In 1984, fresh out of grad school (no internet degrees in those days) with a thesis on foreign exchange arbitrage, all I wanted was a job on Bay Street. The land of milk and honey: booze, BSing clients and getting paid for it--quelle opportunit!
I went to work for a small tech company called TIL Systems that had just introduced new trading terminals for brokers. Using packet switching technology, users could link up with the TSE's truly progressive computer system at a transmission speed of 1,200 bits per second.
It was a different age in so many ways. To buy eight years' worth of historic data for U.S. stocks would cost you $1 million. Today, it's free. In 1984, the New York Stock Exchange had not traded more than 300 million shares in a day. Now it does that in about 90 minutes every morning.
The TSE still had a trading floor, of course. But in 1986, David Roffey, a hotshot at First Marathon Securities, began using computer programs to trade the stocks that made up the TSE 35 Index, as well as futures and options. As the index moved up and down, the value of the futures and options could be arbitraged with the push of a button. The process took about 90 seconds--roughly four minutes faster than running around the trading floor. Today, buying all the stocks in the S&P/TSX 60 Index takes about a 10th of a second using the TSX's STAMP electronic gateway.
Until deregulation in 1987, banks weren't allowed in the investment business. For decades, the major Bay Street dealers were privately owned by their partners. Legendary leaders--including Austin Taylor at McLeod Young Weir and Jimmy Connacher at Gordon Capital--drove 20ish entrepreneurs like me into battle. But by 1990, almost all the major firms had been gobbled up by the big banks.
Investments themselves got more elaborate as well. New York-based Bankers Trust introduced Nikkei put warrants (derivatives based on Tokyo's Nikkei Index) to the TSE, and began scooping up fees from Canadian clients. The puts allowed traders to bet on the ups and downs of the Nikkei, which peaked near 40,000 in 1989. By 1992, we had profited from the slide of Japan's stock market to the tune of more than $1.5 billion.
First Marathon--led by Lawrence Bloomberg--and Gordon Capital, Connacher's secretive institutional boutique, were the Street's two toughest and savviest firms. First Marathon helped pioneer the discount brokerage concept in the early 1980s with Marathon Brown (which TD Bank bought in 1993). Bloomberg also perfected the "eat what you kill" compensation plan of fat bonuses for partners and employees who put together lucrative deals. It changed the payouts of almost every trader and investment banker on Bay Street, Howe Street and Ren Lvesque Boulevard.
In 1991, however, Gordon was rocked by a bond trading scandal that still ranks as one of Canada's most elaborate cases of financial legerdemain. It involved Gordon employee Eric Rachar and investment manager Patrick Lett. Gordon had to raise $80 million in new capital. Yet the firm never recovered, and it was bought by HSBC Bank Canada in 1999. Ironically, some of Lett's money found its way back into society as charitable donations--check out the Patrick Lett Gymnasium at Upper Canada College. His name came up again this past March, when the OSC found that Lett had traded in securities without registration from 1996 to 1999.
By 1995, the internet was changing trading forever. Disnat, E*TRADE Canada and other on-line dealers pushed the banks into flat-fee trading. Within three years, commissions for small trades tumbled 70%.
Yet Canada still had five stock exchanges: Vancouver, Alberta, Winnipeg, Toronto and Montreal. TSE president Rowland Fleming urged the exchanges to modernize, and the TSE closed its trading floor in 1997. His pugnacious leadership style helped persuade the dealers to remove both him and their own duplication of costs by consolidating the exchanges.
The culture was changing as well. Watering holes in Toronto, Montreal and Vancouver lost customers. Alcohol was no longer greasing the wheels of fortune. It was being replaced by MBAs, CFAs and hard work.
This brings to mind an afternoon in 1985, when my boss took me out with some clients. He was a big drinker, and told me to keep up. They ordered martinis; I ordered beer. By 3:30, I was sent back to work while the boss continued to liquor up the clients. I stumbled to my desk. The trader next to me, David Galea, took one look and said, "You're going far. You might last 20 years in this business." Best to keep your head down and don't look back--2005 is just six months away.