Pull the Plug!
Posted by Colin Lambert. Last updated: May 12, 2023
By City Rover
Say what you like about them, but there is no denying that the two American ‘Investment Banks’ do things properly. By which of course, I mean, with a certain touch of class. A whiff of the patrician, of times gone by, long held traditions before the reality of managing to a quarterly results cycle. The concept of the partner, real in one institution and assumed in the other, summons the image of paternal responsibility, the elders nurturing the next generation.
And so it was that the annual promotion cycle became such an important rite of passage. We can discuss another day the dark arts of the actual promotion process in such institutions, the politics and posturing, multiple and simultaneous games of 3D chess, but there was no denying that those lucky few every year were justifiably celebrated: the biggest meeting room on the floor, senior folks standing around the central, large oval conference table, subconsciously positioning themselves by hierarchy. The room is packed, every senior trader, salesperson, quant and strat is there, cheery faces all (for promotion day was also compensation day, but that would come later). For now, vigorous clapping as managers would dart out of the room to get whichever of their reports is next on the list to be called in to receive their promotion.
“OK, next up, we have… Harper Stern!!”[1]
Harper’s manager scurries back to the desk to collect her prodigy. Some awkward yet good-natured senior guy banter fills the meeting room void, a new haircut is lambasted or a gag about the football. The door opens, Harper’s manager enters, proudly leading The Firm’s newest Executive Director into the room. As for all her peers, this was to be a seminal moment in Harper’s career, something she had aspired to ever since arriving here as a graduate 6 years earlier. She couldn’t wait to tell her Mum.
The Div. Head clears her throat, waits for the glass door to close and the room to settle.
“Harper represents all that is good about this business. Intelligent, hard-working, determined, an incredibly popular promotion candidate, supported across the floor as the personification of our values…”
The door of the meeting room is thrown open.
A shocked junior spot trader stands there, eyes wide but rigid in panic, in the headlights of an oncoming train. I’ll never forget the look on his face.
“Its gone… ITS GONE!
THE F@@KING PEG HAS GONE”
Poor Harper Stern never gets to hear the end of her eulogy. The last of the sentences are drowned by the stampede of traders trying to get back to their screens, salespeople running to their phones, quants and strats to their machines. The metaphor of all those people trying to get through that single door, in the same snapshot of time that it took EURCHF to collapse almost 30%, was not appreciated.
Now, those of us with a few years under our (expanding) beltline will recall that Swiss National Bank chairman Thomas Jordan was supposed to have been a safe pair of hands. A man to rebuild the reputation of that great institution following the resignation of his predecessor, Philipp Hildebrand. Hildebrand had found his position rather untenable after having admitted that he “could not prove” that he had been unaware of a (quite profitable) USDCHF currency trade made by his wife. Having decided he “wanted to protect the integrity of the central bank”, he resigned.[2]
As such, we could be forgiven for thinking back then that the SNB generally, and Jordan specifically as Hildebrand’s successor, should have together held rather dear the concept of integrity, predictability and transparency.
The scar tissue we all still have from that day suggests we were very wrong.
I can replay those next few hours in my mind as if it were YouTube, a frame-by-frame account of the day, but you don’t need me to do that. If you were there then you will know: perhaps you also had juniors who were long EURCHF even though they had explicitly been told to cut those positions; perhaps you were also asked by the same Div. Head, the one who spoke so eloquently about Harper, what the ‘precise’ P&L impact was, and if so, you might also have found yourself having to re-state your best guess in real-time.
“I think it’s down $100, nearer $120, to be honest maybe $150.”
But in all the madness of 15th January 2015, there will always be one thing that stands out. We know human beings are fallible, emotional – they can misrepresent positions, be too late to cut out-trades, obfuscate intraday losses in the hope they come back; all that we can understand, we are just flesh and blood. As such, I had always felt it reasonable to expect machines to outperform in such a scenario; there would be no emotion, no judgement to make, they just simply follow the lines of code in their DNA. I can understand humans failing in such an event as Mr, Jordan forced upon us[3] that day, but nobody had anticipated that the FX e-commerce platforms would… could… have had such a spectacular SNAFU.
I first noticed a group of quants & strats standing round a screen. Ashen looks on the faces of the traders was to be expected, but why these guys? Something was going on, and it did not look particularly positive.
In times of extreme stress, an electronic market maker, even one from 10 years ago, has a ‘circuit-breaker’ coded within that offers a couple of basic choices: 1) Stop showing any prices; 2) if the market is plunging, show only offers to reduce any inventory. I appreciate that when viewed through the lens of the banking technology arms race of the last few years these choices seem a bit simplistic, but even with a modern perspective these are nevertheless sensible solutions to what would become a 20-sigma move.
What was not sensible, however, was a machine deciding, entirely on its own I might add, to pull all offers, and instead show only bids. Good bids at that, in many cases 5 or 10% above the actual market. So there we were, watching impotently as the toy went merrily on its way, accumulating inventory in a collapsing market, a crowd of quants, strats, traders and sales watching in disbelief as we got longer and longer and longer EURCHF. This behaviour will stand out, above everything else, as the most stupid thing I have ever seen or heard in foreign exchange. Stupid, and expensive. Very, very expensive.
And this.. this is the second most stupid thing I have ever seen or heard in foreign exchange:
“Pull the plug, pull the damn plug out of the wall..”
Sure, laugh now, but I promise you it wasn’t funny then.
We couldn’t, or didn’t, stop the machine for minutes, which seemed like hours, and we were not alone. Long before the year-long colonoscopy with the regulators began, late Spring as I recall, we had begun to hear of similar instances across the street. Most trades were indeed retrospectively cancelled, but as a result so were client relationships. Everybody frothing at the mouth, and yes, once again, very, very expensive.
Unlike humans, when push came to shove, the machines could not be relied upon.
So, it is with a great deal of trepidation that I read that the British government has now approved ‘auto-pilot’ autonomous driving on UK motorways.
I am, Dear Reader, neither a luddite who finds progress abhorrent, nor do I spend my weekends glued to a motorway bridge near Luton with other Just Stop Oil protestors. I am resolutely pro-car and pro-gress. However, I would offer two observations on our government’s rather material great leap forward:
1/ We are the first country in Europe to allow such a move. Specifically, the UK government has legalised “semi-autonomous cruising on 2,300 miles of British motorways”. Don’t get hung up on the semi, the driver merely needs to be in the car and alive, and not (as many a YouTube clip of couples, um, coupling in their Tesla would suggest) be in the throes of a romantic interlude.
An un-named government minister said “the technology could make the roads safer”[4], which you may recall, the government also said about ‘Smart Motorways’, which have been linked to almost 80 mostly-avoidable deaths[5]. But the real issue here is those 2,300 miles of British motorways – twisty, congested, poorly lit, often in poor repair, with the worse standards of driving you can imagine.
Anyone who has had the pleasure of driving on the continent sees mile after mile of marble smooth blacktop, mostly thanks to the EU. Northern European countries have great lane discipline, generally lighter traffic loads than the UK and are generally very straight. Yet, we are the first in Europe?? Whilst you can’t help thinking if it works here then it could work anywhere, I am not sure what the government thinks their early-adopter advantage should be.
2/ And secondly, are we comfortable with the machines taking control. It is interesting that the first car maker granted permission from the Department of Transport was not, as you might expect, Tesla. It was in fact Ford. If you have a 2023 electric Mustang (I shudder to write those two words together) Mach-E 2023 then you can add a £17.99 monthly subscription alongside your Amazon Prime and Netflix, and your generic, treasonously named SUV will plod up the M6 in rush hour all on its own. So, tell me, are we supposed to totally give up on the joy of driving?
All that said, auto-pilot might be the only enjoyable way to get around in your Mach-E. This way you don’t actually have to remind yourself on a daily basis that this isn’t a proper Mustang that doesn’t drive like a proper Mustang and worse of all, doesn’t sound like a proper Mustang. No, by far the biggest risk here, is what happens when a metaphorical Jordan pulls the peg?

Not a proper Mustang…
Have a quick google in the next pre-Non-Farms lull, and see some of the colossal accidents that autonomous vehicles have had whilst self-driving. Millions of hours of R&D, augmented by self-learning on roads since inception, and yet there are many, many reports of them merrily mowing down cyclists crossing roads, mistaking white trucks for sky, merging into stationary traffic at full chat, randomly going full send down a high street. How many? Well the manufacturers themselves reported nearly 400 crashes of vehicles with partially automated driver-assist systems, including 273 involving Teslas[6]. And that’s before the automotive equivalent of a Jordan, a sudden, maybe a dense smoke cloud drifting across the motorway from nearby fireworks, or an Uber driver that has missed his exit and crosses 4 lanes of the M25 to get to the Heathrow spur, or the rear tyre of the lorry in front of you that delaminates firing a rubber carcass into your lane. How do you pull the plug in time before your Mach-E buries itself into something solid?
City Rover’s advice? In general terms, wait for the technology to catch up with the marketing. Since Jordan and the SNB, the FX market has had plenty of major shocks, air-pockets either driven by events, EURGBP in Brexit, EURTRY generally, even the AUD doesn’t mind one). We just don’t hear of the machines failing anymore; the coding is better now, the computer firepower many times more robust, the understanding more complete. Of course this power of progress will happen to automobiles, it just might also take a few more years.
City Rover’s advice in specific terms? Walk past the Mustang Mach-E in the showroom, and get yourself a proper Mustang. Ideally the Bullitt version, made between 2019 and 2021, the best US muscle car ever to be sold by a franchised dealer in this kingdom. Channel your inner Lieutenant Frank Bullitt[7], the 5.0 litre V8 in the ‘Highland green’ fastback bodyshell, caress the white pool cue-ball atop the 6-speed manual gearbox. And drive it yourself.

Now this, THIS, is a proper Mustang
Rearrange your organs as the 453 horses melt the tarmac via the rear wheels, feel your spleen hit your rib cage as you stamp on the red, six-piston Brembo brakes that hide behind the truly gorgeous, bespoke 19-inch five-spoke rims, dark grey to match Frank’s. And listen to the V8, the symphony of an idle burble, mid-range crescendo, the fire and brimstone when coming in hot, changing down the box with the cue ball as you brake for the Swiss Cottage gyratory.
We will look back on these cars as the end of an era, they are classics in the making. Please, please… go get one whilst we are still allowed.

And if you don’t want one of these in your lives, well, check out the columns on https://juststopoil.org/
[1] If you haven’t seen the BBC series ‘Industry’, well, you should. You really should.
[2] ““I have come to the conclusion that it is not possible to provide conclusive and final evidence that my wife did indeed initiate the foreign exchange transaction on the 15th August without my knowledge,” he said – https://www.reuters.com/article/us-switzerland-hildebrand-idUSTRE8080RK20120109
[3] And let us not forget, the commitment to the peg had been reiterated only 2 days prior to Jordan pulling the rug out from under us.
[4] https://news.sky.com/story/self-driving-ford-car-granted-approval-for-hands-free-use-on-british-motorways-in-european-first-12856889#:~:text=Britain%20has%20become%20the%20first,in%20England%2C%20Scotland%20and%20Wales.
[5] https://inews.co.uk/news/widow-death-trap-smart-motorways-scrapped-2259395#:~:text=a%20safety%20review.-,There%20have%20been%20at%20least%2079%20deaths%20linked%20to%20smart,deaths%20between%202015%20and%202019.
[6] https://www.npr.org/2022/06/15/1105252793/nearly-400-car-crashes-in-11-months-involved-automated-tech-companies-tell-regul
[7] I’ll assume you know he was played by Steve McQueen. If you didn’t, this column probably isn’t for you