Don Morton, the second futures brokerage account I ever opened as a full-service futures broker, passed away on Monday, December 2, 2024, at the age of 89. Don was a brilliant options trader who served as the executive director of the Tennessee Legislature's Fiscal Review Committee. He was also a U.S. Army veteran of the Korean War and a certified public accountant.

I met Don when I worked for First American Discount, where he was a customer at Table 3. Don traded options spreads, primarily on 30-year Treasury bond options. I don’t recall exactly when his account was transferred to me after I was promoted to a new trading desk for high-risk customers, but he was part of my equity run. This included large, active day traders, traders from the Hume SuperInvestor File, a German introducing broker with numerous sub-accounts, and other high-risk traders.

Don’s highly complex options position actually played a role in my being fired from First American. Another key figure was Gil Leistner, who led an options market-making group at Rosenthal. Gil also played a pivotal role in my career, teaching me and a select group of First American colleagues about the intricacies of options trading.

The week before the 1987 stock market crash, Bill Mallers, Sr. shouted my name across the trading room midday on Wednesday. He called me over to my old trading desk, number 3, and informed me that the Dow was down 200 points. He mentioned an account holding 80 S&P 500 option straddles that was losing money, on margin call, and said the client could not be reached by telephone. Mallers had concluded that the new head of the desk, my former number two, was not up to the job.

I sat down at the desk, reviewed the equity run, and checked the price of the S&P 500 futures. At that time, deltas weren’t included on the equity runs provided by GMI, nor were they available on the quote screens. While we had last trade prices for options, they were often grossly outdated.

I had to extrapolate the deltas manually by analyzing the market and the distance of the account’s strike prices relative to the market. From there, I calculated a delta quotient for each position. I then summed up all the delta quotients, both long and short, to determine the net delta position. Finally, I multiplied that net delta by the change in the underlying market to assess the overall impact.

After completing the calculations, I determined that the account was actually making about $10,000 that day and was not on margin call. The customer had sold the straddles in August, and although the market rallied in the fall, he consistently met all margin calls for his million-dollar account. When the straddles were sold, the market was positioned in the middle of the straddle. By October, the market had risen significantly above the straddle, which the customer had margined up to maintain. However, as the market fell, it landed right back in the middle of the original straddle position.

When I explained this to Bill Mallers, Sr., he decided that I should take over handling the account in the future.

By Friday, the stock market's decline had intensified, and the S&P futures were dropping sharply, putting the account in serious jeopardy. That afternoon, I was discussing potential next steps with the client when Bill Mallers, Jr. decided that the situation's gravity required the Mallers family's direct involvement. At that point, I stepped aside, and Bill, Jr. took over the conversation with the client at 3 p.m. on the Friday before the infamous 1987 stock market crash.

The client, located in Arizona, explained that he couldn’t reach the bank before 3:15 p.m. to wire the required funds, as per our standard practice for wire transfers. Instead, he asked if we would accept a $1 million check sent overnight via FedEx. Bill Mallers, Jr. made the critical decision to accept the check and personally came into the office on Saturday to ensure its arrival and handling.

On Monday morning, as the stock market opened sharply lower, the $1 million check turned out to be no good. We had no choice but to liquidate the client’s position, resulting in a $1.5 million loss. First American eventually pursued legal action against the client to recover the funds, reportedly spending $1.5 million in legal fees before ultimately abandoning the case, or so I was told.

It was on that tumultuous Friday that Don Morton entered the story. Earlier in the day, Gil Leistner had observed irregular and chaotic volatilities in the bond option pit at the CBOT, reminiscent of the turmoil in the S&P 500 earlier in the week. Leistner relayed his observations to Les Rosenthal, who then informed Bill Mallers, Sr. I would only learn about this chain of events years later during an interview with Leistner for the Open Outcry Traders History Project—though that particular detail was never included in the final interview.

Bill Mallers, Sr. shared the information about the irregular volatilities with me because Don Morton was holding 10 to 15 equity run pages of bond and note option spread positions. I suggested to Bill, Sr., "The first thing to do is call the customer, explain the market conditions, and ask what impact he thinks this might have on his position." Bill, Sr. thought this was the most ridiculous idea he had ever heard and that I had completely lost my judgment. He promptly pulled me off the trading desk and sent me to sit in the smoking lounge.

The smoking lounge, notorious for being a place where even plants couldn't survive, was hardly an ideal setting for me to cool down after five days of adrenaline-fueled work in the high-stakes world of listed derivatives. Sitting idle in that stifling environment, surrounded by the lingering haze and inactivity, was unbearable for someone accustomed to the constant rush of the trading desk.

Frustrated and unable to stay idle, I finally told them, "If you’re not going to let me work, I’m going home." When I returned on Monday, Bill, Jr. called me into his office and fired me. I asked to speak with Bill, Sr., and was told he would be in at 11. I returned at the appointed time, and when I spoke to him, he simply said, “Call me in a week.”

When I called Bill, Sr. a week later, he told me to come back in. When I returned, I found that I was no longer assigned to the high-risk desk. Instead, I was placed on what we called the "cheap ass" desk, handling accounts that opened with less than $5,000 and were charged higher commissions. It was clear that the writing was on the wall for my time at First American Discount Corporation.

After a brief sojourn as an off-the-floor trader with Joe Corona and Bruce Lawrence's Meltdown Trading Group and a stint as a member of the MidAmerica Commodity Exchange, I made my way back to the brokerage business. I joined Gerald Commodities as a full-service broker, eager to apply my experience and rebuild my career in the brokerage side of the trading world.

When I left FADC, it was to become a trader, not a broker, and I didn’t take any customer lists or contact information with me. However, some of my favorite FADC clients’ telephone numbers were imprinted in my memory. I called them to let them know I was now a full-service broker, ensuring they were aware of my new role and availability.

Don Morton was the second customer to open an account with me at Gerald. Interestingly, the Friday when Bill, Sr. shared his critical thoughts about customers turned out to be Don’s best trading day ever. Don was long volatility through bond and note spreads, including butterflies, and capitalized on the chaotic market conditions.

Don remained a loyal client throughout my brokerage career, transitioning with me as I evolved professionally. He became a managed futures customer of Jon Matte and Defender Capital Management when I began marketing Defender to clients. Don continued with the program even when I started trading the Defender system at John J. Lothian & Company, Inc. Ultimately, he closed all his accounts to focus on providing for his grandchildren, a testament to his priorities and thoughtful planning.

One of my favorite stories about Don involves the opening of his account at Gerald. Normally, customers were required to fill out account forms detailing their assets, income, and trading experience, after which compliance officers would speak to them to ensure they understood the risks of futures trading. However, this step wasn’t necessary for Don. When I asked why, the compliance officer explained that Don’s account paperwork was so meticulously filled out—with his income and net worth listed down to the penny—it was clear this CPA, who worked for the Tennessee Legislative Fiscal Review Committee, had a comprehensive understanding of the risks involved. His precision and professionalism left a lasting impression.

Don and I kept in touch over the years, primarily through Facebook. He would occasionally comment on my posts, and I made a point of wishing him a happy birthday every year. It was a simple yet meaningful way to stay connected. Rest in peace, my friend. 

In a recent interview with John Lothian News, David Nable, a senior executive at Arcesium, highlighted the growing challenge hedge funds face in balancing advanced technology adoption with the demand for skilled portfolio managers. Nable emphasized that top-tier talent has high expectations for seamless technology infrastructure when moving to a new employer.

"What we found is that the portfolio managers who are coming from some of the top industry participants have a very high bar for what they expect to just work for them to come in and be able to do their jobs," Nable said. He noted that this expectation extends beyond trading and research systems to the underlying infrastructure, adding, "All of the things that nobody wants to notice, they want it to just work."

This demand for advanced technology has significantly impacted how hedge funds attract and retain top talent, according to Nable. He explained that the pass-through expense model allows hedge funds to offer more competitive compensation packages and invest in cutting-edge technology without compromising their financial health.

"The pass-through model for organizations that are able to implement this type of business model, I would argue, puts certain organizations at a competitive advantage," Nable said. "They're able to invest in the best systems, the best data, the best talent, and they do so because they have a different economic model in place that allows them to do this."

However, Nable emphasized that this approach comes with heightened expectations for performance. "The flip side is they have to outperform," he noted. "If they don't, investors are going to look and say, you know, what's my net return?" Despite scrutiny, Nable pointed out that firms using pass-through models have generally outperformed their peers, attracting significant capital inflows as a result.

To meet these high expectations, hedge funds are investing heavily in infrastructure to quickly evaluate new data sources. Nable explained that this investment has reduced analysis time from weeks to mere hours in some cases. "If they can capture that new source of data, evaluate it more quickly than their competitors, and put it into their investment process, it seems to be a competitive advantage," he said.

Nable then discussed Arcesium's core platform, originally developed within the D.E. Shaw Group. "For our clients today, often they get to leapfrog some of the legacy technologies that are in the industry to be able to support everything from high frequency, quantitative, high volume trading strategies to more esoteric strategies," Nable explained.

Addressing the challenge of balancing technology adoption with talent acquisition, Nable described it as a "chicken and egg situation" where firms must strategically decide whether to prioritize investing in advanced technology or securing top talent. He suggested several approaches, including targeted investment in specific strategies, collaborating directly with potential talent on technology decisions, and leveraging non-compete periods to prepare infrastructure.

Regarding artificial intelligence, Nable views it primarily as a "copilot" in current investment management practices, enhancing efficiency rather than making investment decisions. "I don't think we're there yet. Today, it's still very much an efficiency play, albeit a dramatic one," he concluded, suggesting that the industry has only begun to scratch the surface of AI's potential.

Nable went on to highlight the transformative impact of AI-driven technologies on the financial sector, emphasizing their role in enhancing decision-making processes across various functions within hedge funds. He explained that AI is being used to analyze vast amounts of financial data, facilitate rapid testing and implementation of quantitative trading strategies, and enhance risk management through continuous portfolio monitoring.

Furthermore, Nable pointed out the use of AI in analyzing alternative data sources and optimizing asset allocation. He also noted the role of AI-powered chatbots in enhancing compliance and documentation processes.

Lastly, Nable emphasized the importance of robust data infrastructure to support these AI initiatives while ensuring compliance with regulations. He cautioned that "firms must carefully navigate compliance and data protection issues, particularly when dealing with proprietary trading strategies."

By John J. Lothian

ELMHURST, IL - (JLN) - When I mentioned the news about my cousin Tom being hired as the new manager of the Lake Geneva Yacht Club ("LGYC") yesterday in JLN, I mentioned Thomas "T" Freytag, a co-founder of Geneva Trading, as a contemporary reference to give it relevance to the normal newsletter fodder. However, the history of Chicago's futures markets and the LGYC have a common founder in Julian Sidney Rumsey.

In fact, the City of Chicago, the Chicago Board of Trade (CBOT), and the LGYC share an intertwined history dating back to the mid-19th century, with the Sheridan Trophy serving as a symbolic link between these institutions.

Chicago's Early Days and the CBOT

In 1848, as Chicago was experiencing rapid growth, the CBOT was established to bring order to the city's burgeoning grain trade. The CBOT quickly became a central force in Chicago's economic development, coinciding with the opening of the Illinois and Michigan Canal and the city's first railroad. These transportation innovations positioned Chicago as a major hub in the international grain trade. Shortly before the Great Chicago Fire of 1871, a railroad line to Lake Geneva was completed, allowing Chicago's elite to access their lakeside summer homes by rail.

Julian Sidney Rumsey: A Key Figure

Julian Sidney Rumsey, a founding member of the CBOT, played a pivotal role in connecting Chicago's business world with Lake Geneva's leisure community. Rumsey served as president of the CBOT in 1858 and 1859, and later became mayor of Chicago at the outbreak of the Civil War. His influence extended beyond Chicago to Lake Geneva, Wisconsin, where he maintained a summer home.

Nathaniel Kellogg "N.K." Fairbank

Nathaniel Kellogg Fairbank was the first commodore of the LGYC, president of The University of Chicago board of trustees, a founder and president of The Chicago Club and a founder of the Commercial Club of Chicago. He was also a major trader at the CBOT, where he served as an officer. His company produced soap and baking products. He was also involved in one of the greatest squatting incidents in Chicago when ship captain George Streeter's schooner went aground off Fairbank's property that is now called "Streeterville." There is a Fairbanks Court on the western edge of Streeterville.

The Lake Geneva Yacht Club and the Sheridan Trophy

In 1874, Rumsey and Fairbank became founding members of the LGYC. That same year, an event occurred that would cement the connection between Chicago's business elite and Lake Geneva's sailing community. On August 31, 1874, Lieutenant General Philip H. Sheridan, a famous Civil War hero stationed in Chicago, visited Lake Geneva.

To celebrate Sheridan's visit, local residents organized a yacht race in his honor. Rumsey's boat, the Nettie, won this inaugural race. The participants had collected about $200 for a trophy to be called the Sheridan Prize, intended as a perpetual award for annual races. The trophy that has been awarded since is modeled after Rumsey's boat Nettie. 

The Birth of a Tradition

The Sheridan Prize became the genesis of the LGYC. The trophy, along with three trustees chosen to oversee it, marked the formal beginning of the club. This event solidified the connection between Chicago's business community, represented by figures like Rumsey, and the recreational pursuits at Lake Geneva. 

The Sheridan Trophy race at the LGYC is considered the second-longest continually raced sailboat race in the United States, having been established in 1874. It follows the America's Cup, which is the oldest.

Ongoing Legacy

The Sheridan Trophy continues to be a prestigious award in LGYC competitions Labor Day weekend every year to this day, serving as a tangible reminder of the historical ties between Chicago's business elite and Lake Geneva's sailing community. This connection, forged in the late 19th century, exemplifies how the economic power concentrated in institutions like the CBOT influenced the development of leisure activities and communities in the surrounding region. 

If you need more convincing, I suggest taking one of the guided tour boat rides from Gage Lake Geneva Cruise Line, where you can hear about all of the 19th century Chicagoans who had huge summer homes on the shores of Geneva Lake. If you are lucky, your captain on one of those cruises might be Captain Jack Lothian, the brother of the new LGYC manager. If your captain is seven feet tall, that is Jack. 

My Own Legacy

Many members of CBOT and CME, along with their children, have learned to sail at the LGYC and the Geneva Lake Sailing School, founded in 1938. My cub-boat racing instructor was former CBOT bond-pit trader John Porter. Thomas F. Cashman, son of FIA Hall of Fame member and longtime CBOT soybean pit broker Thomas J. Cashman ("TJC"), also learned to sail there. Despite never sailing, TJC was a long-standing club member and part of the Old Guard.

T. Freytag is the retiring commodore (immediate past commodore) of the club and a former president of the Geneva Lake Sailing School. I sailed against his brother Billy and sister Kate when I was a kid. Later, I was a longtime member of the club as well and raced a C Scow with many friends and with my wife Cheryl, served as C fleet captain for a couple of years and served on the board of the Geneva Lake Sailing School, including as treasurer.  

My uncle, Thomas A. Lothian II, who gave me his 1970 wood Johnson Boatworks C-scow when he retired from racing and after I graduated from college, was the commodore in 1974 when the LGYC celebrated its 100th anniversary and the 100th running of the Sheridan Trophy race. He started sailing on Geneva Lake, after first racing in his home state of Ohio, when he and my aunt would stay on the property in Fontana that then belonged to the Glenview Community Church. Some of my earliest memories are from being at the church camp. 

When the church sold the property, my parents bought property in Williams Bay, where the church property caretaker was village president. My uncle also bought a home in Williams Bay. TJC and his family moved in across the street from him and they became good friends and served together on the village board.

In 1973, the Cashmans moved across the bay to a home a couple of houses away from our summer home and TJC coached my older brother Scott in little league. 

T. Freytag's grandfather lived just down towards the lake from the Cashmans and he served as my father's lawyer when my father was president of our lake home subdivision. 

The LGYC has come a long way from Julian Rumsey's days and the founding of the club and the start of the Sheridan Race, but the seeds that Rumsey and Fairbank planted continue to grow through the CBOT and Chicago today.

This infusion of young blood into these stodgy organizations would transform Chicago's financial markets and change the course of its place in the global financial markets. Melamed would lead the creation of the International Monetary Market, a separate exchange that would later be rolled back into the CME. Melamed's accomplishments during his career are legendary. 

Mallers would lead the committee at the CBOT that led to the creation of the Chicago Board Options Exchange. Both Mallers and Melamed would play a part in the creation of the National Futures Association, with Mallers finding CBOT President Robert Wilmouth a new job as NFA president. 

Melamed's story is well known via the multiple books he has written about his experiences and his long tenure on the board of the CME, which only ended a few years ago.

Mallers would step aside after one term as CBOT chairman and slate the man he had run against as a rogue candidate as chairman to replace him. Mallers would wield power behind the scenes at the CBOT for the next fifteen years without any official title. OK, maybe he was the unofficial godfather of CBOT politics at the time. 

Melamed would serve multiple terms as chairman of the CME before finally stepping aside for his protege Jack Sandner, though Melamed still wielded power from the CME executive committee he chaired for many years.  

Joe Sullivan talks about Mallers in his paper about his career and the beginning of the CBOE, noting it was Mallers who resurfaced after leaving the limelight of the chairman's position to weigh in on the question of which members of the CBOT should be able to trade on the CBOE. Mallers said that "the purpose of the undertaking had been to provide trading opportunities for all members whether or not they chose to use them at any given time." Sullivan noted that giving CBOT members this perpetual right would bite CBOE in the butt later. 

The story I was told by Mallers, whom I worked for in the 1980s at First American Discount, was that Eddie O'Connor had proposed creating an exchange to trade stock options at a dinner and outlined the plans on a cocktail napkin. Mallers took that idea as chairman and drove it to reality, along with O'Connor, Paul Maguire and several other key players at the CBOT.

The first board of directors of the CBOE did not have Mallers on it, but it did have Pat Hennessy, from Hennessy & Associates, the firm that Mallers was the president of when he was chairman. You can see how Mallers worked, having key allies in positions of power at the CBOT and also at the CBOT Clearing Corporation.

I met Mallers after he had fallen out of favor at the CBOT, and Tom Donovan as a strong CBOT president had changed the power dynamics of the exchange. 

As we celebrate the 50th anniversary of the CBOE, now Cboe Global Markets, I wanted to remember William Mallers, Sr., a man largely forgotten to history. Mallers died in 2006 at the age of 77. He had been gone from the industry since 2000 when First American was sold to ED&F Man, Inc.

Mallers is someone who I think belongs in the FIA Futures Hall of Fame. His political leadership at the CBOT allowed the CBOE to become a reality, helping members find new trading opportunities. Those trading opportunities created a whole new industry. 

In baseball, some veterans get into the Hall of Fame via the Veterans Committee. The people who were in the room where it happened, where the plan for the CBOE was outlined on the cocktail napkin, are all gone. Those who saw Maller's leadership first hand in helping start the CBOE are all departed, including his good friend and business partner in FADC Leslie Rosenthal. There are just a few of us left who know his story and his contributions to the CBOT member opportunities and to all our futures. 

Mallers was not without his faults. I am not without mine. But Mallers' contributions for me are pure Hall of Fame material and I wonder if we would be celebrating today's anniversary if not for his leadership.  

The SPRE index is made up of gold, silver and platinum prices, with the largest weighting on gold, then silver, Roberts said. The new options contracts will be cleared at the OCC, same as The Small Exchange’s futures contracts.

Roberts said they have two market makers in place for the new options contracts, and the exchange and OCC have done six months of testing to prepare for the launch.

Here is my interview with Donnie Roberts of the Small Exchange.

Here is the commentary from 2012.

~John Lothian

I told him his mother and I had decided to send him to Hogwarts, the school Harry Potter attended. He smiled and said, “Right, Dad.”

This is the story of how some other parents and i pranked out sons into thinking they were going to Hogwarts.

Major hospitals are reported to be running short of supplies]], medical professionals are starting to improvise and more car companies are saying, “Heck yes, we can make ventilators.” That great big sucking sound you hear should be new ventilators being made, but it is instead the sound of a cratering economy. 

In California, the Governor said normal unemployment claims are 2000 a day; then three days ago there were 40,000 and the next day 80,000. I have two offspring whose jobs are on hold as their schools closed. I have another son coming home from college as it moved online and he is being kicked out of the dorms.

And how bad is it in California? The Governor says he expects half of the state to get the virus in the next eight weeks. And he is shutting down the state and telling everyone to stay at home. 

Cboe Global Markets, Inc. launched a webpage with their business continuity plans amid the developing novel coronavirus (COVID-19) situation. It is a popular thing to do, as everything right now is centered around flattening the curve and surviving the impact of the virus.

The CTAExpo/Emerging Manager Forum New York to be held on April 22-23, 2020 at the Stewart Hotel has been cancelled. Many hotels across the country are closing, which is impacting events (duh!) and even necessary travel for those trying to get back home (Hi Mom!). Even the G7 meeting scheduled for April was cancelled when Camp David put out the “Closed for the Virus” sign.

Richard Burr, the chairman of the Senate Intelligence Committee, is accused of telling a gathering of big wig business leaders from North Carolina the dire predictions about the impact of the virus and selling $1.7 million in stock while downplaying the virus to the public. ProPublica, a non-profit newsroom broke the story. The sales of stock came on February 13, at a time when he was receiving briefings on the virus. Monday would be a good time for him to resign.

I leave you with a quote from Ronald Reagan, courtesy of OCC’s David Prosperi: “No crisis is beyond the capacity of our people to solve, no challenge too great.”