JUST BEFORE CHRISTMAS,
a group of around 30 London prop traders
gathered in a comfortable suite at the Guildhall
complex for a seminar being given by
fixed-income analytics firm GannCorner.
A handful of locals began chatting about a
notorious Eurex own-account trader known
in European trading circles by a not-soflattering
nickname, “the Flipper.”
O ver the past year, dozens of prop traders
had engaged in a sporting manhunt aimed at
u n c overing the identity of a mysterious, supposedly
Ireland-based trader accused of st e e ring
German government-bond futures markets
in a tactical manner — posting substantial
lot blocks, not all of which are traded upon,
and doing so on both sides of the order book in
numerous but nonetheless interconnected
markets — that birthed the Flipper moniker.
Using the anonymity afforded by the cyber
realm of screen-based dealing, traders say,
this unknown figure lured others into a costly
game in which he held the cards, through
sheer volume and shrewd maneuvering.
Eventually, in a fervent chase akin to
the decades-long search for the identity of
Woodward and Bernstein’s Deep Throat, a
single name had emerged. Right before the
GannCorner seminar was about to start, one
attendee asked the firm’s Juliette Clark, the
Is Paul Rotter a devious market
machinator or a victim of his
own success? The biggest trader on
the Eurex and the most controversial
man in electronic trading speaks out
By Imogen Rose-Smith ■ Illustration by William Duke
Flipping
Out
without ruffling some feathers. “Paul has
sometimes played a controversial role,”
Kinski acknowledges. “Some traders didn’t
like him because he was changing his
position so quickly.” In 2001, Rotter formed
Rotter Invest and eventually moved his
operations to Zug, Switzerland, an affluent
town that’s home to its share of traders —
and its share of notoriety: For the past two
decades, it has also been the home of fugitive
financier Marc Rich.
IT WAS EARLY 2004 when
traders of the schatz, short for the German
two-year note, or bundesschatzanweisungen,
began noticing something funny happening
on their screens. “You would see giant orders
on one side of the market that would flip and
go the other way,” says one Eurex trader.
The traders, and a former Eurex official,
say someone was posting massive buy
orders, waiting until the market moved
toward that price and then selling instead —
a massive head-fake. Many believed the
alleged Flipper was playing the same trick
on the German five-year notes (known as
bobles) and 10-year notes (bunds). “The
Flipper does so much volume in the bund,
the boble and the schatz that he’s able to
influence the whole yield curve and catch
people out,” adds another outraged trader.
“The Flipper is the market.”
If a trader posts a bid on the Eurex and
someone hits him for it, according to the
rules of the exchange, the trader is dutybound
to honor the transaction. There is,
however, nothing to stop a trader from
posting a price for a large volume and then
taking it down if no one bites. And while it is
illegal to trade with oneself, it is perfectly
OK to switch back and forth between the bid
and the ask. The only requirement is that the
trader be sufficiently well-financed to honor
the bid if someone hits him up for the entire
lot (the par value of one underlying schatz
bond is ¤100,000).
R otter admits to handling l a r ge volumes
on both sides of the book but insists he wa s
n ot trading the s c h a tz inappropriately. He
says his trading style — best described as
82 TRADERDAILY.COM
woman who was leading the session, if she
had ever heard of Paul Rotter.
“Yes, I know Paul Rotter,” Clark said
plainly. “He’s one of my clients. And he’s
sitting right behind you.”
A gog, the roomful of traders spun around
in unison. They couldn’t have been more
shocked if Queen Elizabeth herself was sitting
a m o ng them wearing a tube top and leather
chaps. Rotter, a clean-cut, smartly dressed 32-
year-old, sat quietly wa i t i ng for class to begin.
That an unassuming guy like Rotter
could rise to such infamy in the electronictrading
world while remaining such an
enigma is testimony not only to the power of
suggestion but also to the complexities and
rivalries within this burgeoning global
arena. In this world, Rotter is a lightning
rod. The mere mention of his name — or his
nickname, for that matter — among Eurex
traders can inspire bilious hatred, reverence
or even fear. To those who despise him,
Rotter’s strategy is upending livelihoods and
undermining the Eurex. His fans call him
the single most successful individual futures
trader on the planet.
Rotter dismisses the tempest out of hand.
“ There’s just this one group of unlucky
traders in London who somehow found out
that I’m doing the most volume in Eurex debt
futures,” says Rotter, who until now has
remained silent about the “Flipper” issue but
agreed to conduct a series of i n t e r v i e wswith
Trader Monthly, appropriately enough,
electronically.
“They’ve tried to blame me for their
trading losses,” he says of the people he
calls “funny guys.”
But many locals aren’t laughing.
BY ANY ALIAS, the mercurial
Rotter is a hugely successful trader. Though
he wouldn’t confirm any compensation
figure beyond saying that he takes in more
than $5 million per year, some say he pulls
down at least that much per month. He’s a
surefire candidate for this year’s Trader
Monthly 100 list. His Switzerland-based
firm, Rotter Invest AG, employs a dozen
people, two of whom are traders. Currently
he’s managing outside money on behalf of
wealthy individuals and some institutions
(the minimum investment is ¤1 million), but
he won’t say how much.
All of this success has coincided with the
rise of the Eurex, the German/Swiss electronic
futures exchange, which has taken
international derivatives trading by storm
since its creation in 1996. A Czech native
who moved to Germany at age 9, Rotter
started out as an apprentice on the bond
desk of a German bank in Frankfurt.
Borrowing from a corporate credit card,
Rotter quickly went broke buying options,
only to resurface in the Frankfurt office of
Daiwa Securities.
Nearly bankrupt, Rotter worked his way
up, and within two months was trading the
bund in lots of five, crafting his own style
with little guidance from his superiors. By
the time he left the bank in 1996 for Dublinbased
Midas Trading House, Rotter was
already the biggest single trader in German
debt futures on the DTB, Germany’s precursor
to the Eurex.
“We couldn’t believe our eyes when we
saw how quickly he’d change positions from
one side of the book to the other,” recalls
Oliver Kinski, a former managing director
with Midas and the man who hired Rotter. In
January 1998, Kinski, Rotter and some other
traders formed a Dublin-based prop-trading
firm, Greenhouse Capital Management.
Rotter’s balls-to-the-wall modus operandi
helped Greenhouse prosper, but not
without some tense moments. The firm
began life with $1.3 million in seed capital
and featured, in addition to Kinski and
Rotter, two other standout own-accounters,
Pino Curcio and Florian Albrecht, the latter
one of Rotter’s closest boyhood pals. As a
unit, they worked well together, though
Rotter was clearly the star. “It was do or die,”
Kinski recalls. “We knew Paul would have
these large positions — in one day we could
have been out of business.”
By the end of its first day, Greenhouse
was up $526,000. Within three months the
firm had made $6.5 million, though not
“I probably stepped onthe tail of some
TRADER MONTHLY 83
aggressive scalping, only done on a massive
l e vel — benefits the market. “I am a kind of
market maker who provides liquidity with
m a ny orders in different market s,” Rotter
say s. “When I’m active, I am permanently
invo l ved in market t r a n sactions through fills
at both sides in different contracts.”
Rotter stresses he never pulls orders
quickly but rather “leaves an order working
for a couple of minutes.” He also insists there
are other big fish, and therefore it’s unfair to
attribute every large post to him.
“The problem for the locals,” says the
former Eurex official, “is that the herdlike
mentality they learned in the pits is very
hard to break. And the Flipper was taking
advantage of that trading style. A lot of the
locals probably made a good deal of money
in the pits just following the crowd, and now
they can no longer do that.”
Rott e r, characteristically, is more blunt: “I
probably stepped on the tail of some monke y
who was making great money on the s c h a tz
and couldn’t compete anymore,” he say s.
MANY TRADERS ARGUE that
placing offers on the market and then
canceling them is a bush-league ploy sometimes
referred to as “spoofing” — the spoofer
has no intent of trading at that price; rather,
he’s simply showing a sizable offer to entice
traders to take the other side just before
canceling. Rotter counters that he’s able to
trade at the prices he’s offering, per the
exchange rules, and his volume shows that
he’s more than willing to follow through.
For an individual, Rotter’s scale is stunning.
Last year, his personal trading volume
alone accounted for about 180,000 contracts
a day, or almost $70 billion on peak days,
dwarfing all but the very biggest institutional
players. “My average market share
in the German bund was around 10 percent
for many years,” he claims (the bund is the
world’s second most-traded futures contract
after the Eurodollar). “I didn’t trade the
boble and the schatz that heavily; I used
them mainly for hedging purposes.”
Yet until recently, few even knew Rotter’s
name. A group of London own-accounters,
led by prop trader Chris Eldred, took the
investigation into their own hands. Rumors
began spreading among Eurex traders in
London that the Flipper was actually an
own-account trader in Dublin (they apparently
didn’t get his change-of-address cards)
who was making nearly $7 million a month
trading German debt futures. (Eldred
declined to comment.)
“They somehow found out that I am
doing the most volume in Eurex debt futures
and made me responsible for their losses,”
Rotter says. “Eldred invested so much time
writing in forums, talking to Eurex officials,
sending me e-mails, crying and talking about
market ethics. He could have made millions
in the market in that time and with that
effort. But he is probably a monk and is not
interested in money.”
IT TAKES A mighty big trader to
personally prompt a market to change its
tick size or value. Yet Rotter may have done
that. While Eurex wouldn’t comment on the
possibility of one trader or a group of
traders gaming the system, one of the key
selling points of electronic exchanges is
their claim that they’re a more level playing
field. The Eurex needed to act.
According to a well-placed market
participant, many locals and at least one
investment bank, ABN AMRO, complained
either formally or informally to Eurex.
Neither Eurex nor the bank would confirm
any involvement in the dispute, though a
source with knowledge of Eurex operations
says that Ralf Danielski, head of global fixedincome
products there, has been personally
involved in handling complaints about the
Flipper. Danielski declined comment.
Last April, the Eurex announced it was
h a l v i ngthe minimum tick size for price
movements in contracts on the s c h a tz from
¤10 to ¤5. Ac c o r d i ng to a Eurex spokeswoman,
the change in tick size had not h i ng to
do with complaints over alleged market
shenanigans, but instead was designed to
reduce hedging costs by producing tighter
spreads — thereby making the bond future
more attractive. A trader who met with
Danielski and the Eurex to discuss the Flipper
i n s i sts he was specifically told that the change
in tick size of the s c h a tzwas implemented in
an effort to thwa rt the Flipper.
These two views can be reconciled: The
former Eurex official explains that while the
new tick policy, which went into effect this
past June, was in the works before the
complaints emerged, the timing of its
implementation was in part influenced by
the hue and cry over the Flipper. For his
part, Rotter says he was never contacted by
the exchange as part of any investigation.
Regardless of the reasons behind the
tick-size change, it seems to have worked:
Rotter soured on the schatz. “After the
schatz went to half-ticks, I almost completely
stopped trading it,” he says.
NOT ALL TRADERS view Rotter
as a villain. “There is no Flipper,” says Eurex
trader Martin Duncanson, who has been
impressed by the Czech’s strategy. “I personally
think that what Paul Rotter has achieved
as a trader should be everyone’s ideal —
starting as a small guy and building up to
a huge size. I admire his success.”
Yet there is a part of Rotter that obviously
enjoys the role of m a r ket bogeyman. He began
receiving antagonistic messa ges last March as
rumors of his identity emerged. “There were
some anonymous letters and some phone
calls,” Rotter says. One e-mail he was sent
read, “I hope you have to spend the rest of
your days looking ove r your shoulder.”
R otter says the threats j u st turned up his
heat. “Of course it was motivation for me to
get more invo l ved in the markets and set
more competition for these funny guys,” he
says. Simultaneously, however, he insists that
he’s taking things a bit easier now. “I have
p r etty much reached all my go a l s,” he says.
“I don’t want to spend all day in front of the
screen anymore.” The 32-year-old who has
spent as many as 11 consecutive hours in the
m a r ket now says he’s down to around four
hours a day.
Then again, he might be bluffing. .
