precision. Soliman was considered a “talent sifter,” meaning that he hired young and bright employees, put them in profoundly challenging positions, and fired the traders who couldn’t handle the challenge. This talent sifting was a vital part of Koch’s strategy to build a trading floor from scratch during the late 1990s and early 2000s. Engineers like O’Neill were given a crash course in trading and graded every day by their profits or losses.
When describing the trading culture under Sam Soliman, trader Cris Franklin replied, simply: “No mistakes.” And Franklin was one of the traders on Soliman’s good side. “At any moment, you could get tapped on your shoulder and you’re leaving. It was extreme stress for most people,” Franklin said. “There are people I know today who say that when they drive by the building, their heart races. And they haven’t worked there in a decade.”
On any given afternoon, the dozens of traders sitting in long rows outside of Soliman’s office were trafficking in wildly diverse classes of commodities and financial products. Koch operated desks that traded crude, natural gas, and derivatives contracts based on crude oil and natural gas. Other traders handled futures contracts in metals, soybeans, corn, and wheat. After mastering the markets in these products, Koch branched out into more obscure territory. Cris Franklin, for example, worked on a desk that traded short-term commercial bonds—the same products made famous in the 1980s by notoriously voracious traders at Wall Street firms like Salomon Brothers. Franklin’s team then started trading financial products like swaps and derivatives based on interest rates and currency values. Koch even created its own financial products to trade. It pioneered a class of futures contracts for obscure petrochemicals like propylene and ethylene, selling them to big companies that bought plastics in bulk and wanted to hedge their risk.
Deep analysis was at the heart of Koch’s trading strategy. Franklin, for example, was hired into the trading unit after working in Koch’s pipeline division. He had impressed his bosses there by developing a software program that could help Koch run its hypercomplex network of pipelines and natural gas processing plants. Franklin’s program synthesized enormous amounts of data about pipeline flows and gauge pressures to simulate how the system could ship the most gas. When he started trading interest rate swaps, he used the same approach. Every trade began with research, which undergirded the trader’s view of how things worked in a certain market. Traders never executed a strategy based on hunches. Koch hired teams of analysts who worked alongside each trader to provide reams of data and analysis. The importance of this analysis was reflected in Koch’s pay structure—the company changed its payment structure so that profits were split between the trader and her supporting team of analysts. This put the analysts on equal footing with the traders. Melissa Beckett, who worked on several of Koch’s trading desks as both an analyst and trader, said Koch was unique in this regard. Other trading shops might consider analyst reports to be an afterthought; at Koch, those reports were the bedrock where a trade began.
Traders on Koch’s floor considered the rest of the world to be a herd, and not a particularly smart herd at that. There was an overwhelming amount of activity in the markets, but seemingly very little insight. When Koch cautiously branched into a new market, the traders were often surprised at how easy it was to make money there with just a little bit of forethought. “We couldn’t believe how the incumbent counterparties couldn’t see the enormous profits that existed in those markets. Even though these were very established markets . . . dominated by the large banks, or large incumbent parties, like insurance companies, et cetera. But they just looked at it fundamentally very different,” one trader said.
It turned out that most of the counterparties in the market were obsessed with the near-term horizon. On Wall Street, entire teams of traders were focused entirely on what was about to happen in the next three months. The investment culture had become trained to trade around the next set of corporate quarterly earnings; public reports that could cause major bounces for stocks or commodity prices. This near horizon was bombarded by millions of hours of attention and human brainpower, with investors jockeying to position themselves to benefit from a quick shift in the market. This left entire continents of the marketplace unexplored; terrain that Koch was quick to enter and dominate.
For example, traders at Koch would