YouSaid · the spoken record

Scott Skyrm

lines on the record: 86
first: 2022-11-29
most recent: 2022-11-29
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Okay, and so I'm going to give you a little background. It should not be too technical. So in the history of the fix income markets and the treasury market, we used to do these things called repo to maturity. And basically it was always done with very short-term U.S. treasuries like a treasury bill. So let's say that you had a customer that had a six-month bill and that they wanted to sell it to you. And so you could buy it, but then, you know, what if the six month repo market, so in other words, you can loan that security for six months to somebody, was at a lower rate than the actual yield of the bill. So in other words, you can buy the Treasury Bill at one yield. Let's call it 3.5%. And then as it turns out, the six-month term repo market is trading.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Okay, okay, so that is every single Treasury of Security is different, and a seven and a half year note is different than an eight-year, which is different than a nine-year, but it's all part of this, every single Treasury has a Treasury-NISC quality to it. Whereas in crypto, FTT is really nothing like Bitcoin. So it's way worse.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Tether is the largest stablecoin, which now still trades at a dollar and mostly has stated in that range, although they do not have an audit, they have an attestation about what assets they actually hold. And interestingly enough, Tether does a lot of business with Alameda, or at least it used to. But Sam said, you can bet on whether Tether not is going to be a thing. So let's say instead of Terra collapsing, it was Tether that collapsed and you had wisely taken out a short position on Tether so you would have made money, but you would have made money on the FTX exchange. So you actually would have not been able to draw.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Six months later. Terra collapsed. And Luna was the utility token that increased in value the more that when excess money was flowing into Terra and it would have gone above a dollar that money was going to burn, i.e. buy back Luna. So that's why Luna exploded higher. Luna is now worth zero. Terra, I think also worth zero, but they changed. It was so bad they had to change the name of the token. So yeah, you were exactly right about that, Scott. I think it is quite hard to short those. I actually was listening to Sam Bankman Freed, an interview from 2021, and he said, look, I think Tether's fine.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“transparent and there's look on the internet there's a lot of questions of where that money actually is when you you know when you give them cash in a stable coin and we talked about it but we couldn't figure out you know we we look you know fixed income people we like to look at things as spreads your lawn something you short something your long cash your short future”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“I see that in my market too. We've got customers that come in and they're short 700 million or something and 200 million trades in the broker markets every day. And they want like a market price. And we're like, sorry, we'll work with you. We'll do our best to get you done. But we just can't offer right at the market and only a fraction of what your short trades every day. I'll throw something into back a little over a year ago. I had an idea that I pitched to some of our clients and I wanted to go short the stablecoins because I felt that the fact that they weren't very transparent, I think maybe they're more transparent now, but I saw that they weren't.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“We're a hundred times larger than the daily traded volume of the entire token. Yeah. In some cases, 300 times larger. So it was a very thinly traded token, kind of somewhat of a manipulated market, if you can call it that. If you look at the flows, it was very circular. FTX was Lenny to Alameda, who was lending it to all go back to FTX. It was very circular.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right, and I suppose this is a conjecture, but you know, I have studied the balance sheet, if you can call it that, that Sam Bankman-Free provided on based on November 10th. And there was like no Bitcoin there. There was not a lot of Ethereum there. It was a lot of Solana and a lot of essentially tokens that he had invented or he really had invested a lot in. And maybe he's saying, oh, I'm exposed to crypto. You know what I'll do? I'll short Bitcoin. I'll hedge my long FTT position by shorting Bitcoin. But the problem is Bitcoin is a decentralized network. Millions of people around the world think it's the hardest money ever, whereas FTT was a token that he's kind of conjured from thin air. And his empire owned the majority position of it. And incredibly thin volumes, incredibly thin volumes. This is another thing that I actually think it's far worse than MF Global in this term of they were valuing on their balance sheet assets that”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, ask him, ask him. That's right. I think they're along the IOs and along the POs and short the bonds against those. So, you know, a bond is interest, a bond is principal. And so they're along the two components. And then they're short the actual bond. And you'd think that, hey, how can that lose money? You're long and short the same components. When the market breaks down and there's no buyers, then the spreads widen and there's nothing you can do because your prime broker says, you know, even though you put them together, they're the same security. Well, right now, the bid side is this and the offered side is this, and you owe us a million dollars in margin, pay up.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You know, maybe in crypto, you're long Ether and you're short Solana or something like that or something like that. So you kind of say that, okay, I'm long one crypto, I'm short another, you know, that there should be some correlation. Now, of course, there's a correlation until there's not. And that's what people remember. I still remember back in the 1990s, there was this hedge fund What was it? I can't remember offhand, but they had a great trading strategy. It was in the mortgage-backed securities market, and they were long IOs. So they were long interest-only portion of the mortgage-backed securities. They were short POs, principal only, or actually weak.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“They're short the two year treasury futures, and the futures account charges three eighths of 1% for the margin. Now, if you look at both of those trades separately, you've got long 100 million, short 100 million. If you look into them both separately, the margin is three-eighths of a percent on either side. But if you combine them together, there's very little risk. It's a spread risk between the two markets and maybe the real margin amount should be about a one sixteenth of 1%. You look at sometimes it could in equities world is kind of called portfolio margining in fixed income world. And you look at multiple products and you margin them based on like. Their portfolio or all their positions together”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So traditionally in outside of the crypto space, and it probably means the same thing in the crypto space, but I know the broker dealer space and the fixed income space. So cross margining, let's say you've got a customer in fixed income, and this is really to MF Global also too, who's long 100 million treasury to your notes. And if you're going to margin them on those Treasury two-year notes, you might like the true risk might be a quarter of 1% would be an appropriate margin amount, maybe three eighths of 1%. But now let's say they also have in their futures account. They're short, the two-year futures contract, and let alone that they're not the exact same implied treasury between the two, but let's just say that they're along the two-year treasury note.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I think the team there was very lacking, a total lack of gray hair. And I also think their head of regulation or compliance officer, he used to work at a online poker company that scammed people. So definitely some personnel issues at the firm. One thing I was last night, I was listening to some Sam Bakeman Freed interviews from 2021. And folks listening to this have to remember that up until...”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You know, when somebody's like looking after the business. So I didn't really have as many gray hairs back then. That was 20 years ago. So it's so true. I mean, that probably would have been a much different thing if they hired an experienced CEO or CFO and compliance officer and had somebody long years of markets experience. It certainly wouldn't have hurt.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“And I will tell you, as I said, I'm not an expert on NFTX, but when I've watched the news shows a couple YouTube videos I thought were pretty helpful, I look at them like, this is a bunch of kids. You know, it was a bunch of kids managing all this money. And of course, it was promoted that way because the idea is that, you know, these tech kids know how to build these businesses and stuff. But there's a core old business of customers executing trades and protecting their money and everything. And I remember one job where I worked as part of ING Bank back 20 years ago, my boss there. We were getting into a new business. And I said, well, I'm starting this business. Why don't we put me as the business head? And my boss said, no, they like, Finra likes to see a lot of.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yes, one thing that really stood out for FTX is their complete lack of controls, their complete lack of records. You have an $8 billion quote fiat liability that, oh, I mislabeled it just on a single cell on an expressheet. To be fair, it's way, way, way worse at FTX. I mean, the bankruptcy new CEO who literally took NRAN out of bankruptcy said this is the worst thing I've ever seen. They don't even know how many employees FTX has, but there are parallels to MF Global. I'm reading from your book, page 188, that there was a time that they thought a 540 million dollar It actually was an $150 million asset. So it sounds like those sort of poor record keeping inability to track the money was at MF Global 2.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly. Because in the risk model, you don't have everything happening at once. But then there is correlation because once a run starts, it cascades and it goes into, it spreads. And that's one thing with the financial markets. Every few years, you have this kind of correlation risk. And it spreads and it builds. I mean, you have March of 2020 with the COVID crisis in March of 2021. People couldn't sell their U.S. treasuries. That's crazy. But yeah, yeah. So that's what happens. Well, there's a run on quote on the bank and a lack of liquidity because... The markets declined so much that prompts customers to close our accounts and pull their cash out of the exchange.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“A lot of fingers were pointed at different people as to who was in charge of the customer funds and who moved the person who actually made the movement. She said her boss said it was okay. And her boss said as per JC, implying John Corzine. So in the end, nobody went to prison for that.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You had a lot of liquidity being used up at MF Global for a lot of margin for different things. And then you had customers coming in and started taking their margin out. And they had margin calls. And then what they found was at the end of the day, they didn't have enough money to put all that funds back into the customer seg fund account. They assumed they would because that's how they always operated. But there was so much margin that went out from customers closing accounts and things like that that there wasn't enough money at the end of the day. So that's what happened to the customer funds. And then, of course, it happened the next day. There was less money. And then there was less money after that and less money after that. So it was kind of a downward spiral from there. You know, that was always a crime. It was always a crime to use customer money. Kind of interesting too, there were really no consequences in MF Global.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“On their, you know, if you looked on their financial reports, it just always showed the customer funds in the account, but they were being used during the day. So now fast forward to October of 2011, when MF Global was going down. And they had already had a significant amount of margin calls. I forget the exact amount. So maybe they had $2 billion in capital. I'll just throw that number up. They're probably using a billion in capital to support their repo to mature.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Account with the customer funds and the actual funds of the company, it would be cash management. There would be money wires coming in, money wires going out, margin calls coming in, margin calls coming out. And then by the end of the day, their policies and procedures stated that they had to have the customer funds back in the customer seg fund account by the end of the day the full amount. And what's really interesting too is that, you know, when you look at how reports are done in the financial industry is that they run an end-to-day report. So if the money came out at the beginning of the day, as long as it's on the report at the end of the day that shows money in that account, it doesn't look like it's been in and out of the broker dealers proprietary account during the day. So if you look.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right now, they're making a lot of money because their interest rates are much higher. So at MF Global before 2011, for a long time, they had a policy that their customer Segfund cash might have been, their securities might have been deposited in that segregated account at the end of the day for the previous day, then the cash came out of the account into the broker dealer's own account the next morning. So it was kind of like an omnibus account between the customer cash and the broker dealer. So during that period of time when MF Global was manned financial before they were MF Global, they were a small futures broker and they were in fixed income. And they were not large. So when they had this omnibus,”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“makes interest on that money, now big customers will have a split arrangement with their futures FCM. But a lot of the time the futures FCMs don't pay any interest on the futures margin. And that's a big source. Look at some of the big futures FCMs that have, let's say you've got a billion dollars in customer seg funds. If you're making overnight interest rates three and three quarters, you're making three and three quarters on a billion dollars. That's a lot of money these days. It was zero back in 2011 with MF Global. But now it's a significant amount of money. And as a side note, too, if you want to shop around and you want to buy a futures FCM right now, there's none for sale. They're too expensive now. They were really cheap two years ago. But if you want to buy futures FCM.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So futures FCMs. So look at it this way. So if you're a hedge fund and you're trading futures, you've got to, the exchange requires some margin to be deposited at the exchange. And the futures broker collects margin from their customer, like let's say the hedge fund. The hedge fund gives the futures broker, let's say MF Global, a million dollars in margin, and the futures broker can take that cash and they can invest it in like a treasury bill and then deposit the treasury bill at the CME exchange to cover the margin. So basically kind of there's a way you take the customer cash, you make it into a security where you were in interest and you can also invest in repo also. But then you deposit it at the exchange and then the future is FC.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“That wrote some very expensive repo handbooks are called. And they're okay if you don't want to look at the math of the repo market. But my book that I just am about to finish goes through basically it's one part, let's say textbook about the repo market, but don't let that scare anybody away because it's also one part stories and history. So it's kind of why we have triparty. Why there's negative interest rates where negative interest rates start and why securities disappear from the market and are squeezing anyway. So that's my plug for the new book. Hopefully we'll be out in a couple months. But I do have a chance.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“interest rates went down to zero, so there is really no money to make investing. So you have a company that's kind of like operating probably flat for a few years. And then they hired John Corzine and he was going to expand it and make it into a mini Goldman Sachs. Getting back to your point in terms of the mechanics of the repo to maturity. And I certainly went into it in my book about MF Global, the Money News, which you held up before. I'm actually in the process of just finishing another book called The Repo Market Short Shortages and Squeezes. And I will, and it's about the repo market. Right now, there are no really good books on the repo market out there. There's the Marshall Stinghams book, which was written in the 1980s. There's a professor in London.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and a good point you had too, you know, which kind of adds, as I mentioned, there were a lot of moving parts to the MF Global story. But, you know, one of the parts you mentioned too was after the financial crisis where the Federal Reserve dropped overnight rates down to zero, if you're a futures FCM, let's say a futures broker, like that was MF Global's traditional business rule of thumb is that I've worked at a futures broker before. So rule of thumb is that the commissions you make off of your customers pays your operating costs. And then the money you get investing your customer funds is your profit. Just general rule of thumb at a futures FCM. So what happened was within Flobal was after the financial crisis.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Trades in European bonds. So when they first, when MF Global first went into these repo to maturity trades, I know that's a key thing that I'd love for you to explain, what money were they using? Were they using their own money and not client funds?”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So it's that use of customer funds from what's called a SEG account, that is the ultimate no-no in finance, in broker dealers. So MF Global, it was a brokerage for sort of macro products. So, oh, you want to go long or short oil, you want to go long or short soybeans. That's in the physical world for commodities. Then you can also do interest rates, which are non-physical. And so customers were making those bets on the platform. And MF Global, I learned from your book, they made money because the cash was there and they could earn income from extremely risk-free, extremely low risk security such as treasury bills, so like a three-month treasury bill or even an 18-day money market fund or something like that.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“if they ended up having margin calls they needed to come up with cash, you know, which might be coins. They needed to come up with some coins and they were borrowing coins from potentially their customers to make margin calls to keep their business afloat. So I would say that's probably going to be what the fine parallel is between the two.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“But at the end of the day, when they're losing liquidity, they weren't getting any margin back from anybody. All the margin was going out. So when they had borrowed from their customer funds to fulfill a margin call, there was no money at the end of the day to put the money back into the customer accounts. And, you know, that was where the real kind of fraud came in. I don't know if it's really called fraud, but that is being in a bad trade and losing money is generally not against the law, but using customer funds to finance your bad trade is against the law, taking the customer funds. And in a nutshell, that's really kind of the MF Global story. And if you look at FTX from what I know so far, I won't be surprised.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“As the trades went on, they had a really big trade that they couldn't get out of. It was, I think, $11 billion was the size of it at one point. And MF Global itself was losing money. And basically the trades themselves were good, but they kept getting larger margin calls from because of the European debt crisis. And what happened was in short, they lost their liquidity. They didn't have enough money to make margin calls. There was a mess in their operations group and their operations group, their settlement people, started using some of their customer money to make margin calls. And the idea was they figured they were making margin calls to counterparties and exchanges. And they would get margin in from customers to cover that margin.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“A friend of mine in London suggested a trade to him. He said basically, why don't we buy European sovereign bonds on a short-term basis one year at a time? We will fund them in LCH ClearNet, which is just like FICC, and it's kind of an arbitrage trade. They own a bond, they sold it to maturity. And the interesting part was that these bonds of those countries at the time that quote, they were called pigs, which was Portugal, Italy, Ireland, Greece, and Spain, their yields were abnormally wide compared to the financing costs. So MF Global got themselves into this trade, which was a part of it was a repo trade. And they were making millions of dollars a month on the trade. However, the European debt crisis hit, they had margin calls, they started losing liquidity.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“which had to do with sovereign government bonds. So it was the government bonds of Spain, Portugal, Italy, Belgium, Ireland. And John Corzine, who was the new chairman and CEO of the company, had come into the company to really ramp it up and make it into a mini-Goldman Sachs. And he hired a lot of people. He gave signing bonuses to a lot of traders. And of course, a trader coming in from MF Global coming into MF Global from Goldman Sachs or a big shop, they don't have the resources and the facilities and the customers to make that $10 million a year in their trading account. It's a lot harder. So what they found was after a period of time, all these new traders and all these new businesses were not making a lot of money. And John Corzine needed a way to make a lot of money.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“reading about the FTX situation in crypto, it was very, very interesting. An exchange, which is somewhat like a broker dealer to some extent, I mean, I think FTX probably had some type of market making business within it or within an affiliate. So they're making markets. They're taking risk. Where is MF global risk? They were long and hedged. I think FTX probably was just long crypto as much as they possibly could. And they probably didn't have any hedge. But anyway, getting back to it. So with the situation with MX Global, and there's a lot of moving parts with MF Global. But the main kind of takeaway is that MF Global got themselves into a repo trade, which was...”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“I'd like to first start off and say that in no way would I consider myself an expert on crypto or FTX in particular. However, as you said, if there's one thing in the world I can call myself an expert in, it is the repo market. And MF Global was very much related to the repo market and their collapse and MF Global is still a very interesting story. As you can see, it's almost kind of interesting the fact that these things come and go in cycles. You have a company collapses and customer funds are missing. And then, of course, there's going to be new regulation. It's never going to happen again. But then, of course, it does happen in the Bahamas multiple times, exponentially larger than NF Global. And so I...”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT