Why I Left Goldman Sachs: A Wall Street Story (33 page)

Option:
A type of derivative that gives the purchaser the right to buy or sell an underlying security at a stipulated price in the future. Also see:
CALL OPTION, PUT OPTION.

OTC (over the counter):
An off-exchange derivatives trade negotiated directly between buyer and seller that is not transparent to the outside world. The bank will typically make part of the bid-offer spread as a fee for the trade. Also see:
EXOTIC, STRUCTURED PRODUCT
.

Partner:
The most senior rank at the firm; this person typically makes in the millions of dollars per year.

PATC (per annum total compensation):
An employee’s total pay for the year, including salary and bonus.

Pension fund:
A fund designed to provide retirement income. Both private and public pension funds exist. They are the largest category of investor in the world, representing trillions of dollars in assets.

Pit:
The place on the exchange where all the traders stand and yell back and forth at one another, using hand signals to indicate buy versus sell, and quantity. Also see:
OPEN OUTCRY
.

Plain-vanilla:
Your favorite flavor of ice cream. Also: describes straightforward derivatives investments, such as put or call options or futures; usually very transparent and listed on an exchange. The opposite of:
EXOTIC, STRUCTURED PRODUCT
. Also see:
CALL OPTION, PUT OPTION, FUTURES CONTRACT
.

Portfolio manager:
The person within an asset management firm who has the final say, or “ultimate trigger pulling ability,” on which securities to invest in. A PM employs researchers to help inform his or her decisions.

Pre-IPO partner:
A Goldman Sachs partner from before the firm went public in 1999. Could be worth in the tens or hundreds of millions of dollars. One certainty: almost always has a tan—even in the winter.

Principal:
The person or entity who takes the other side of a client’s trade—i.e., commits the firm’s own capital to facilitate the trade. Also see:
AGENT
.

Proprietary trading:
Engaging, as an investment bank, in trading securities for one’s own account with one’s own money to make a profit much like a hedge fund. This is opposed to facilitating trading for one’s customers. The Volcker Rule in the Dodd-Frank Act seeks to outlaw proprietary trading because of the role it played in the lead-up to the financial crisis in 2008 and because of the inherent conflict of interest with client trading.

Put option:
A type of derivative that gives the purchaser the right to sell an underlying security at a stipulated price in the future.

Quant:
Within the sales and trading business, the person who does a lot of the mathematical heavy lifting: pricing derivatives, analyzing risk for the traders, building complex structured products for the sales force to pitch to clients. Many quants have PhDs in areas such as physics, mathematics, and electrical engineering, and leave their field of study for the allure and higher salaries of Wall Street. Some quants go out on their own, build their own models, and start hedge funds.

Real money:
Institutions such as mutual funds and pension funds, which have longer-term investment horizons than hedge funds and use little or no leverage (i.e., only real money).

Research analyst:
The person who works within the research division of an investment bank and whose primary role is to research a number of stocks in a particular sector using fundamental analysis, then write research reports designed to tell clients whether the recommendation is buy, sell, or hold.

Rip someone’s face off:
To rip off someone (a client) without his knowing it. Corollary: The art of the client ripping you off without your knowing it.

Run over:
Screwed on the outcome of a trade. Similar to rip someone’s face off or blown up, but far less egregious. Typically when you get “run over,” you live to fight another day. Traders at investment banks complain that a client has “run them over” when that client splits its order up among multiple banks: a term called “spraying the Street.”

Sales and trading business:
Within an investment bank, the business that focuses on buying and selling equity, bond, currency, commodity, and derivatives securities on behalf of clients such as hedge funds, mutual funds, pension funds, insurance companies, and sovereign wealth funds. The bank will serve as both an agent and a principal, ready to commit its own capital to facilitate client trades when necessary. The three roles in the sales and trading business are sales trader, trader, and quant. Also see:
MAKE A MARKET
.

Salesperson:
Often used synonymously with sales trader.

Sales trader:
Within the sales and trading business, the job of the sales trader (often used interchangeably with salesperson) is to speak to the client about the market, give it ideas, and try to win its business. The sales trader then works with the trader to execute the client’s order.

Series 7:
The six-hour mind-numbing exam that every new college graduate has to pass before he or she can legally talk to clients and execute trades.

Shit show:
Wall Street slang for a complete fucking nightmare; chaos. Usage: “The market’s tanking, every client phone line is ringing, there are trade tickets all over the place. This is a shit show.”

Short squeeze:
What occurs when a lot of people are short a security and suddenly everyone starts buying. A short squeeze can cause a lot of pain and trading losses.

Smart money:
Slang for hedge funds or other savvy investors.

Sovereign wealth fund:
A government-owned investment fund that invests in stocks, bonds, commodities, real estate, private equity, and hedge funds.

Stick:
Wall Street slang for $1 million. Usage: “To everyone’s surprise, Billy got paid three sticks last year.”

Strat:
See:
QUANT
.

Structured product:
A prepackaged investment strategy offered by a bank to its clients—usually embedded with derivatives such as options, futures, and swaps—designed to achieve a specific investment thesis that cannot be easily replicated with plain-vanilla products. When your bank calls you with a structured product, the following thought should enter your head: “Run for the exits. Now.”

Swap:
A type of OTC derivative in which counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument; a swap can be made on any asset class. Also see:
CDS (CREDIT-DEFAULT SWAP)
.

Take a view:
To express an opinion on the markets by executing a trade that will profit if you are right.

Talking your book:
Wall Street slang for spinning everything you say publicly to help your own trading positions. If you were long gold futures, and you went on TV and said gold was due for a big rally, you would be “talking your book.”

Tick:
A small arachnid that sucks your blood while you sleep at night. Also: on Wall Street, a tick is the smallest possible increment by which a security can change.

Trader:
Within the sales and trading business, the person who makes markets and executes trades to facilitate the client’s business. The trader works closely with the sales trader, who speaks directly to the client.

Vice president/executive director:
A position typically achieved after seven or eight years at the firm or in the industry; it is a midlevel title.

Working your order:
In motion, executing a client’s trade. Often used as slang on trading floors to signify that you are looking out for someone, as in “Don’t worry, dude. I’m working your order. You will be happy with your bonus.”

Yard:
Wall Street slang for $1 billion. Usage: “Right after the blackout, the portfolio manager was so panicked that he sold 2 yards (i.e., $2 billion worth) of equity market exposure.”

You’re done/you’re filled:
Your trade has been executed; your price will follow shortly.

*
 In a continuing war against the Volcker Rule, which seeks to end proprietary trading, the investment banks defend principal trading, saying they need to hedge themselves after they’ve facilitated a client trade as a market maker. In fact, what often happens is banks use the cover of this “hedging” to then express their views via proprietary trades.

**
 A credit-default swap is a type of derivative that acts like an insurance policy against the default of a company or sovereign nation.

Names and identifying details of some of the people portrayed in this book have been changed.

Copyright © 2012 by Greg Smith
All rights reserved. In accordance with the US Copyright Act of 1976, the scanning, uploading, and electronic sharing of any part of this book without the permission of the publisher is unlawful piracy and theft of the author’s intellectual property. If you would like to use material from the book (other than for review purposes), prior written permission must be obtained by contacting the publisher at [email protected]. Thank you for your support of the author’s rights.

Portions of
Why I Left Goldman Sachs
first appeared as an op-ed in the
New York
Times
on March 14, 2012.

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First e-book edition: October 2012

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ISBN 978-1-4555-2748-9