“How long have you been in this business?” I parry, “It’s always that time of year, especially when you get to this level.”

So I am here to explain to these guys that the sales traders are worthless and it is the traders that make all the money. Nick is here to explain that the traders are worthless and it is the salespeople who make all the money. A bank like Kensington provides liquidity to its clients. We take the other side of their trades. We provide access to the markets. The traders assume the risk in the trades and try to make money, and the salespeople interact with the customer, like, say a hedge fund, and collect commissions on the trade. We traders and salespeople spend the better part of the year, after bonuses are handed out in January, trying to prove that our counterparts are worthless. Dave is the head of equities. He’s neither a salesperson nor a trader by training, he’s a corporate guy, simply a manager, which is rare in this business. Usually only traders or salespeople are promoted to positions of authority. It’s the Peter Principle.

The great thing about working in a big investment bank is that you get all the new toys. You get the best desks, the best computers, the best chairs: the Aeron chair, which costs several thousand dollars. If it were up to me, we’d be sitting in chairs that cost twenty dollars, but that’s beside the point. We recently got this fancy computer projector installed in the conference room with a keyboard so I can actually go to my computer across the network and bring up a spreadsheet or Word document. That is what I am going to do. I am going to bring up a spreadsheet showing that Nick’s sales guys are all worthless.

I take a sip of Diet Coke.

I go into my G: drive and open up theoreticaledge.xls. Now it is visible to the three of us. I begin.

“So the whole point of this exercise is to figure out what revenue is attributable to sales and what revenue is attributable to trading so we can have a more equitable distribution at the end of the year. Last year the division made $250 million, inclusive of commissions, which were about $30 million. So what I’ve done here is I’ve written a program that went through every trade entered in EOBS over the last year, gone back into time and sales and pulled up the bid-offer spread, and we’ve computed the theoretical edge for every single trade. So what we’re saying is that on any given options trade, the sales trader should be entitled to both the commission on that trade and the theoretical edge, on the idea that a trader would have had to cross bid-offer to put the trade on himself. So as I mentioned before, commissions added up to $30 million a year, and the theoretical edge added up to $10 million last year, so out of the $250 million that the division made, only $40 million was attributable to sales and the balance was attributable to trading, all $210 million of it.”