PhillyDeals: Poker games as trader's test for making quick decisions

Susquehanna International Group L.L.P. and its founders keep a low profile. That's why political Pennsylvanians were surprised to learn founder Jeffrey Yass and two of his partners gave more than $1 million to longshot gubernatorial candidate State Sen. Anthony Hardy Williams (D., Phila.) because, they said, they like his school-reform ideas.

But the partnership and its traders and techies - 900 at its City Avenue headquarters, an additional 600 in New York; Chicago; Dublin, Ireland; Shanghai, China; Sydney, Australia; and beyond - are used to Susquehanna pumping big sums rapidly through the world network of flickering, screen-walled trading rooms used by investors to weigh, price, buy, and sell stocks, bonds, options, national currencies, and private investments.

"Warren Buffett talks about derivatives and why they're dangerous. But he also says there are mispriced assets in the market, and they are great bargains, if you can find them. And that's the essence of Susquehanna: Jeff and his people are visionary at finding displaced items in the marketplace and taking advantage of opportunities," said Louis DePaul, managing director for derivatives at Boenning & Scattergood Inc., of West Conshohocken.

Susquehanna is a fluid business. It is, its managers say, the leading trader of stock options and exchange-traded index funds, among other products. It has been a varying presence since the 1980s in program trading of New York Stock Exchange listings, online brokerages, options-market-making, municipal bonds, and other services and asset classes.

"They adjust very well to the changing landscape," said DePaul, who, like Yass, got his start trading at the Philadelphia Stock Exchange on Market Street.

That has meant wide career opportunity for Susquehanna veterans such as Patrick McCauley, a Delaware County native, Archmere Academy and Swarthmore graduate, who married his prep-school sweetheart and came home to a job at Susquehanna after his Vanderbilt University M.B.A. professors told him it was a good place to put his math skills to work.

McCauley has been chief operating officer, head of equity trading, creator of an electronic-trading network for "dark pool" investments, and, for two separate stints, head of training for the average 30 traders Susquehanna hires each year, many of them from Penn, Drexel, Villanova, St. Joe's, and other Big Five and Ivy League schools.

The Susquehanna training regimen includes weeks-long grounding in probability, statistics, finance, game theory, decision science, and other arcane fields, alongside trading simulations. Training also includes poker, which Susquehanna says teaches and tests decision-making, because successful players have to balance risks and rewards using incomplete and indirect information from rival players.

The company doesn't look for World Series of Poker winners, since competitions typically require luck as well as skill. It measures carefully the risks players take and the bets they make and relates them directly to the stream of rapid decisions a modern trading-day demands.

McCauley looks for math geeks - but also for people with good communications skills, since traders who are chained to their desks for long hours need to know how to talk to and understand people who may be two continents away. Some 30 percent of trainees drop out.

The stock exchange's old paper Put and Call sheets, relics of the days when traders stood in crowds and shouted buy and sell orders for options contracts, are reproduced in the floor tiles that line Susquehanna's three trading floors, totaling 22,500 square feet, at its City Avenue headquarters.

But Susquehanna long ago moved way beyond the Philly exchange (now owned by the Nasdaq OMX stock market) to deal in world markets. The firm won't say how much it rakes in or how many millions it pays in salaries and bonuses each year.

It doesn't have to; it's still a private partnership, like Goldman Sachs Group Inc. or Morgan Stanley in the old days before Wall Street firms incorporated, sold shares to the public, and switched from being owner-traders betting their own capital to becoming high-paid guns for hire. To be sure, Susquehanna trades increasingly for wealthy institutions and other big clients. But the firm's own capital, the partners' money, is still at risk each day.

Susquehanna's charitable foundation helps keep the libertarian, antigovernment Cato Institute afloat. It also underwrote the computer-aid design lab at the University of Pennsylvania's engineering school, which has become a leading training grounds for Hollywood computer animators.

The firm's Philadelphia location lets it offer short Main Line commutes for traders with families who, if they worked in New York, would face long and daily Wall Street treks to Westchester County or Long Island, says David Pollard, a former Morgan, Lewis & Bockius L.L.P. partner who joined Susquehanna in 2004 and serves as head of strategic planning and special counsel.

The city is also convenient to Washington, where partners watched the government's recent financial-rescue operations closely, and adjusted its trading strategies to fit.