Winter 2015
The markets roiled. A single fund was making the wardens of the economy look like utter fools. People were beginning to ask difficult questions. Whispers were heard asking how a small fund like Legion could spark the destruction of trillions in wealth in just a few weeks, if it ever actually existed. Was it all just a figment of the collective imagination?
Eric didn’t wait to find out.
“The name you asked for, it’s Stimpson.”
“And you’re sure about this?”
“Yes, I can’t tell you any more than that.”
“Alright, goodbye.”
Eric didn’t expect Bill to move so quickly. Seated in the war room a few days later, the group pleaded with Gavin to allow them to close out their positions. In the past four months they had earned over 300%, but their contact at Citi had gone quiet. It wasn’t safe to pile on risky bets without the inside information. They were driving blind.
Gavin remained adamant, “Lock up every margin dealer we have, take on as much debt as you can.
There is no turning back, I don’t care if we’re broke in a month’s time.”
“We’ll be lucky to last that long,” Eric said through his teeth.
Sensing the tension between Gavin and Eric, Jason intervened.
“Gavin, this can’t go on, we’re way out of our depth. Our biggest advantage was my guy at Citi, but he’s gone dark. We need to back off.”
Gavin was unrelenting. He closed the case on the matter and left them dumbfounded, unable to think of a way out of this mess. Much of the blame fell on Rohan. Eric was first to finger-point.
“Your usual carelessness Rohan, that’s all we’ve got left to blame. We knew Gavin was crazy from the start. And you signed an agreement that gave him final veto over EVERY FUCKING TRADE?!”
“Look, I never thought it would come to this, okay? All I can do is release you both from your contract. Legion will buy you out if you want to leave but I hope to god you’ll stick around. I need you guys more than ever. We’re still managing billions of dollars. There’s time yet to set her back on course.”
Eric was the only one who wished he could leave this very moment, but after the debacle with Garza, even he was forced to stand in solidarity. Reassured by the fact that no one took his offer, Rohan regained his composure.
“Well, I supposed we’d better get back to trading huh? You heard the boss, man your battle stations!”
It wasn’t long before Gavin got his wish. The Swiss National Bank was forced to abandon its peg to the Euro as a result of the sheer amount of money the ECB was creating out of thin air. The SNB had accumulated almost 70% of its GDP in foreign exchange reserves to help keep down the value of the Franc, and it appeared, they’d had enough. The SNB would no longer sell Francs and buy Euros to keep downward pressure on their currency. Within minutes the Franc skyrocketed in value.
The ensuing rout, the likes of which hadn’t been seen in the forex market in decades, wiped out brokers, hedge funds, and many other market players. There was utter chaos. Phones rang off the hook and Rohan took great pleasure in calmly indicating to each of their investors (the ones that spoke English, anyway) that their funds were indeed quite safe.
It was clear to all, why the Swiss made the difficult choice. They must have learned that the ECB planned to announce another massive round of bond purchases. It was known to most that the central banks shared confidential information with each other, despite proclamations to the contrary. After all, the leaders met regularly at the central bank of central banks, the Bank of International Settlements in Basel.
Jason again pleaded with Gavin, as Eric by now had given up hope.
“Gavin, you realize this is suicide. We don’t have months to wait. We have a few weeks. Maybe. We’ve gotta exit our positions. The ECB is going to do something drastic. Are you really prepared to see the firm go under?”
Gavin finally relented, “Okay, okay. We’ll pull back, but do it slowly. The ECB can’t announce more bond purchases right after the Swiss de-pegged, it’ll smell fishy. We have time on our side. We can’t make it easy on them.”
Except… they didn’t. Legion’s assault forced the ECB to capitulate a lot sooner than expected.
The whole world was caught by surprise. Not by the action, which was completely expected, but the sheer size of the proposed purchases. It was so large they had to use the word trillion, and not in a figurative sense.
Gavin ran onto the trading floor as soon as he heard the announcement, but tried to speak calmly.
“What’s the damage?”
Eric took grim satisfaction in the answer.
“We’ve got no idea.”
“The fuck does that mean?”
“Eurex and Euroclear temporarily suspended our trades. Said that they’re experiencing difficulties with the order flow. They’re using MiFID regulations to halt trades that don’t meet the execution requirements. We have no idea where we stand.”
“Have you called around? Is everybody fucked?”
Jason broke in, “No, Gavin. I talked to a bunch of different guys in New York, London, Brussels; they’re all trading fine. I’ve been calling our brokers off the hook. I’m not getting through to anyone.”
Rohan sat dumbfounded. Reg NMS and MiFID were supposed to make markets in the US and Europe safer and more transparent. Using those regulations to target a specific fund, and shut them out of activity on one of the most volatile days on the market? It was bold to the point of being reckless. Legion had driven them to the brink. The meltdown happened so fast that they could only stare at each other in amazement. The firm was punished heavily for their leveraged bets, unable to get out of their positions in time. They ate losses that deserved to be spread evenly across the market. There would be a raft of accounting to do but it was clear to them all that the end result would be insolvency.
Requests from attorneys and financial accountants started pouring in, arguing dire circumstances overrode the moratorium on withdrawal. They thought about building a case to fight the drawdown, but the legal costs would mount and they had no operating capital left, thanks to Gavin’s obstinacy. Rohan was dismayed by the anticlimactic end that had befallen Legion, yet simultaneously he was relieved. Being a fighter had never suited him, and the pressure to overcome Goliath physically rather than simply philosophizing the outcome left him drained. All he could think about was going home with Isabella and getting into bed with her, ignoring the outside world for a few weeks, then fading away from the public eye. It was with no small amount of shame that he admitted this wish to himself: the desire to fade to black like the alternate ending of Apocalypse Now.