A Conversation with Joe Busichio
Joe recently retired from the sugar business after nearly 50 years. I connected with him over a Zoom call from his home in New Jersey. For my first question, I asked him how he got into the business.
I landed a job by responding to a Help Wanted ad in a newspaper that read, “Trading Assistant Wanted – No Experience Necessary.” I graduated in June of 1976. I hadn’t found a job after graduating from college, so when I saw this ad, I thought, ‘Well, I graduated with a BS in business and took some economics and stats courses, and Trading Assistant sounds like something that might utilise those courses.’
I called, and the receptionist answered. It was a retail office of Shearson Hayden Stone (which no longer exists) in an upscale New Jersey shopping mall that’s still there to this day. I now live only 25 minutes from there.
The office was all stockbrokers, except for one corner room with a bunch of guys trading something called “commodities.” These guys were trading their own stuff, making money for themselves, and the commissions went to Shearson. They also had a few small clients.
I interviewed with them in November 1976, and the interviewer asked me how much I wanted to be paid. I told him I could start at $165 a week, and he replied, “I’ll start you at $175 a week.” And to save you reaching for a calculator, that’s about $9,000 per year.
I started the first business day of 1977, and three months into the job, they gave me a $1,000 bonus. I thought, well, this is a pretty good deal.
My role involved managing and tracking their trading positions, as well as answering phones when clients called. I didn’t have my Series 3 license at the time, so it was more of a clerical-type job and an opportunity to learn the business. When I got my Series 3, I was able to start taking and handling customer orders, passing them down to the floor. We had an open outcry system at the Exchange, at the old NYBOT.
What was the atmosphere like at that time? Was it frenetic?
Anything but. The big trade at the time was the London / New York sugar arbitrage with the London contract trading in sterling.
The daily volume in the sugar number 11 market was around 4,000 to 5,000 lots. I recall the day in 1979 when the No. 11 open interest surpassed 100,000 contracts for the first time.
To put that in perspective, what’s the open interest now, and what’s the average trading volume?
The open interest is currently around 900,000 lots, but it usually runs at around a million. Daily volumes average between 75,000 and 125,000 lots, but can reach 250,000 lots on busy days. We have seen some bigger days. The daily trading volume first broke 300,000 lots on September 12, 2018, when the contract traded 419,822 lots. The current record daily trading volume is 542,699 contracts, set on February 12, 2020.
One high-volume day was when the Copersucar export terminal caught fire in October 2013. The fire caused extensive damage to the terminal at the Port of Santos, Brazil, destroying six warehouses and a large amount of raw sugar.
I cannot recall the volume that traded when the Cubans declared force majeure in June 1993, following the 1992-93 crop, which fell to 4.2 million tons—a sharp decline from previous years. The poor harvest highlighted the deteriorating economic conditions in Cuba during the “Special Period” that followed the collapse of the Soviet Union.
I’ll tell you a funny story about that. The market went ballistic. It must have opened 100 points higher at the time, and one of the floor brokers called me. I love this fella to this day, but the floor traders knew very little about the market themselves. They traded based on emotion, much like the movie Trading Places. That movie hit it on the head.
The floor trader called me up and said, “I hear the market is up because Cuba has declared soupe du jour. “Do you mean force majeure?” I asked. And he answered, “Yeah, right, whatever.”
That is what this market misses most of all, Jonathan.
The characters?
The human interaction and the people who made it such a fun place to be on a day-to-day basis. And that is very much gone for good. Now it’s methodical.
I know more about my clients’ personal lives in the sugar business than I would in many other industries. I’m not sure if you experience the same personal connection in different sectors. I have always been in the commodity space, and specifically sugar. Still, I have found the people I’ve dealt with over the years to be some of the most honest, forthright, and personable individuals, very bright, and eager to talk, not just about business.
Can you walk me through the transition from open outcry to electronic trading? What impact did it have on your role and the market as a whole?
It certainly diminished our role. When I started, everything was over the phone. The market would move, and you would make a series of phone calls to tell the clients the market had moved in some way, shape, or form. If we were doing the London / New York arbitrage, we’d be on two phones, one to the London floor, one to the New York floor, barking orders down to the runners or the clerks on the two exchange floors.
I was at Prudential Financial when ICE switched to electronic in 2007. We offered every client direct market access through a trading platform where they would trade directly into their own account. About half of our clients took advantage of it, but several of them chose not to use it. They thought the risk was too much. They were happy to pay brokers like me a voice execution fee to handle their orders. And if we made an error on one of their orders, well, it was our error. And we had to deal with it.
We have a back office that manages and supervises the direct activity, but the voice activity business keeps us busy enough during the day.
I can’t speak for every FCM or bank out there, but I would say that at Macquarie Group, at the sugar desk, 70–75 per cent of the business we did on a clearing basis or execution was direct market access.
Do you also talk to the clients who execute directly?
Yes, we keep them informed. I call them and they’re happy to chat. We receive good feedback from wherever they are in the world, and, unless they’re sharing something confidential, we’re able to share that information with others. Within legal limits, obviously.
People tell me that algorithms now handle most of the execution on the electronic platform. Is that correct?
A lot, yes. These systems have emerged over the last 5-10 years.
To what extent is the market now computers trading with computers and AI trading with AI?
We’re certainly seeing a diminishment of the human component in these markets. We have often been asked the question of what percentage of the daily volume is fundamental, commercial, hedge fund, or algorithmic. So far, we haven’t got an answer. However, others have estimated that on any given day, 70 per cent of any market’s volume is computer-driven.
Was ICE’s purchase of NYBOT a turning point for the sugar futures market?
The switch to electronic trading for the No. 11 Sugar futures market, which took place after ICE acquired NYBOT, changed everything. It opened the market to a broader range of participants and enabled faster trade execution and order matching compared to traditional open-outcry floor trading, thereby reducing transaction costs.
However, going electronic meant longer trading hours. When I started in 1977, the sugar market was open from 8:30 to 12:30, or from 9:00 to 1:00, so you’re talking 4 hours a day.
Once it became electronic, ICE wanted the sugar market to be open 23 hours a day. They finally compromised. At one point, it was open 13 hours a day, and now it’s open 9.5 hours. Our days have become exceedingly long.
When I first started in the business, the commission rate was $20 round-turn. What are they now?
When I started, commissions were fixed (non-negotiable) at three sugar points, or $33.60, round-turn. But when you’re talking about a daily volume of 4,000 or 5,000 lots, and a client’s trading 50 or 100 lots, that’s a busy day for that client.
Clearing rates are now negotiated on an individual basis and vary from client to client, depending on their anticipated volumes and the services provided. Rates generally range from $0.75/side to upwards of $4.00/side.
Clients sometimes pay more in exchange fees than they do in commissions, which never sat well with me in terms of the value that the Exchange provides compared to the value that brokers like me deliver to a client.
When the floor was active, you could get the feel of the market just from the noise coming over the phone.
Right. You’d know who was bluffing, who had a real order, who was doing what, etc., because you knew the characters and how they traded. You also knew who they traded for, so you’d get a feel for the type of orders they had. You would be able to guess if they had a massive scale-down order.
The locals made money hand over fist back then; they did themselves a disservice when they sold their souls to ICE. They all received cash upfront, but the transition to electronic trading ultimately ended their careers. Many tried to trade for themselves, but not being on the floor made it challenging.
When the floor disappeared, the training ground vanished as well. Many of the best traders I have met, whether in trading houses or funds, began their careers on the floor.
Do you think that’s what younger people most undervalue, the human element?
I do. People don’t talk as much on the phone anymore, and you can’t get the sense of someone’s view or feeling in an electronic chat room. The absence of the human factor in these markets has significantly changed them. But you can’t unpeel an egg, nor can you un-ring a bell. It’s here to stay, but I believe it’s to the detriment of the industry.
I learned more from talking to people over the phone than I ever did in a chat room. When you speak to someone, you have the opportunity to learn more about the market and their thoughts on it.
That’s why conferences like the Dubai conference are highly beneficial. You’ve got to interact with people. It’s still a relationship business.
What was the best day and the worst day of your career?
The best day was when I got the job. Far and away. As I said, it set me on a path that I never would have envisioned, either when I was growing up or even in college.
The worst day of my career was 9/11. I live in New Jersey, so I took the PATH train into the World Trade Centre each day. That day, I came off the PATH train about 15 minutes before the first plane hit.
I got off the elevator at the old Prudential building on 1 Water Street, and somebody said, “Oh, a plane just flew into the World Trade Center.” At that time, we just thought it was a private plane that had gone off course. We watched the rest of the day play out on television as the Exchange was down. Communications were cut. My daughters were old enough to know that I worked in New York, having visited the office a couple of times when they were young. However, there was no way to get a message to them that I was okay. It was brutal not knowing if you’re gonna see your wife and children again.
The world changed that day in ways that we could only contemplate. To this day, I have not visited the Ground Zero Memorial. It’s too personal. We’re coming up to the 25th anniversary of that tragic day next year, and it just hits too close to home. Too raw.
And your worst day professionally?
It’s all ancient history now, so I can tell you a story about how I was called to testify before the CFTC just a couple of years into my career.
Our London brokers introduced us to a client of theirs in Switzerland, who, unbeknownst to us at the time, turned out to be the Colombian coffee cartel. They took a liking to me, and my boss at the time said, “You stay on the phone with them, and I’ll give you a dollar for every lot they trade through us.” I didn’t know a thing about coffee, and to this day, I still know only a little bit (LOL). We started doing 50 or 100 lots a day, and I’d go home and tell my dad, “Oh, I made $100 in commissions today.” And he went, “Oh, that’s good.”
And then they started trading multiple hundreds, and one day they traded over 4,000 lots, where they took the market from limit down to limit up. I went home that day and told my father, “Dad, I made $4,000 in commissions today. “I remember to this day, his exact words to me were, ‘Is this legal?’
To cut a long story short, the CFTC investigated, and I appeared before a CFTC committee, where they asked me numerous questions. It went on for about an hour and a half, and I’m thinking, ‘I just got this job two years ago, and I’m about to lose it over this.’
Traded volumes have increased massively, but some argue that extending the hours meant that physical traders were no longer concentrating on the futures market, and therefore, trading less.
A commercial client will do whatever it takes to cover his physical business and some jobbing along the way. Extending the trading hours only benefits the Exchange because computers drive so much of the volume, and computers don’t eat or sleep.
The longer you keep it open, the computers keep running, the Exchange generates more volume, more volume is more exchange fees, and a better stock price.
For us, it doesn’t matter. The commercials are gonna do what they have to do. They’re not going to trade more just because they have more market access.
Options trading in agricommodities was illegal when we first started in the business. Not many young people believe me when I tell them that. But do options trade a lot now? How do they contribute?
Most of the volumes are related to volatility, involving market maker-type activity that tries to buy cheap and sell expensive volatility.
The trade guys use options a little, but not as much as, for instance, the market makers and or the funds. The funds are significant players in the options. The trade to a slightly lesser extent.
With a daily futures volume of around 100,000 lots, you might have an option volume of 20 – 30,000 lots on top of the daily futures volume.
Are there still retail traders, doctors and dentists?
They’re probably trading through CTAs, Commodity Trading Advisors. During my time in the business, we’ve had only one or two retail clients. They’re not worth our time. They require too much handholding and take you away from the core of our sugar business, which has been 90 per cent commercial over the years.
The largest traders now are hedge funds, whether they’re macro funds driven by fundamentals or those using algorithms.
Can you explain to the young audience what a CTA is?
A Commodity Trading Advisor is a broker handling small retail-type orders. CTAs are regulated by the Commodity Futures Trading Commission (CFTC) in the U.S. and must register with the National Futures Association (NFA). They provide advice directly based on clients’ trading accounts or more general market insights. Their trading strategies can be technical, fundamental, or quantitative in nature.
They’re significant. The funds and the trade houses track their activity because they are significant players in the markets.
You know as well as I do that fundamentals don’t change day to day. You have the odd event, but the technical picture is changing constantly, and many of these guys are now driven by technical trading.
What about the index funds? Are they still massive?
Not as massive as they once were. I’ve been plotting the Commitment of Traders report every Friday for more years than I care to remember, and I seem to recall that the largest index fund position was a net of 250,000 or 300,000 long. Now it’s probably 130,000 or 150,000 lots.
A discussion has arisen within the industry because it appears that the Commitment of Traders index fund does not strictly represent an index fund. An index fund is a relatively static investment, but you see these big week-to-week swings, which makes me think that there’s trading going on under the index fund category that is not strictly an index fund. The index fund position should be relatively static and only move significantly on the re-weight or rebalance when money comes in or comes out of a particular market. However, there are some significant changes week to week, which make me think it’s not purely index activity.
We’ve discussed hedge funds and AI, but are trade houses still significant?
Still significant, but certainly not as much as they were when I started in the business. Over the years, the importance of the trade houses has diminished because many of their clients, the producers or end-users, now have their own futures trading accounts. All that business used to flow through a trade house. The trade house would then push it directly to the floor or upstairs brokers like me.
It began with Copersucar in the late 1990s, when they started doing their own hedging, and has grown since then.
The increase in speculative money in these markets has been, in many ways, unmanageable. The money overpowers the physical markets and the trade houses. That has been the most significant change in the markets over the past half-century – the amount of speculative money.
In my last couple of years in the markets, everybody was excited about high-frequency trading, arguing that it was making it harder to hedge.
HFT firms spent millions of dollars to install fibre optic lines and locate their servers closer to the various exchanges to gain nanosecond advantages for their algorithms.
The Exchange labels them as liquidity providers. I think they’re more liquidity takers because they’re scalping for ticks. And their activity sometimes comes perilously close to “spoofing” when their trading is orders quickly going in and out of the market.
Are they the modern-day equivalent of locals on an exchange floor?
Yes, but they operate at the speed of light. How can you beat them?
Do they help or hinder price discovery?
They hinder it. Over the last six months, you’ve had times where the market has gone up 50 points one day and down 50 the next. You cannot tell me the fundamental picture turned bullish one day and bearish the next. It’s technical.
Due to algorithms and high-frequency trading, these movements tend to amplify and feed on themselves, resulting in distortions.
I recently spoke with a trader who mentioned that three players — Copersucar, Raizen, and Wilmar — dominate the physical sugar market. He argued that they have too much market power in the physical flows.
I don’t think a producer would have that much influence on a market. Producers are price takers rather than price makers. On the trade house side of the business, Alvean and Wilmar are probably the biggest, followed in no particular order by ED&F Man, the Sucden group, Louis Dreyfus, and COFCO.
What qualities make for a great sugar broker, and how have those changed over time?
As we mentioned earlier, the role of brokers has diminished due to the advent of electronic trading and direct market access. For a broker, again, it’s about relationships. It involves establishing a rapport with a client, earning and maintaining their trust.
I would somewhat jokingly tell the young people who work with us that Rule Number One is that the client is always right. For rule Number Two, when the client is wrong, go back and read rule Number One (LOL).
What about physical traders – how do you envisage their future?
They will always be needed, but their job has not gotten easier over the years.
The trade houses have significant overheads, including offices and personnel spread across the world in various producing and consuming countries. Their profitability has been pressured over the years, as they no longer have the same level of market control as they once did.
Back in the day, the trade houses had greater control over the market. They had all the producers and end users feeding their business through them. They saw their books and knew if an end user had to buy or if a producer still had a lot of pricing to do. They had a broader perspective on the world, including the pricing to be done one way or the other. Now the trade houses have been overrun by speculative money and algorithms.
We have in common that we both wrote daily market reports.
My daily report was a labour of love for 20 years. No one has yet taken up that mantle. I hope they do, because I got so many emails when I left asking, “Is somebody going to write that report because it’s the first thing we read when we wake up in the morning?”
I enjoyed writing it. It helped me organise my thoughts for the next day. I’m sure you found the same thing. When you start writing something, everything coalesces for you a little bit better, rather than just turning off the machine and thinking about it the next day.
What would you have done differently at the age of 22 if you knew then what you know now?
As I mentioned earlier, I stumbled into this business by accident, but it’s taken me to places I never would have imagined travelling. I never would have even heard of Dubai, let alone been to Sao Paulo, Hong Kong, or Singapore.
I’ve met an incredible cross-section of people over the years that I have truly admired for their honesty and their willingness to work hard.
I wouldn’t have chosen another career path. The last few years have been challenging. The trading hours have gotten a lot longer. Working at a bank has been a revelation, good and bad. But, no, from a career perspective, I’ve enjoyed 98 per cent of this business.
Would your 22-year-old self be proud of what you’d achieved?
Absolutely. I received many nice emails when I retired. I’m proud of what I’ve accomplished, and when I hear from people I respect and admire who take the time to call me or send an email to congratulate me, it truly means a lot to me.
How do you see the sugar market evolving in the next decade? Will trading become even more automated, or is there still a place for human relationships and experience?
The trend over the years has been an increase in computers and a decrease in people. I think it will plateau. It may have already plateaued.
When computers trade with computers, they’re all running similar programs and using the same data. The computers require commercial participation. This involves the guys who will place resting scale orders, resting buy orders, or spreads that they can then trade against, with, or whatever.
I don’t think it’ll go much beyond the blend that we have right now, but we’re never going to turn back the clock to the days when the commercial players dominated the market. The commercials must continue to react to price movements driven by managed money. As we have already discussed, there has been a sea change over my career – speculative money has overpowered all these markets.
Thank you, Joe, and I wish you a long and happy retirement!
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