Hull Trading Company

Hull Trading Company
Limited Partnership
Industry Financial Services
Fate Acquired by Goldman Sachs in 1999
Founded 1985
Headquarters Chicago, IL

Hull Trading Company was founded by American businessman and investor, Blair Hull in 1985. Hull Trading was an independent algorithmic trading firm and electronic market maker. Known for its quantitative and technology-based trading strategy.

In the late 1970s, Blair Hull developed an empirical options pricing model independent of Black–Scholes. Realizing that computers would lead to automated exchanges and mathematical securities pricing, he founded Hull Trading Company. The company became a global leader in the application of computer technology to listed derivatives trading. Hull developed a proprietary and large scale reliable distributed system architecture, providing automatic real-time pricing, risk management, market making and interconnection with automated options, futures and stock exchanges as they became available. Hull Trading Company's massively scalable software technology was deployed to cover both domestic and international markets as electronic, on-line exchanges became available, while innovative hand-held computer technology was employed at exchanges still requiring execution by floor traders.

"The trading room at Hull headquarters looks like NASA mission control. Powerful workstations process streams of financial data, flashing advice to the handhelds carried by Hull traders at the CBOE and the Chicago Board of Trade (CBOT). Different workstations track the firm's risk profile, sending handheld-equipped traders at the Chicago Mercantile Exchange instructions about how to use futures contracts to hedge trades being made at the CBOE and the CBOT.
'The goal of this remarkable technological firepower is simple: not to take big risks but to find sure things. Hull's computers search the markets for temporary price imperfections, devise transactions to profit from the imperfections, and hedge those bets to protect against other risks. It's a lot like blackjack. "All you need is a mathematical advantage and the controls to ensure that you stay in the game," Hull argues. "Everything else takes care of itself." -Fast Company

The firm grew to over 250 employees including financial engineers, physicists, almost 100 software engineers and computer support staff. At its peak, Hull Trading Company moved nearly a quarter of the entire daily market volume on some markets, executed over 7% of the index options traded in the United States, 3% of the equity options, and 1% of all shares traded daily on the New York Stock Exchange.

"His computers trade stocks faster than the human eye can see them scroll on a screen. The system is designed to predict patterns that will unfold in the market over periods as short as two minutes. In a business that isn't normally modest about its technological savvy, Hull and his automated trading shop are the envy of Wall Street's top firms." - Worth Magazine

In 1999, Blair Hull sold the Hull Trading Company to Goldman Sachs for $531 million.

Investment strategy

Hull Trading was primarily an equity options market maker. The firm employed complex mathematical models to analyze short-term options and equity pricing discrepancies while hedging against overall risk exposure. It employed mathematicians and physicists to design algorithms and a large number of software engineers to implement systems based on these algorithms.

Technology

The company was a leader in the application of computer technology to listed derivatives trading. A proprietary and large scale reliable distributed system architecture was developed by company programmers, providing automatic real-time pricing, risk management, market making and interconnection with automated options, futures and stock exchanges as they became available. Hull's massively scalable software technology was deployed to cover both domestic and international markets as electronic, on-line exchanges became available, while innovative hand-held computer technology was employed at exchanges still requiring execution by floor traders.

The company's proprietary technology allowed it to execute tens of thousands of transactions daily.[1]

Pay structure

The company was also known for its emphasis on teamwork and democratic pay structure, in which employees awarded each other bonuses. Since pay was based on nominations received, the system has been described as highly meritocratic.[1]

Equity partnership interest was widely distributed among employees. At the time of the merger into Goldman Sachs there were over 20 employee partners holding about 25% of equity interest, with the remaining interest held by members of the Hull family.

Hull Trading Alumni

References

Footnotes

  1. 1 2 "Risky Business, Sound Thinking".
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