1.25 million, and is at 29 years old more experienced than most. Sure, he says, “candour and Britishness are not natural bedfellows”, but for him it is no coincidence that the tech firms are leading the way. “Software engineers tend to be a lot more direct. It’s a cultural thing. I don’t want to generalise too much but, yeah, value of truth in that community supersedes niceness.”
For O’Neill, candour takes a lot of staff training but it is worth it. His latest venture, Thread, an online stylist service for men, even has an open email system so any staff member can access emails sent by anyone. “During job interviews we ask: ‘What’s one thing about the interview you didn’t like?’ Some people just find it awful, but we look for people who are more direct, able to have a mature conversation about it. One out of ten times people still say ‘nothing’, which is a pretty bad answer.”
Next I speak to Rob O’Donovan, the co-founder of Charlie HR, a human resources tech start-up. He also says that it helps that most of the adopters are young. “We’re lucky in that. Ten years working in a corporate environment sucks it out of you. I have friends who always say work is shit. I say: ‘Have you told your line manager?’ They’ll say,” and here O’Donovan howls, “‘Nooo.’”
He continues: “It’s a communication style more than anything else. People who are smart and self aware don’t want someone else to waste their time thinking about how they can compassionately construct a sentence that their work wasn’t as good as it usually is. People get used to hearing it straight and saying, ‘Yeah, fine.’”
Scott says we have to practise this to improve. So I email a senior columnist at The Times and ask him what I could do better. I get back a three-point bulletin that covers everything from what I did at lunch to being bolder on a work project. It’s pretty candid. Last week I would have found a way to resent him. Now I reply, “Thank you”, and mean it. So I can only end this by saying: what did you — really — think?
OUR WEEK: EVERYONE
Hugo Rifkind
JANUARY 21 2017
Monday
Donald Trump
I have great love for Europe. Great people, great little place. Which is why I started this week with an interview with a pair of European newspapers. That intern The Times of London sent? Smart!
Steve Bannon
We’ve got to have tanks, I’m telling the chief. And missiles. With big frigging bows on them. That’s the kind of procession we’re after.
“I could drive the tank,” says Donald. “The best tank.”
“And soldiers!” I say. “Doing that march where their feet go really high? Only, not in their regular uniforms? Perhaps in black ones? At least the shirts?”
“No,” says Jared Kushner. “None of this. Especially not the last bit.”
“Or brown,” I say. “I’m not fussy.”
Vladimir Putin
In Kremlin. Am congratulating FSB chief on persuading Asset Trump to declare Nato obsolete.
“Again,” say FSB chief. “Am swearing. Not asset.”
“No, but really,” haff said.
Donald Trump
“So Donald,” says Kellyanne, who does my press. “There’s a problem about the Nato thing.”
Forget global stability, I tell her. Let’s talk about my inauguration concert. It’s going to get the best reviews. Only I’m wondering which A-listers have said yes.
“Still only Kanye West,” says Kellyanne.
“No,” I say. “Not Kanye. Stand him down. Great guy. The best. But he’s too … What’s the word? I normally have the best words. He’s just too …”
“I get it,” says Kellyanne.
Hillary Clinton
Donald Trump calls. I don’t know how he got my number. Probably the Russians.
He wants me to know that, even though his approval ratings are already terrible, mine would be worse.
“Your liberals,” he says. “So bitter. What more do they want? I just did an interview where I said Iraq was the greatest mistake this country ever made!”
“Maybe,” I suggest, “they feel they can think of another one?”
“Vietnam?” he says.
“I’m hanging up now,” I say.
Tuesday
Donald Trump
We’re navigating the Senate confirmation hearings of my cabinet. Also, we’re still sorting my inaugural concert. It’s a hassle. Bigly. Can’t wait until I’m actually president and can have a rest!
Ivanka Trump
“Listen,” I say to Donald Jr. “Have you seen Dad’s speech? He says he’s writing it himself. And I’m not sure that’s a good idea.”
“It’ll be the best speech!” says Donald Jr. “So strong! The losers and haters will love it! And if they don’t? Sad!”
“I feel you’ve been speaking to him,” I say.
Nigel Farage
No, let me finish. None of this would be happening without the Bad Boys of Brexit. Which is why I’m flying to Washington with Arron Banks, and whoever that other guy is.
“Woah,” says Arron, checking his phone before we take off. “Trump has just attacked John Lewis. And I thought he was an anglophile?”
“No, no,” says the other guy. “This is a black John Lewis.”
“I don’t know that one,” I say. “Is it in Brixton?”
Donald Trump
“There’s a problem,” says Mike Pence, my future vice-president, “with this naked rodeo clown from Texas.”
“Ditch him,” I say. “I think we only want singers.”
“No, no,” says Pence. “He’s supposed to be the agriculture secretary.”
Vladimir Putin
“But Comrade,” am saying to FSB man, bewildered. “He’s attacking the UN now. Check again.”
Theresa May
Back in London, I’m running through my big Brexit speech with Philip Hammond. And he says there’s only one thing about it he doesn’t understand.
“Which is why,” he says, “you’re delivering it dressed as Rod Stewart?”
“Do you think I’m …” I begin.
“Please don’t,” says Philip.
Wednesday
Boris Johnson
I’ve been called into Downing Street to see Fiona and Nick, who are Theresa’s scary henchmen.
“Cripes!” I say. “Obviously I wasn
’t really suggesting that Johnny Frenchman was a Nazi and about to administer a punishment beating! I mean, who would do that?”
Fiona glances at Nick, who is holding a cricket bat.
“Lock the door,” she says.
Barack Obama
In the White House. Joe Biden is stuffing prawns inside all the curtain rails. They won’t find them for months, he says. Maybe never. Then he asks if it’s time for him to do that interview telling everybody I actually am a Muslim.
“No Joe,” I say, firmly. “Because I truly believe our country can heal.”
“Inshallah,” agrees Joe.
Vladimir Putin
Enough smearing of Russia. Haff again denied existence of Russian programme of kompromat, designed to embarrass foreign politicians. It’s not like we haff kept on file photo of Theresa May’s outfit from Tuesday, for example.
Kellyanne Conway
The singer in the Bruce Springsteen impersonator band we’ve booked for tomorrow’s concert calls me to say they don’t want to do it.
“Right,” I say, “but do you actually mean that? Or are you just impersonating Bruce Springsteen?”
“Both,” he says.
Thursday
The former president of Gambia
I am refusing to step down, despite the end of my term. Screw your election.
Michelle Obama
“Honey?” I say, “have you heard about the Gambia thing?”
Jeremy Corbyn
Labour MPs are going to oppose the government by supporting it on triggering Article 50. Yes, it does make sense.
Donald Trump
“This is the Lincoln Memorial,” I explain to Melania, on the way to the concert. “We own it now. Really super. Might change the face.”
The Times Companion to 2017 Page 14