Why Geneva Trading bought Toji Trading is a strange story. Both firms are modest compared to the titan of the industry, but the takeover still has interesting details. The takeover was announced three months ago.
Geneva Trading not in Geneva
Geneva Trading is a Chicago based trading firm. It has an office for European operations in Dublin. The firm surfaced once on this website. It had a job opening for a nightshift trader. It’s a medium-sized firm, with a headcount around 125. Geneva Trading won’t ring a bell with most people.
Toji Trading former Bank of America traders
Even less of a household name is Toji Trading. The firm was founded in 2003 by former Bank of America traders in Asia. It has offices in Hong Kong, Singapore and Tokyo. While it also has a small presence in Chicago (and received a CME fine), the firm is mainly active in Asia.
The interesting part of this takeover is in the details. Problems started with the HanMag incident. Sounds like a sea clash in the Vietnam war. HanMag was a South Korean future trading company, founded in 1991.
HanMag released a new trading system on December 12th of 2013. In de KOSPI options market the bank confused calls with puts. Hanmag traded 36.000 contracts against 46 counterparties. Lost $39 million in 143 seconds. That’s losing more than a quarter million per second. I never traded any KOSPI options, but this sounds like mistrades with European standards.
Optiver returned their profit of 600k. Even the founder Johann Kaemingk himself was involved in this decision. Not going for a quick buck, but involvement for the long run. The hammer wasn’t a distant memory. Smaller traders, such as Sebes Befut, didn’t return any money.
Here’s a post from the time, to refresh your memory : a Knight in the Kospi.
Toji Trading made millions
When witnessing an explosion of trades, the first thought can be “is somebody else wrong, or are we?“. Depending on the level of faith in your developers, traders keep in mind their own firm could be messing up. In the fog of trading. Hence, it was understandable for the Toji Trading risk manager to call for a trading shut down. A bit of panic, maybe.
The senior trader in the KOSPI options book followed the orders. He turned off his trading system. Watching the trades in the market, he must have thought “screw it, this is free money“. And he silently went back in the market. Picked up some $15 million for the company.
All your bonus are belong to us
The trader ignored the orders from the risk manager, and made $15 million. He was told he shouldn’t expect any bonus from this. The money flowed to the partners of the firm. The partners received a nice dividend. And paid taxes.
Toji sold to Geneva to pay bonus
The trader must have had a specific bonus contract. He sued the company, in the United States. Amazingly, he won the case against Toji Trading. He could successfully claim a bonus of around $10 million. The money already left the company, and the partners already paid taxes.
Toji Trading was sold on June 15th 2016 to Geneva Trading (press release). At least a part of the takeover sum will flow to the former KOSPI trader. Selling the firm was the only way to collect enough money to pay a bonus to a former employee.