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 difference, which is called the ''bid–ask spread'' or ''turn.'' Thi ...

headquartered in

Chicago Chicago is the List of municipalities in Illinois, most populous city in the U.S. state of Illinois and in the Midwestern United States. With a population of 2,746,388, as of the 2020 United States census, 2020 census, it is the List of Unite ...

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

Goldman Sachs The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...

in 1999.

History

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 in 1985. The firm grew to over 180 employees including financial engineers, physicists (many from

Fermilab Fermi National Accelerator Laboratory (Fermilab), located in Batavia, Illinois, near Chicago, is a United States Department of Energy United States Department of Energy National Labs, national laboratory specializing in high-energy particle phys ...

), 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, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

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

for $531 million. Henry M. Paulson, 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." The acquisition signalled a shift in Goldman Sachs towards

electronic trading Electronic trading, sometimes called e-trading, is the buying and selling of stocks, bonds, foreign currencies, financial derivatives, cryptocurrencies, and other financial instruments online. This is typically done using electronic trading plat ...

Investment strategy

Hull Trading was primarily an equity options

. 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 or political power are vested in individual people based on ability and talent, rather than ...

. 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.

Notable people

* Blair Hull * R. Scott Morris * Haim Bodek

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