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In their own words. (Martin Quintin)

Jul 1, 1998

       
Martin Quintin-Archard, Emerging Market Bond and Asset Trading Company
Martin Quintin-Archard founded the Emerging Market Bond and Asset Trading Company after stepping down as chairman of Intercapital Securities in late 1995, where he built his reputation in the LDC debt trading business as the famous QAQA-the first of the Reuters pages where he began quoting market prices and charging set commissions.
On the emergence of the market...
There's always been a slight battle in the market to claim to be the father. Marty Schubert always claimed he'd done the first trade. The consensus is that actually Giacomo deFilippis did the first trade. Right at the beginning, you'd say, "Well, I'll give you my Nigeria and my Jamaica, and I'll take your Argentina," and they did all these exchange deals to consolidate their holdings. They'd take the countries. They just thought, "Okay, we have maybe 30 countries on the books. Consolidate that down into five or six." So that's really what started the things moving.And then you had to design assignment documentation basically from scratch. People hadn't really done this, because these loans were never supposed to be traded. You'd lend the money, you lock it up, and then you come back and they'd pay you. So the idea of trading loans was very innovative.
On the impact of the Brady deals...
The amazing thing about the Brady deals is that I'm not sure it had ever been done before, the securitization of loans like that. It was the biggest deal that had ever been done in the history of the market. The whole Nabisco buyout was $25 billion. And I think the Mexico par bond was about $25 billion-it was huge. I was at First Interstate in those days doing loan trading, and we had about 10 or 15 people then. And essentially on Nymex you had to make all these calls every day and find out where everybody thought everything was. Interstate didn't really have a big bank book, it was set up as a trading operation. So it was a pain in the ass. There were a couple of guys trying to broker this stuff, but they would do it by lying. All brokers lie, but they would say, "Oh, I've got a 25 bid for DFA" for Brazil. So the guy would say, "Okay, I could sell some DFA at 25," and then they'd go and say, "Well, actually I got the guy to pay 25 1/2. Can I have the half point?"That's how they'd get paid. And the bank's attitude to these guys was-because actually in those days we used to trade like $5 million-plus clips of this stuff-it was reasonable. And by then, they had got the documentation nailed down sufficiently. And this is before Intercapital was set up, which was a fantastic idea. So it cost me an eighth of a point off $5 million to do the documentation and assignment. I could made money if I make a quarter point off the trade. So why was I paying a broker half a point?
On the development of screen-based trading...
Eventually, everybody was running around trying to deal directly with each other, rather than use the brokers. And the idea I had seemed like the obvious thing to do. Why can't you go and collect prices, stick them on the screen, fix commissions and save all these people running around? So that's what I did.The Brady was the key to that, because now you've got something that you can run through Euroclear. It was five days settlement in those days. It just runs through the clearinghouse, the biggest bond in the world.I figured you could get three cents a side, which now is extortionate, but at the time everybody was saying, "How can you make money at three cents a side?" It was like $600 per $1 million. But in those days, you're doing $5 million clips, that's $3,000 a trade. So if we could do two trades a week, we had a business.But then the next thing was, nobody had ever heard of Reuters, because they were all lending officers. Peter Geraghty is obviously one of the gods of the market. Peter's whole thing has been, "How do we develop a real market out of this?" When I set up the business, he said, "We'll give you all the support we can." So when you've got a few of those guys, like Salomon and ING and the guys that actually did have Reuters, then everybody else had to go out and get a Reuters' machine.And that's really how it began. Then things started to heat up a bit. You couldn't really do it on outside lines, so the next thing we had to do was go to direct lines into all the banks, and then it all went tops over for about three years.Well, what happened then is at the end of every month, all the banks would have to revalue their portfolios. The way they used to do it is that somebody would get on the phone and call everybody on all the assets and get something like six prices and take off the high and the low and average the rest to come up with the end-of-the-month readout. That's a pain in the ass. So it was Peter Geraghty who said, "Well, you guys already do that. Your screens represent the consensus of all the prices in the market." He forced tradition-probably the other money center banks that were fighting against this screen thing-to go on the screen. So all the guys got three independent sources of valuation at the end of the month, and that saved them a whole lot of time. Then it all went screen based after that. And in those days, it was just what was needed. We charged one commission to everybody, and everybody got to see the screen. Whoever you were and wherever you were, if you were in Argentina or Peru, if you had access to Reuters, you had access to the prices. That worked very well for years, because nobody had sales forces or anything. We were their sales force, basically.Then, as usual, when the big boys find out how much money you're making, they come and they take the business away. As the volume built up, more and more brokers started trying to come into the business and cut commissions to buy market share. But, in fact, volumes were growing so quickly, it didn't really make any difference. The thing just went through the roof.In the old days, we all knew each other. Some guy would give you a wrong price, so you'd all try and work it out and help each other. You never know when you're going to need a friend. Now there's a lot of young guys in the market who come out of trading, and they're harder. Their thing is, "It's my bonus, or your job. I'll take my bonus." So it's a much harder business now.
On the importance of EMTA...
One of the things about EMTA is that they have all the big guns in the market. They all put money in and JP Morgan lent them offices, and they lent them a corporate lawyer and that sort of thing. The board of EMTA is eight or 10 of the big guns. And at that time that was virtually the whole market. The guys sitting around that table probably accounted for 80% of the turnover, so if they said, "These are the rules," the rest of the market had to accept it. So they set the rules up. Then they had committees which would do all the negotiations to standardize documentation on assignments. When a new Brady was coming out, they would work to make sure that everybody knew what was happening, what the rules were. It was a phenomenal thing. And it standardized the market. It gave you a standard documentation for everything. Anybody coming into the market would have to accept EMTA docs, because everybody else did. And that was crucial. Now you've got the biggest issues in the world. If you check with Euroclear, I think you'll find for the last six years, the top 30 bonds through Euroclear are miles and miles and miles under Bradys. There's nothing this size in the world. It's huge. But EMTA allowed you to have the ground rules set when you started trading a new country or selling Ivory Coast as a Brady or Vietnam as a Brady. Everybody was dealing with the same rules. We all knew we were dealing apples and apples and oranges and oranges.


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