Brief Encounters With A Wall Street Arms Dealer

I’m standing at the corner of William & Stone in New York City's Financial District. To my right is Harry’s Café, a swank, garden-level steak bar that shares a wall with India House, former home of the New York Cotton Exchange – the U.S.’s first...

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Oct 7 2011, 7:13pm

I'm standing at the corner of William & Stone in New York City’s Financial District. To my right is Harry's Café, a swank, garden-level steak bar that shares a wall with India House, former home of the New York Cotton Exchange – the U.S.'s first commodity market – and then India House Club, once a nexus of the global spice trade and later home to the Foreign Trade Council. To my left is Hanover Square.

I don't know what time it is. It's probably around 10:30pm, maybe 11, which means for the last nine hours I've been following Occupy Wall Street demonstrations throughout Lower Manhattan alongside Erin, my fearless compatriot, and Chris, our trusty camera dude. Shit got heavy for a moment, but we three managed to evade arrest while the NYPD's hyper-reactionary crowd-dispersion tactics worked at dividing the evening's marches down to a few fractured groups that may or may not have dissolved back into Zuccoti Park, the OWS base camp.

Now, a Sabbath calm runs through empty and heavily barricaded streets. Erin's shirt is ripped. Chris is low on battery. I can't feel my legs. We just want to get back to Brooklyn.

An older fellow airing out in front of Harry's grabs our attention. He asks whether we're with the protests, with the people camping out in Zucotti. We tell him no, we're just checking things out, to which he says those people – hell, people – have good reason to be frustrated and amassing and stating their demands, or whatever. A 30-year Wall Street veteran, he’s seen a lot, namely the gradual regulation of an openly thieving sector run batshit amok.

He's all John Boehner in his pressed black suit, white collared shirt, screaming orange tie and thick LA Tan bronze, only his pinky ring sparkles as he burns down a steady stream of cigarettes he’s bumming from a soured Russian trader, who he says only pulled down $1000 for the day. Does he have a few minutes? Would he care to speak with us?

“I can’t go on camera," he admits. And no, we cannot have his name or that of his company (companies? firms?). "I'd get fired. I work for criminals.”

(Craig Ruttle/AP)

Earlier that afternoon we made for Foley Square, where OWS loyalists were joined by a litany of power unions and community groups. We followed the mass, some 20,000 – 30,000 people at its peak, as it marched to the Financial District. Having kept tabs on #occupywallstreet since low head counts on Day 3 to the first flare up in Union Square to the widely publicized Brooklyn bridge debacle, we really weren't too surprised to see so many newcomers.

For every barefooted college kid in green face paint over eyes rolled back, arms outstretched with chest heaving at three hovering news and police helicopters, was a clean set of parents, dad pushing the little one in a stroller and mom bearing the littler one, strapped to her frontside. It’s their first time at Occupy. And so it was with Sophia Bernard, 24, who broke down in tears when asked what brought her out. The disparity of wealth and evaporating job market is just “not fair,” she explained. She's on the verge of homelessness, and clutches an iPad.

At Zucotti, where the march ended about 7pm, the crowd boiled back down to its predominantly younger core of malcontents, all willing to pace the night's real march (on Wall Street proper) and, should it come to it, be hauled off in plastic cuffs. News quickly spread of Steve Jobs' passing. "Man, fuck Steve Jobs!" one guy railed. "This has nothing to do with Steve Jobs! Fuck him!"

What happened next was a stalemate, if anything. Demonstrators were relegated to sidewalks lining either side of Wall Street and cops, lined two deep to ensure no spillover into the street, stood around looking grim. Their cameras gazed back at ours. It was all pretty awkward. Group consensus was to press on toward Bowling Green. And so they did. And then, following trends, came more macing and nightsticking.

The group dwindled as the night wore on. Occupywallst.org reported at least 20 arrests. By the time demonstrators got back to Zucotti, they found the park kettled. And that's about when we broke off and found ourselves at the corner of William & Stone.

via Bentley University

Our guy is going on about rampant scamming across Wall Street.

"Yeah?" I prod. "Like what?"

Well, there’s still a lot going on despite the Security and Exchange Commission’s clamp down. Everybody’s got their sly tricks. But we'd do well to look into a little thing called high-frequency trading (HFT). “You’ll hear about this 10 years from now," he goes on, strangely gleeful. "Some guy will be hauled off to jail.”

Today, less than 30 percent of trading happens at the New York Stock Exchange. What many of us instinctively think of as "traders" is a dying breed. (See Floored, a documentary exploring this shift at the Chicago Stock Exchange.) Trade floors make good backdrops for business newscasts, sure, but nowadays it's more and more about robots and computers – algorithmic trading helmed by an elite core of quantitative analysts, or quants – than rapid-fire hand signals and hand wringing and shouting and reams of actual ticker tape. "Now, it’s all computer geeks," bizarro Boehner explains. "Programmers." He insists – begs, almost – that we check out The Speed Traders, a 60 Minutes piece on algorithmic trading that aired last year.

This sort of thing has been going on since the early 1980s, when a few stock exchanges first began toying with electronic trading, and has since grown in scope, speed and complexity. But HFT really only dropped into popular consciousness with the 2010 Flash Crash, when a single trader’s computer-driven sale dumped $4.1 billion into the market, sparking a 998.5-point plummet and absolute trader panic before things leveled out.

There are currently over 80 alternative trading systems countrywide and two electronic stock exchanges: DirectEdge and BATS Exchange. These are owned by big banks and HFT firms alike, according to The Speed Traders, which "trade more than a billion shares a day at blinding speed." Most bets are waged by machines modified by programmers at funds like Citadel Investment Group and Renaissance Technologies, which "outfit computers with strategies based on obscure mathematical correlations," according to The Wall Street Journal.

The machines, which like most machines never tire or get sick and always best humans when it comes to reading and processing mountains of data, trade in and out of stocks at warp speeds. The idea is to shave off fractions of a penny per share (or whatever the currency unit) on all trades. These short-term positions pile up positive earnings day in, day out.

Just watch this:

It's estimated that as much as 70 percent of stock traders today are HF. And our guy, now on his third cigarette, makes it all happen here.

Many of the programs and technologies that enable advanced trading platforms are developed on the West Coast, he explains, doing his best to paint us a sweeping portrait of rosy cozy Silicon Valley liberals. What he does is he brings these “sciences, which fuel all this,” back east to be shopped around to his criminal bosses and clients. He effectively turns complex, intrinsically beautiful programs – which he refuses to name – against their developers, and appears totally shameless about it.

Up shuffles a frail, babushka'd homeless woman. She stretches out a Styrofoam cup. "Sorry," she says, "I'm just down on my luck." The arms dealer pulls out his wallet, a Costanza-like rolodex of $20 bills. He plunks a $1 bill into the cup, and nods his head. The woman presses on into the dark, empty, heavily barricaded streets.

CONNECTIONS:
Inside the Secret Nervous System of the New York Stock Exchange
Beating the Market With Artificial Intelligence
Math Rules Everything Around Me

Reach this writer at brian@motherboard.tv.