Hull Trading Company was an independent

algorithmic trading Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of ...

firm and electronic

market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that it ...

. Known for its quantitative and technology-based trading strategy, it was acquired by

Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...

in 1999.

History

In the late 1970s,

Blair Hull Blair Hull (born September 3, 1942) is an American businessman, investor, Democratic politician, and philanthropist. Hull founded Hull Trading Company in 1985 and served as the firm's Chairman and chief executive officer before selling it to Gol ...

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 in 1985. The firm grew to over 180 employees including financial engineers, physicists, almost 100 software engineers and computer support staff. At its peak, Hull executed over 7% of the index options traded in the United States and 1% of the shares traded on the

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed c ...

. In 1999, Blair Hull sold the Hull Trading Company to ''

'' for $531 million.

Henry M. Paulson Henry Merritt Paulson Jr. (born March 28, 1946) is an American banker and financier who served as the 74th United States Secretary of the Treasury from 2006 to 2009. Prior to his role in the Department of the Treasury, Paulson was the Chairman a ...

, then chairman and chief executive officer of Goldman Sachs, said Hull Trading Group is "the world's largest electronic options market maker, very active outside the U.S. We just looked at this as something that's going to position us well. We want to stay ahead of the electronic curve and take advantage of the migration to electronic platforms world-wide."

Investment strategy

Hull Trading was primarily an

equity options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date ...

. 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.

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 Meritocracy (''merit'', from Latin , and ''-cracy'', from Ancient Greek 'strength, power') is the notion of a political system in which economic goods and/or political power are vested in individual people based on talent, effort, and achieve ...

. 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

* R. Scott Morris * Brian Donnelly, co-founder of Volant Trading (together with Philip Cardi)

References

* * * {{cite news , last = Fishman , first = Ted , title = Wall Street's 25 Smartest Players , publisher = orth Magazine , date = 2009 , url = http://www.turtletrader.com/trader-hull.html , accessdate = Companies established in 1985 Privately held companies based in Illinois