authored by

John Kierans
June 2021

This is a story of survival from my previous company JK Brokers Ltd (“JKB”), a floor (pit) brokerage/execution firm. The nature of the business meant that JKB habitually sailed close to the abyss.  I believe that my ‘fear experience’ is a very useful input into risk management at The Great O’Neill.

I had prepared a much longer uncut version of this 'dispatch'. However, I think this shorter version is more appropriate.

My previous company, JK Brokers Ltd (“JKB”) was a floor (pit) brokerage / execution firm on the Dublin (overnight) floor of the New York Board of Trade.  We traded the Dollar Index mostly and a host of other currency pairs.  The nature of the business meant that JKB habitually sailed close to the abyss.  

As the sole owner of JKB I was responsible for every deal struck.  In other words, each trade would go into my account unless it is ‘given-up’ to the actual customer.  Error trades could be very costly and given the size of our customer deals, a bad mistake could sink the firm.  In summary, to be successful JKB needed to execute as many orders as possible with as few errors as possible.

Within my first year of business, we weathered the first and most memorable challenge.

On September 22, 2000, the ECB, Bank of Japan, Bank of England, and the US Federal Reserve joined forces to buy the EURO without warning.  This ambush on the FX market triggered one of the most traumatic battles for survival in JK Brokers history.  

The combined intervention by the Central Banks caused the Euro to move 4 handles higher to just over .9000 from about .8600.  The DX futures contract ranged from above 115.00 to below 111.00.

The FX Market remained convulsed for about two hours. JKB was overwhelmed.  As luck would have it our team of three was reduced to two on the day.  Our clerk Mark had the day off.  It was just myself and another broker Tony.  Our four lines rang continuously.  Neither Tony nor I had experienced anything like this.  There was no time to jot down account details, order numbers or even which brokerage firm called orders into us. Usually, a market surge would last about 20 minutes and then settle down again as the market digested breaking news or new economic data.

Our closing bell rang out at 13.00.  We left work that night at 22.00.  We literally spent 9 hours trying to figure out who we had dealt for.  Our dealing pads (notebooks) were accurate insofar as we knew who we dealt with in the ring and at what price / time.  Each page in our dealing pads could record about 20 deals. We stapled the customer order tickets to each dealing sheet.  Our problem was that we didn’t have completed order tickets for all of our deals.  We simply didn’t have the time to write down account details when we took orders over the phone.  Our time stamped tickets may have indicated which company called, but from what city? We didn’t have recorded phone lines and as I mentioned at the outset our clerk Mark had a day off.  

We left our floor at ten o clock when the clearing system shutdown, two hours after the New York pit closed for trading. I was satisfied that in the worse-case scenario we were out by 1 or 2 lots.

JKB was a lightly capitalised ‘Mom &Pop’ firm not unlike other firms in New York or Dublin.  However, there was one important difference.  We dealt in larger Dollar amounts than any other brokerage firms in Coffee, Sugar, Cocoa, Cotton, or Orange Juice.  In other words, a 1 lot deal executed by JKB represented a greater number of Dollars than a 1 lot in Coffee, Sugar, Cocoa, Cotton, or Orange juice. I think it is useful to illustrate the higher levels of risk that we managed.  2006 was our peak year in volume.  If you could have magically transported the JKB team into the Coffee or Sugar pit in New York, in Dollar terms, we would have represented 33% of the business in either futures pit.  We would have been 50% of the volume in Cotton futures pit, 127% of Cocoa and 542% of Orange Juice.

A 20-lot problem for JKB meant that we had a DX position worth about $2,250,000.  A 5% move in DX would cause us a gain / loss of over $100,000.  If a sugar broker in New York had a 20-lot problem, a 5% move caused a loss or gain of $10,000.



A floor broker cannot avoid extreme events.  An extreme event can force trading positions onto a broker via execution errors.  I found the best way to prepare for extreme events was to expect them.  Forgive the cliché but it is a case of ‘expecting the unexpected’.  In my view, a little fear and paranoia can be useful emotions for risk management in The Great O’Neill.  I think it gives us an edge over other CTAs.

I suspect that many of the key players in most investment banks and hedge funds do not prepare for the unexpected.  I also think that successive and persistent direct bailouts by central banks to investment banks and well-connected hedge funds has led to a ‘fearless’ investment community.

In my next and final commentary in this series I will demonstrate how The Great O’Neill thinks about and prepares for the unexpected.

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