Warning: trim() expects at least 1 parameter, 0 given in /home/customer/www/johnlothiannews.com/public_html/wp-content/themes/Divi/includes/builder/functions.php on line 12283
Sheldon Cohen - Open Outcry Traders History Project - Part Two | John Lothian News

Sheldon Cohen – Open Outcry Traders History Project – Part Two

John Lothian

John Lothian

Executive Chairman and CEO

In the second of a two-part interview with John Lothian for the Open Outcry Traders History Project, Chicago attorney Sheldon Cohen reminisced about his long tenure on the trading floor and in exchange management, beginning in the 1970s.

In law school they teach you there are two kinds of crimes: mala prohibita crimes and mala in se, Cohen said. On the floor, a mala prohibita crime would be to go over the trading limits, but mala in se was an offense that was innately wrong, like stealing.

He said customers would sometimes come to him about things that were basically mala prohibita but were treated as if they were mala in se. Cohen recounted a story of a back-office worker who bought a CBOE seat for $10,000 as an example. He was “basically a journeyman’s trader,” a grandfather, he said. “He came down to the pit every day.”

The trader never had much in the way of positions, Cohen said, and when he did, they involved much less risk than he had in his account. But one day he came in and said they had just served him with papers from the business conduct committee.

Evidently, another firm was over the limit and they came to him and asked, “Will you do us a favor and break this particular trade?” Cohen said. The trader was uncomfortable with this, but the firm said they would write him a check for the cost of breaking the trade. So the trader agreed. It turned out the firm was trying to avoid getting in trouble for going over the limit. Breaking that trade would put it under the limit. And the trader got in trouble for it, Cohen said. 

Another example of a trading practice that went awry was the deferring of the payment of taxes by lifting a losing leg of a spread, re-establishing it in the market, and letting the winning side flow over into the next year. Cohen said if done properly, it was legal, but traders started doing it as a pre-arranged trade, which was illegal. “And in some cases, the brokers were making a fortune. Because the floor broker would take a 2,000 lot of something that was flying around. …They would find the safest possible spread to put on, and then do the other side with and of their customers and then get paid for both brokerages,” he said.

By 1984, the exchanges got rid of the practice of deferring those losses by requiring everything to be marked to the market, Cohen said. Then the game became trying to switch into long-term capital gains, he said.

Cohen also recalled that traders would help particularly good clerks by loaning them money to buy a seat on the CBOE — a good deed that often engendered a good outcome. When the clerks made money trading, the first thing they would do was pay back the money. “A lot of guys turned out to be extremely successful,” Cohen said.

As for life lessons learned on the floor? Cohen said it was the importance of your word. “Your word is your bond,” he said. An early-career incident with an out trade was a “very humbling lesson,” Cohen said. “I learned how important it was to establish your character down there, and who you are, and integrity in trading.“

 

We visit more than 100 financial news websites daily (Would YOU do that?)

The Spread

More Trader History Videos

Doug Engmann – Open Outcry Traders History Project – Part One

Doug Engmann – Open Outcry Traders History Project – Part One

A young Doug Engmann once had hopes of becoming a professional baseball player. Despite his continued love of the sport, his early career goals eventually shifted from the game of baseball to the game of investing. 

Throughout his career, Engmann employed a persistence and penchant for leadership in the West Coast options industry that carried him through dramatic events that include a proposed San Francisco options floor merger, the stock market crash of 1987, and a closed exchange during a massive earthquake.

Tom Greene Celebrates 50 Years on Wall Street at NYSE

Tom Greene Celebrates 50 Years on Wall Street at NYSE

Head of NYSE Trading Floors Worked His Way from Runner to Head of Cotton Exchange and On to NYSE Trading Floor Head

Tom Greene wanted to be a civil servant, perhaps a fireman, when he was growing up. However, despite his best efforts, the jobs went to returning VietNam veterans. So he chose a vocation working with electricity, but that did not get him too far. Eventually, a cousin on Wall Street suggested he come down to Wall Street. And so began a career that has spawned 50 years, from his days as a runner on the New York Cotton Exchange to his role of Senior Vice President at the New York Stock Exchange today.

Kenny Polcari – Open Outcry Traders History Project Part 2

Kenny Polcari – Open Outcry Traders History Project Part 2

When Kenny Polcari started out at the New York Stock Exchange, “It was paper and pencil until the turn of the century,” he said. 

The exchange started to introduce handheld computers in the late 1990s, but it was only in beta, not full blown yet.  Everyone was preparing for Y2K. When Y2K happened and the technology didn’t fail, Polcari said, there was a push on the industry to move forward with modernization. They converted all the stocks over to decimals alphabetically, one at a time, over a six-month period, starting with the stocks named A to D. 

Pin It on Pinterest

Share This Story