Former CME floor trader and RCM co-founder Bobby “Yogi” Schwartz joins Jeff to close out our Chicago month and walks through a wild career arc: from generational hog pit roots to dominating the Nasdaq futures pit during the dot-com bubble, then building prop firms, arbing minis vs. big contracts, and eventually stepping into Hollywood film finance before returning to launch RCM. Bobby shares vivid floor stories: badges, hand signals, full-contact fights, and multi-million-dollar errors, while explaining how open outcry actually worked, why Chicago produced so many elite prop traders, and how the e‑mini revolution rewired the futures landscape. He breaks down building and backing 100+ traders, deploying early “gray box” tech, and structuring option and index arb trades that bridged futures, ETFs, and cash baskets. The conversation then shifts to what RCM does today: multi-FCM clearing, outsourced trading, ETF and mutual fund infrastructure, ag and global trade finance, and navigating the explosion of new DCMs, prediction markets, and perps. Along the way, Bobby drops Hollywood war stories, Chicago steakhouse lore, and a candid look at where derivatives trading is headed next.
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Check out previous Chicago episodes from this month:
Inside $2B of Chicago Real Estate: Tommy Choi on Housing, Migration, and Millennials
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Check out the complete Transcript from this week’s podcast below:
This City Trades Different: Yogi, the Floor, and Building RCM
Jeff Malec 00:02
Welcome to the Derivative by RCM Alternatives. Send it. Hello, there. Welcome back to The Derivative, brought to you by RCM Alternatives. Where we’ve done it, we launched the new website. Go check it out, RCM alts.com which works, or RCM alternatives.com whatever you want. Go check it out, let us know your thoughts. Send us an email, invest at RCM am.com Let us know what you like. Also, while there, tell us what kind of guests you want to hear. We want to hear from you, so shoot us a note onto this pod where I reached far to go across the hall from my office to Bobby Schwartz, partner, founder of RCM. Got into his floor trading days, how it runs in the family, some good Chicago stories, and basically what our Sam does bring, we do way more than just bring you this pod. So Bobby dives into all that, gives us a little insight into what’s next in the futures industry, and all that. Send it all right. We’re here with Bobby Schwartz, whose office is right next to mine. I’m at home here, but it’s a little weird to be looking at you in your office, and I’m not sitting there next to you. How are you? I’m
Bobby Schwartz 01:27
doing well. I’m doing well. So, I know the
Jeff Malec 01:30
story, because I’ve sat in there many times. But tell us the painting in your jacket there.
Bobby Schwartz 01:37
Oh, so that is a Leonard Nieman painting of the trading floor back in the day on the CME, which shows how vibrant the trading floors were here in Chicago, and it’s a very, it’s, it’s unique. There’s not tons of them out there, and everybody that walks in that was on the floor, says, How can I get
Jeff Malec 02:02
one exact, and I think the pod we just did with Sibo, I think he had one in his office, I don’t know if it was exact same, but it was similar, might have been a nice,
Bobby Schwartz 02:12
there’s a couple versions that this guy did,
Jeff Malec 02:15
yeah,
Bobby Schwartz 02:15
so, and yeah, it’s really popular piece to me, it’s nostalgic, obviously, being haven’t been on the floor for many, many years, and it’s great, and actually that’s my jacket over there from the floor, at least my last one, where I didn’t get crushed, and I didn’t throw it away, but, but, yeah, so I keep it around to keep the memories, and you know, remember how great it was, and how anxious it was, and how volatile, and how nerve-wracking, and all the above.
Jeff Malec 02:51
Yeah, we’ll dig into that in a sec. So, the badge was what
Bobby Schwartz 02:55
my badge is, Yogi, which is on there somewhere. Yeah,
Jeff Malec 03:00
I can see him,
Bobby Schwartz 03:01
you can see it. It’s Yogi, which was given to me because people said I was cuddly like a bear, but I had a temper like a bear. And when I was in the pits, I took no prisoners. I didn’t care if we were friends or not when I was representing customer flow, or I was trading for my own account in the spoohs, I was a no BS guy, and would run you over if I had
Jeff Malec 03:32
to love it. The and I remember from the floor, I some guys like, oh, did you know so and so on the floor? I’m like, no idea of that name, and then they’d say his badge, I’m like, oh yeah, that guy
Bobby Schwartz 03:42
still happens,
Jeff Malec 03:43
yeah, weird.
Bobby Schwartz 03:44
I mean, I was, I was in Hong Kong about six years ago, and I’m sitting at a bar at a park height, I think it was a park height, and across, I recognize this guy, but I don’t know from what part of my life, and he goes, Yogi, and I’m like, ah, what’s going on. The next thing you know, you’re drinking for four hours, telling war stories. So,
Jeff Malec 04:05
and so, tell us a little bit. This, you didn’t just start on the pit, you came from the pit, right? Like, your father was on the pit, your brother went into the pit, so it was kind of a family affair. Absolutely,
Bobby Schwartz 04:20
which, by the way, like, if you look at the Chicago exchanges, right, Board of Trade, CME options, maybe not as much, because it came later. It’s a very, at least it used to be a very generational business. My father started there, he was on the floor for close to 50 years, and he started went to law school, and at night came from New York. We’re all from New York and New Jersey, and said, “I’m going to be a lawyer. He got into Chicago, Kent, and went at night and was a pit reporter during the day, and he said, “I can make more. Money trading than I could as a lawyer, and so that’s how we all got started in the industry. And sure enough, when I was in high school, we would go down there all the time, and when my father’s clerk, who was in the hogs, he traded and brokered hogs, lean hogs, he would pull me into the pit, and this is when you were holding paper decks. He taught me how to calculate spreads, and I would run the order into him if it was there or about to go through the market, and he would execute it, hand it back to me, and I’d give it to a runner who would bring it back to whatever house it was, whether it be Goldman or someone like that. And then I specifically remember a story where I was 16 years old pulled me out of school to clerk and the spread was off came in the pit and he physically took me and said get here and I didn’t talk to him for two weeks many many years from then my brother was on his honeymoon and this was in the Nasdaq pit, and it was like the movie Top Gun, and where the scene was where all the planes were fighting each other towards the end. It was a, it was a full contact sport, and somebody said, Yogi needs your help, can you go up there and help him, Phil? And he had a $30,000 error in about two seconds, and I said, “Give me that get-go. So it was, it was pretty fun. The
Jeff Malec 06:27
when was the first time you think you learned about futures? Were you like five or six, and your dad sitting at the kitchen table, like showing you how it works?
Bobby Schwartz 06:35
No, I don’t. You know, it’s that’s a great question. I, to me, it was a stock. I didn’t understand anything else about it. It, you know, I didn’t understand the concept of futures. I thought he was just trading stocks, and I would say when I got on the floor when I was 1516, he would start explaining, hey, we’re trading three months out or six months out on a curve, and I’m like, I don’t get it. He goes, well, we’re predicting where we think the market’s going to be based on what’s going – is there disease in the hog world, right? Or that could affect hogs, and that’s going to affect prices and supply and demand. But I really didn’t get it until I started taking classes as soon as I graduated, and I said, I don’t know if I want to do this. He said, just come down and try it. And then, within weeks, I just was like, I’m not leaving. So I learned it. I took every class that was offered at the CME, so I could learn, because he said a couple things to me that were really relevant. First thing he said is, you’re Schwartz people are going to open the door for you, and you’ll probably get some good interviews, but you’re Schwartz, they hate nepotism, and they’re going to want to see it fall flat on your face. And he goes, “I’ll help you get your first job as a runner, you’re on your own after that. He goes, “You’ll never work for one of my companies, and that was it.
Jeff Malec 07:57
So, besides the high school, you, you were never a clerk for him,
Bobby Schwartz 08:01
no, never worked for him. He wouldn’t hire me, other than, you know, in high school, that was his, that was his demo. He’ll be supportive any way he can, and that was his thing. But he’s like, you have to use, I’m gonna help you do whatever you can, but you’re gonna have to do it on your own here, because that’s how you’re gonna earn respect. And when my brother and I were the same way,
Jeff Malec 08:20
was there an unwritten rule you couldn’t go in the hog pit, so you weren’t like you can’t work from, but don’t work against me.
Bobby Schwartz 08:26
Well, yeah, I mean, plus I just didn’t understand, you know, agriculture, it just wasn’t my thing, right? We traded equity indices primarily, and then some eurodollars and whatnot, but and then crude and some of the energy quadrants, but through carrying brokers, while we were on the floor, through Commerce Bank of Germany, who was then sending the flow to the Nymex floor, which is a whole nother story, but yeah, no, we didn’t cross paths, he was on the same floor, but about, you know, a couple 100 yards away, and I’d see him, I’d say, hey, what’s going on. You know, obviously had great respect. He was like the mayor of the floor. He’s helped. He’s just a phenomenal man. I mean, he’s created 1000s of jobs for people, and his reputation was great. He sat on the board for, I think, 16 years. He was vice chairman of the exchange. So, I, you know, for Benji and I, we are very fortunate to have such a role model and someone we respected, who had a tremendous amount of integrity, and every time now I go elsewhere throughout this world, even in China, to a certain extent, or Leo Mohammed, who’s a fantastic guy, everybody respected my father, and everybody asked, How’s he doing? He helped me out so much here, he helped me out so much there. And I think one of the reasons why Benji and I’ve had success down there.
Jeff Malec 09:47
Benji’s your brother,
Bobby Schwartz 09:48
Benji’s my brother, who was also a trader, and granted, we were lunatics in our own way, but we never wanted to mess with his reputation. That was the biggest thing. We never got into drugs, we never did anything. Stupid, because his reputation was more important than ours.
Jeff Malec 10:14
Something you said he started as a pit reporter, like people probably don’t even know what that is. What was a pit reporter?
Bobby Schwartz 10:19
Well, so nowadays when you make a trade electronically, the market is instantly reported globally, and it’s happening split seconds. Back in the day, you had people that were writing on trades that were on chalkboards, and then there’d be somebody on the phone with Japan, somebody on the phone with, you know, banks, depending on what market it was, and that’s how it would get reported, and so it was happening over minutes versus now it’s it’s real time instant gratification type quotes,
Jeff Malec 10:53
and you were you ever sitting there when you were trading and like this needs to go electronic, this is messy, this is or you were so in the flow and you’re like, it worked at the time, for what it was
Bobby Schwartz 11:03
at the time, you know, so when we, when we, there was only a couple markets that were still chalkboard when I started back in 9798 and that was the milk and dairy pit and eggs, that was insane to me, but we had pit reporters in our, in our pit, and every time you’d make a trade, you would sit there, and let’s say you did seven on 10, you know, you go seven seven trade like that, that was seven for Arb, and they would immediately click it, and it would go global, and and the pick was very efficient, there was a tremendous amount of integrity, but just like any publicly traded company, or company that’s going to be going public, you have to figure out how to bring in the masses and and get more access and create more efficiency, and so CME was really a leader in that in creating the mini contract, but the mini contract at the time, when it came, it made a lot of sense, but it had some outlying issues that they had to work through for several years,
Jeff Malec 12:08
and could you have ever seen that the mini would kill the big S P? Right, that seemed like no way that would ever have
Bobby Schwartz 12:15
never. I mean, the first, the first couple years, like it just, we were like the mini contracts at joke, when you know, I mean, we’re talking about the Nasdaq, was in the 2000 handle, right?
Jeff Malec 12:28
Yeah,
Bobby Schwartz 12:28
2200 2500 you know, it wasn’t even close to where we were today, and back then it was, you know, the net, I mean, you talk about the top 510, stocks, kind of like now represented, you know, 90% in the index, I, and I can get into the style of trade that we did, and I know you want to talk about that, but you never, when the mini came out, it was five minis to one, the biggest challenge was it was supposed to make it efficient for people to be able to trade it, and because the margins got higher, because the, you know, the price of Nasdaq 100 went up, people couldn’t trade it as effectively if they needed to get something, so they created the mini contract, which was five times a brokerage for CME, FCM is the whole deal, the problem was then the mini was off by the pit price. If the pit price was paying, you know, trading at 40, the mini was trading at 90. And what
Jeff Malec 13:30
year are we talking here? Roughly like 98
Bobby Schwartz 13:32
no, probably 2000
Jeff Malec 13:35
even into 2000
Bobby Schwartz 13:37
Yeah, and, and you know, so you had all that inefficiency, plus the contracts weren’t fungible, which happened when oil e-minis came out as well. So you had the post margin for minis and the outrights in the pit, and it became very expensive. And even though emphatically or synthetically you were hedged, right, you have one Nasdaq in the pit, you have five minis, you’re there, you’ve locked it in, but you have to unwind it, and so it was, it was really, it wasn’t effective, but because the spreads were so massive, it was worth the trade, and so we saw a lot of people that were on the floor also get on headsets and have these younger guys that were, were computer savvy, when I say computer savvy, like they knew how to email right in Georgia, keyboard back then, and so they were trading the minis versus the pit, and that’s how that big R came, and I saw guys that were smart that you know, if Trend was your friend, you made a million bucks, going to making $25 million a year
Jeff Malec 14:40
of doing that arm,
Bobby Schwartz 14:42
doing just that arb,
Jeff Malec 14:44
and
Bobby Schwartz 14:44
then obviously there’s larger arbs that came into play with some of the bigger groups, which we did, but
Jeff Malec 14:51
and so
Bobby Schwartz 14:51
big, and
Jeff Malec 14:52
yeah, but so you were in the Nasdaq when the bubble burst, when it all went crazy in that pit, I would, and
Bobby Schwartz 14:59
yeah.
Jeff Malec 15:00
Two questions. One, they tried to launch the Nasdaq, make it a thing. In the beginning, it was very thinly traded, and nobody really wanted to do it, right? So, were you alone in there?
Bobby Schwartz 15:09
No, there was, uh, yeah, there was probably about 10 guys. I mean, we were in the right place at the right time, right? They were just building a bigger pit, because, you know, the tech stocks were coming out, and it was becoming.. I remember it was like
Jeff Malec 15:19
up to the left, there, right, was on it, like raised up.
Bobby Schwartz 15:22
If you’re it was right above the S P pit, the Nikai was next to us there, which was about three people, and, and so our pit, while the becoming, because the volatility, became the most popular pit. People were flying in all over the world, trying to become members, and would wait in line to get in the pit, one in, one out, but my brother and I represented 80% of all the institutional order flow, so we were talking with, I mean, household names now, as well as all the major banks, and everything that way. Retail wasn’t a thing, and so that market was intense. When you had errors, they weren’t $5,000 errors, you’re talking about, you were hung for hundreds of 1000s because the market movement was so volatile. Now
Jeff Malec 16:07
to 6000 maybe, and then down to 4000 or something. It was
Bobby Schwartz 16:12
actually grew, yeah, but you know, if you had a 300 handle market move,
Jeff Malec 16:17
yeah, that was
Bobby Schwartz 16:18
insane. Greenspan would talk, the market would just collapse or go up, right, and it was a vacuum, so you couldn’t get out of it. So, if you were trading and you were on the wrong side, you either just blew out, or you know, or have a big problem, or you made money. I mean, a 10 lot on 100 contracts, you know, on 100 annual move, you’re losing a million bucks, right? So, in the big pit,
Jeff Malec 16:45
and take it through, like as a local, right? So, Goldman saying, ‘Hey, we need to buy 200 Nasdaq futures. You’re filling that order, that’s how it used to work. The banks, all those traders would call in, need to get something done. So, just give people who don’t know how that all worked, how that worked.
Bobby Schwartz 17:02
Sure, so you know a pit. I’m hopefully most people understand what the pit looks like
Jeff Malec 17:07
in the picture behind you. Go to YouTube and
Bobby Schwartz 17:09
exactly, so on the outlining part of the pit, there would be clerks, and those are what I was
Jeff Malec 17:16
in the bond pit. Yeah,
Bobby Schwartz 17:17
everybody in the yellow jacket on the CME floor was a clerk, anybody in another colored jacket was a member of the exchange, and, and that could mean many things, you’re a trader, you’re a broker, you’re both, so the banks were all on the phone, and let’s say Goldman or Deutsche or UBS, they would sit there, and let’s say they had, you know, they wanted to work an order at $70 on 20 or 20 at 70. They would flash in the order to my clerk, say, “Okay, I want to pay $70 on 20, and the clerk would come in and give me the order, and if it were on the market, I would put it out in the marketplace. I go, “What’s here, you know, to the overall pit, and they’d be like 6575 and I go 70 bit on 20, you know, something as simple as that. But sometimes when you have orders of like 2000 contracts, you knew you were moving billions and billions of dollars right there, and if people got in front of you and they said buy 50, like if you love them there, you’re gonna really like them down here, because we’re gonna write you over.
Jeff Malec 18:27
Yeah, so you were like a human algo back in the day, right? Like, you were doing your own iceberg orders and whatnot, like you couldn’t show too much, right? You had to board the customer, like, hey, I’m gonna work this order to get the best price for you.
Bobby Schwartz 18:39
Well, they either would say, “Get it done now, right? And, or, like, you know, they’d say, “Buy 50 at the market, or they go like this: you have DRT five minutes, and I have five minutes yet to get the order, which is equivalent of, you know,
Jeff Malec 18:54
yeah,
Bobby Schwartz 18:55
some sort of, you know, Vop, T-Wop, you know, iceberg, whatever it may be, and at four
Jeff Malec 19:00
and a half minutes you’re freaking out because you still have 90% of it to do, like crap,
Bobby Schwartz 19:04
yeah, but yeah, I mean, as soon as you know that you know you’re looking at synthetic cash baskets, you’re looking at certain stocks, you’re looking at news based on what time of the day is, you’re seeing what the S and P markets doing, you know, usually we were an indicator for them, but we would see them moving and you have these cash rubber bands models that you would look at, and if you saw it kind of getting away from you, you know, and it was 70 bit at, you know, 80, I would immediately go to Susana or Timber Hill, which was Peta Freeze Company, and I go make a market size up, and they’d be like 60 bid on 500 and I just go whack, and I just start whacking, you know, getting this, getting the orders done, and then the market would fall apart because they would be hedging against options and data cash baskets and whatnot.
Jeff Malec 19:49
I’ll reiterate, for those of you listening, go over to YouTube, because we’re seeing all the good hand signals, touching the ear, DRT, some wiggly fingers, is what’s there.
Bobby Schwartz 20:00
Yeah, you always knew, like, what banks were doing, what, because everybody, like, Poo Bash, Bash, face, you know, Goldman Sachs, you know
Jeff Malec 20:07
what was Goldman, like a ring,
Bobby Schwartz 20:08
Goldman was touching the ring, yeah,
Jeff Malec 20:10
and should we say Deutsche was
Bobby Schwartz 20:14
no, Deutsche wasn’t that, Deutsche was this, because they were lunatics, I
Jeff Malec 20:29
Real quick, you, you mentioned the guys in other colors are members.
Speaker 1 20:32
Yeah,
Jeff Malec 20:33
I don’t think most people know. Talk about you actually trade the membership like any other market, right? You buy a membership, there’s a bid, there’s an offer. Still, as of today, I think it trades as
Bobby Schwartz 20:42
of today. Yeah, it was a commodity, I mean, you know, you, there’s different levels of membership that allowed you to trade different types of products. There was one membership called CME that gave you global access, and this is before CME Group bought Nymex and but just for simplicity purposes. And then there was IOMs that allowed you to trade equity indices, and then options across the floor, and then IMM, that international markets, currencies, and whatnot. So, yeah, I mean, they were a commodity based on what was happening, and as more prop firms came into play that were becoming members that wanted to get smaller fees for X, you know, clearing fees or exchange fees. They would start bidding up the seats, and that’s how seats kind of went super bid. And then obviously we went public, and they did A shares, B shares, but, but yeah, so I was in the NASDAQ, brokered NASDAQ, traded spooze, and I would flash in my orders to a broker, just like how I was in the Nasdaq into the S&P bit. So, you were trading
Jeff Malec 21:49
S and P for your own account and filling orders in Nasdaq, but that’s weird. So, you were trading S and P from outside the S and P bit,
Bobby Schwartz 21:57
right? But that’s no different how the banks were calling it in, and yeah, right, so I was flashing into a clerk who was giving it to a bro, you were
Jeff Malec 22:04
more taking positions, you weren’t necessarily scalping in the S P,
Bobby Schwartz 22:08
no, we were, we would scalp, I mean, I was probably trading anywhere from 50 to 250 contracts at a pop, and this is when it was worth, you know, a 10 lot was 25 grand, so if we were able to get five six handles out of it, and then you know you’d lighten up and try to take any, and you know more, but we also would then be able to mitigate some of the exposure, but yeah, we would trade spoons. My brother and I were a deep, my brother was a bigger trader than I was, for sure, but yeah, we traded spoons, we traded energies, so crack pipes, red stuff like that,
Jeff Malec 22:43
and then it all, you said I’ve had enough. How’d you? Why, why, and how’d you lean?
Bobby Schwartz 22:49
So, simultaneously, Benji and I, my brother, started a prop firm trading the minis. When the minis really started coming out, we had no one on the floor, we’re like, we’re gonna go build an electronic business, and we built it up to about 40 guys trading all futures products, and then we sold part of it, and I think Benji and I were just like, great, you know, we’ve had our heyday, I was 20 something years old, and thought this was, you know, this changing
Jeff Malec 23:17
wasn’t starting to look like it’s all going electronic, everything
Bobby Schwartz 23:20
started looking, I was going electronic. I left the floor in really oh five, but was there until oh eight, and was really focused on the electronic trading part of things. And then I wanted to get another on other markets that I thought were inefficient, which were equity option markets, and and back then the equity option markets were wide, so you could sit there and buy an option on current day Nvidia, right, and it was a dime wide, and we had built gray box type technology, think about black box, but allows human interaction to get in the orders, and then the trader would get out of the orders, and so that was me, and I brought Ed into a couple years later, but we wound up backing close to 120 guys to trade for us between Chicago, New York, and Philly, and we called it Edge and Hedge, and built a pretty good business out of it for about seven years, and then we were regulated out of that, and that’s kind of when I started RCM. I had a little diversion after one of the businesses where I left didn’t leave the industry, but I left Chicago
Jeff Malec 24:33
and go back to the prop firm days. So these guys were just salary, are they putting up their own capital and getting a share their profits. Well, nobody put up their own
Bobby Schwartz 24:42
capital. We, they would get a share of the profits, and usually they get 40% and they’d level up to maybe 60% at the highest, but usually we never went above 50. But we were had different types of traders trading different products, right? We had guys trading energies. Are primarily, you know, equities, but some doing it more high frequency, capitalizing on fundamental news, and our trade would be intraday, or before the open, when certain Bloomberg consumer sentiment numbers came out, which was a really relevant number back then, and we would just be trading those in the spreads in the, in the way we were doing it, we were getting back then. You could pay Bloomberg, I don’t know, it was like 15,000 a month to get the news five seconds before or three seconds before, and it was us, it was Citadel, it was Peak Six, Escalanta, that we’re all doing it, and and so we, we did well. We were very fortunate, so we had different people trading options across, you know, certain verticals and and time horizon. So we had about, you know, what you’d see as a modern day pod shop, let’s say a millennium, but public facing, we had different pods on the trading the futures, and then ultimately we traded synthetic cash baskets against it at the Amex, the Sibo, and then the Nasdaq futures, and what I mean by that, it was Susquehanna and Timber Hill, and then we were the other big player in it, you would trade the futures markets just like I’m saying, but we knew that that top 10% of those stocks were really about 80 plus percent of the overall index, and so we would trade the futures and see where the options price were, or the Amex price on the Q’s, and if we would immediately hedge out there, and we knew we were making a spread one way or the other, or we had a synthetic cash basket where we buy and sell these top stocks to lock in our profit, so
Jeff Malec 26:44
dirty dispersion trade, they call it these days. What, what are your thoughts? Did you see back in the day there were a bunch of prop firms all over the country, or were they mainly in Chicago?
Bobby Schwartz 26:55
Chicago prop has always been Chicago.
Jeff Malec 26:59
Why do you think that is?
Bobby Schwartz 27:01
I think, because a lot of these groups came off the floor, you know, you
Jeff Malec 27:05
could have had, like, come off the New York Stock Exchange, and yeah, it’s just weird that it became a Chicago thing.
Bobby Schwartz 27:11
Then the New York Stock Exchange, that mentality of New York was completely different than the mentality of Chicago. Chicago were much bigger risk, they do
Jeff Malec 27:19
tell, yeah,
Bobby Schwartz 27:20
I, you know, and I was in New York for a while, and back and forth from New York and Chicago, Chicago prop, they, everybody came out of programs, right? I’m not talking about the bank programs, you came out of O’Connor, which was where our other partner, Ed Sweeney, came out of, we’re talking about the most elite traders out there, they’re like the Navy Seals of trading, people think turtles are, yeah, they’re, they’re, they’re great for hedge funds and whatnot, but the real traders from O’Connor have gone on to build the biggest prop firms in the world. I want to
Jeff Malec 27:55
write a book someday about that, before all those people die, right? There’s 10s of billions, if not hundreds of billions, being traded by alums of O’Connor.
Bobby Schwartz 28:04
Oh, absolutely. I mean, some have gone on to run massive global banks.
Jeff Malec 28:08
Yeah,
Bobby Schwartz 28:08
I, you know, massive private equity. They’ve, you know, I mean, if you, if you talk about the biggest prop firms that you know about, they’re all former O’Connor guys. It’s just the reality of it, it’s the brilliant ones.
Jeff Malec 28:23
Do you think the New York versus Chicago was New York, they had IV education, and whatever happens, they can fall back and they’ll get a good job, and the Chicago guys were more like, I got no education, I got to make this work, or else, right, or else.
Bobby Schwartz 28:38
I think we run a pretty sophisticated company at this point. When I was on the floor, there were people that could barely tie their shoes, making millions of dollars. I mean, if you were on the street, you’d think they were homeless, and you would think they were one of the biggest bumbling morons you’ve ever come across. But they were great traders, and they started off as clerks and runners, and somebody wound up badging them up, and they’ve gone on to make a lot of money, and most people, when the floor is closed, were not able to do that and convert, so now they’re all working union gigs for the city. So, but yeah, I would say the big difference was Chicago was that the education was a big thing, but also we were bigger risk takers, right? In New York, you’re working for really institutions, and you were trading stocks. They didn’t know futures. NYMEX was kind of, you know, a rare thing out there, even though it was growing. It just wasn’t the same thing as really Chicago, because Chicago was home to anything and everything futures. All the FCMS were based out of Chicago, you know, you name it, it was here. Investment banking was New York, trading was Chicago,
Jeff Malec 29:52
and then we can get to that later, but I’ve always argued, I feel like with a lot of the products that New York. Coming out with they’re kind of like taking that from Chicago, right? Like we’re gonna wrap this futures trading inside an ETF, and now you don’t have to go to Chicago to get your futures exposure, you can just do it through this ETF, you can do it.
Bobby Schwartz 30:12
I mean, hopefully the underlying still trading the futures, right, and central clear and whatnot. But yeah, I mean, there’s there’s a lot of different ways to get exposure, you know, back in the day, if you want to trade S and P, you’re trading it on the CME, right? You want the trade off, there was no other routes to trade this, even the indicators were very different when I was on the floor as to what they’re now. There’s 1000 indicators, versus back then there were like three or four that you really paid, you know, focused on, because you didn’t have global markets back then, it wasn’t really part of the thing, you might have had fundamental news that was global, but everything else was really a couple different indicators, but you know, I would, when I was in New York, you know, as a young guy doing okay, you always knew the New York trader that worked at a bank versus a Chicago guy, because, or when we would be out in Vegas or Atlantic City, we would be playing x amount of money at the tables, they’d be playing a little bit less. We’re talking ticks, we’re like, “Oh, that’s a, that’s a tick, you know? You lose 10 grand, that’s a tick, you know, and they’re kind of like they got the penny loafers on, you know, the just a different type of group, right? I mean, they were all Ivy League and working for the banks and have gone through programs, and that was their destiny, I
Jeff Malec 31:44
So you left the floor, you’re doing the prop firm somewhere between there and RCM. You were in LA for a bit. Give us a quote.
Bobby Schwartz 31:52
We had a bit of an exit on some of the stuff, and then we let the prop room kind of run itself, and some of the guys from Ninja were working there, and you know, ultimately went on to Ninja and creating their own IB, but yeah, so Goldman Special Situation Group, I wound up going out there, always wanted to get in Hollywood. When I used to get smoked trading in a day, I’d go to a movie by myself for two hours, and that was my escape. So I always wanted to do this, and I always was gonna live right, and then if I hadn’t done it, and then some guy came up to me who used to be a bond, or you
Jeff Malec 32:26
thought you like wanted to be an actor.
Bobby Schwartz 32:28
No, no, no, I didn’t know what I wanted to do, but I wanted to be in the business, and so some guy came up to me, he knew Jamie Lynn Sigler, he was managing her from The Sopranos at the time, Sopranos were the biggest thing in the world, so I backed him on his management company, and then it kind of spiraled from there, and I got to meet more people, and then somebody said, I some young guys from USC, like, we want to go to this, and there was like 10 of them trying to do a production company, and I said, I’ll finance it, but I want him, everybody else aspired, and I want nothing to do with these other people, even bringing on a value. And I came at it with a trading mentality, like a zero sum game, and put a factor model together. And then ultimately did some consulting for Goldman Sachs on their special situation group, which was a multi, they
Jeff Malec 33:17
were essentially funding movies,
Bobby Schwartz 33:19
they were looking to fund and put a billion dollar co-financing slate together, and then also looking at independent film and seeing where the edge was, and there was edge back then, and that was kind of like the Roaring 20s and the Golden Age of Hollywood. It was back with independent film, and to me it was a trade, that’s all it was. It was an ARB, like Blair
Jeff Malec 33:41
Witch Project, we’re talking like that, was
Bobby Schwartz 33:43
that was an anomaly, right, and that was, by the way, produced and financed by Chicago Ford Trader, but it was more so let’s say you did a movie like my, my thing was taking a movie like a movie called Unknown, that I did. It was a contained thriller, you know. You’re not moving around Teamsters and stuff like that. Everything is kind of within the warehouse. There’s some outdoor seats, and we could, based on the names that were in the movie, I was using a foreign sales agent to sell different territories inside of all of Europe and Latin America and Asia, and if I knew the movie was costing me $10 million for example, I could pretty, pretty much mitigate 85 my percent of my exposure in Europe and Asia, and leave 25% of the market still open for my upside, and then I would have domestic, my domestic sale as well, so and then I would usually do it in a state, make the movie in a state where I’d get subsidies, so where if I spent $10 million in that state, they’d give us two and a half million back, so already I’m net net positive on the movie. Me, it’s just a matter of how much you know we’re going to wind up making,
Jeff Malec 35:03
and where the studios were just like we’re going with this vision, and they can spend up to whatever, and
Bobby Schwartz 35:09
yeah, they would have a tent pole type movie, or they were doing 50 $60 million movies, they weren’t interested in the small movies, although they would buy on movies, right, because they wanted the content, and they thought it was a breakout movie. Sadly, I did a bunch with a person who was very bad, who’s now in prison, and, but you know, we were.. we knew that in foreign sales everybody understood bang bang, shoot ’em up type mentality, thrillers. If you came with a comedy, which I did a couple, it’s you can even big names, they don’t understand the American sense of humor. So we created a factor model, it worked, but during that time I started my equity option firm, put up money, and next you know I’m putting up more money, more money, it meant a lot of money, and we have 60 guys, and I couldn’t manage the risk from from Beverly Hills.
Jeff Malec 36:07
So you were going back and forth for a bit.
Bobby Schwartz 36:09
I was going back and forth. It got to the point where I was going to New York on a Sunday, landing, landing on a Monday morning,
Jeff Malec 36:21
like red eye,
Bobby Schwartz 36:22
red eye, spending four hours in New York. Our office was at Two Rector, taking the bullet to Philly, spending the clothes there, going to Chicago for a day, and then flying back. So, and I did that every week for probably about a year, and then it just, I’m like, I’ve got a bigger chance of trying to build a citadel and convincing myself I can make a billion dollars with my equity option firm and always get back in the movie business, but, but I did a bunch of stuff in Hollywood, I’m very kind of proud as to what I did there, I worked with every major actor, writer, director in town,
Jeff Malec 36:56
right to your left, off camera is your whole reel of the big what are those called?
Bobby Schwartz 37:02
The 35 millimeter prints.
Jeff Malec 37:04
Yeah, the 35 millimeter reels.
Bobby Schwartz 37:06
Yeah, yeah.
Jeff Malec 37:07
What was, were they like? Who is this crazy Chicago guy? Like, were they hadn’t seen a trader personality like yours?
Bobby Schwartz 37:14
I definitely not. I mean, but I also knew my edge wasn’t coming in there as a creative person, right? If I said I’ve got this vision for a movie, they would say, ‘Get the hell out of here. Who the hell are you? I came in and said, ‘Hey, I’ve got a big wallet behind me, which I didn’t necessarily have back then, and I said, ‘I’m going to be making movies, and I have a model, and I’m going to fit in that model, and I had a very, very famous family out in New York, who everybody would know their name, who I knew very well, and this person had said, ‘I’ll introduce this guy named Ari Emanuel at WME. At that time, it was Endeavor, and came in, and you know, got into it with him straight away, because he’s a lunatic, and he’s like, I like this guy, let’s sign him, and I said, essentially, listen, if you don’t want to work with me, that’s fine, I’m going right to CAA, and I’m going to spend my money there, so let’s figure this out, or not, and that’s when he said, I like this guy, but I worked with every major agency anyways, you had to, but my edge was, I hired the right attorney straight away that could get me in the door and help me find scripts that represented writers and actors.
Jeff Malec 38:28
You were almost doing a little Netflix model before Netflix, right? Like, hey, we’re just trying to get content and make money versus artistic vision or whatnot.
Bobby Schwartz 38:38
Yeah, I mean, I, you know what blew my mind out there was that everybody was creative, and when you’d walk into, move in a room with a guy like David Ward, who done the sting, and you know, I mean, just massive movies, French Connection won an Oscar, it was probably six years old, he had written a script called The Boys of Summer, and it was a phenomenal movie. Essentially, you ever seen the movie The Replacements with Keanu Reeves was conceptually that, but was about the Chicago Cup, so I was interested. Where the farm team had to come up and play the World Series, and they wind up coming in and winning, and I was all about the money, and he was like, “Well, we can creatively do this. When I go. No, we’re not doing that, like we’re not filling Wrigley Field with, you know, 25,000 people, because I knew the cost of extras, whatever else. And you just had creative differences, but you get these younger people that were, so, you know, writer, you know, directors that just, you knew, not take advantage of, but you can control your own destiny with them and figure out a better way to deal with it, and same thing with actors, you know, you’d get big actors that would try to get something made, like Forrest Whittaker, who had just won the Oscar for Idi Amin, and his agent put him in touch with me, and I was at Warner Brothers at the time, and drove on the lot, people were so. Star Shrugged, because he just won the Oscar, and I decided to do a script, just because it was Force Quiger, and he just won the Oscar, and I thought it was pretty cool, even though it was probably one of the worst movies I had made, but, and I made a lot of bad movies, so that’s saying something, but it’s he was
Jeff Malec 40:22
in
Bobby Schwartz 40:23
it, what’s that?
Jeff Malec 40:24
He was in it,
Bobby Schwartz 40:25
yeah, he was the star, was my producing partner, you know, I, Jessica Beal, Ray Liotta, Patrick Swayze’s last movie, Lisa Kudrow, Chris Christoperson, Eddie Redmayne, who’s gone on to win multiple Oscars, I, it was a great cast, just our director turns out, was doing heroin, and you know, but we wound up doing okay on it, and you know, Jess Cabal is a big actress, then obviously Ray Liotta would call me an asshole every day, and I gave up, you know, the departed for this, and I said, Ray, if you gave up the departed, you’re an idiot. We’re, you know, a $12 million little independent movie, and you know, but he was a lunatic, like you got to know all these personalities, right? You know, hanging out with Patrick Swayze for eight months was just one of the coolest things in the world. You know, going over to Prince’s house, and you’d be like, this is insane, but it kind of became the norm. But you know, listen, I got to know Clooney very well. Went to his house in Como many times. I’m going to be out there in a bit. I’ll give him a call. You got to travel around with these people, and you know, when you’re on location somewhere, it was just the greatest, because they were normal people, you know?
Jeff Malec 41:37
Yeah, that’s the takeaway, right? They’re just normal people, yeah, doing a job, so somewhere in there you said, ‘Hey, I need to get into the managed futures business now. I didn’t
Bobby Schwartz 41:57
understand what the managed futures business was. I said let’s create an IB, and because I was part
Jeff Malec 42:06
of the prop firm,
Bobby Schwartz 42:07
yeah, it’s kind of like a broker dealer, which we had had, and and so we’re like, let’s see what happens here, was oh eight, there was a lot of problems with people getting clearing and access, and you know, the services that the banks would provide now were were totally gone, as far as because of compliance and costs and whatnot. We said, okay, maybe we can step in and try to do this. So we got the license, and all of a sudden, you know, MF Global blows up, and it was like right out of a movie, and I’d met a couple of the people here, like Paul Riger, who is a partner now, and they were lost. They didn’t want to go to another FCM. They took a stab on me, and I took a stab on them, and we’ve successfully built a pretty good business over the years. But I would have to go to your website and attain, and that’s how I educated myself on unmanaged futures, and I would sit there, and to me, they were hedge funds, Soros was a hedge fund, you know, I used to talk to them on the floor, and really their CTAs, they’re registered across the board, but I didn’t know what a CTA was, that was foreign to me, I was a trader and ran a prop desk, and so I had to learn the industry, and luckily the people that came over to RCM really gave me a good education,
Jeff Malec 43:29
and that was 2010 2010
Bobby Schwartz 43:33
2010 and we’ve been consistently building since, and you know I understood I’m a strategic thinker, figuring out how to build and, and where I think there’s edge, and looking at competition and doing SWOT analysis. What are the banks, non-banks doing? What are other groups doing? What is the need in the industry, and surrounding myself with everybody at this company allows us to be on entrepreneurial with calculated risk, and that’s how collectively we’ve built the firm.
Jeff Malec 44:07
So, we don’t, a lot of guests, we’ll talk about it in passing, but we never really get to hear what RCM does, which is more my job to tell people what it does. But you’re on the hot seat today, so give, what does RCM do? Why is it important, and how is you talked a little bit, how it’s grown into that, but as of today, maybe contrast that, like in 2010 what was it doing as of today? What is it doing?
Bobby Schwartz 44:32
2010 we are simply a broker, right? We are trying to get CTAs to clear us, or via one of our FCM partners, or execute it was very simple, that was it. It was a relationship-based game. As we’ve grown and acquired a couple companies selling one of them, we realized our niche was serving two different clients, and it took us a long time to figure out how to navigate this one, being all things traders, which is. What we are now, because we have multiple clearing solutions across 10 plus FCMs, we’re able to facilitate whether it be proprietary trading groups, high frequency PTG groups, CTAs, hedge funds, commercial hedgers, ETFs, mutual funds, you sits on all their clearing needs, and making sure they have the right clearing firm based on what their style of trade is, whether that be just general risk, margin, technology, it could mean many, many things, and we’ve done those are asset
Jeff Malec 45:42
managers, mostly, but then also some prop firm traders,
Bobby Schwartz 45:45
correct? I, which is what I used to do back in the day.
Jeff Malec 45:49
Yeah,
Bobby Schwartz 45:49
so yeah, so figure asset managers, let’s just, we can stick to that, like CTAs, CPOs, hedge funds, mutual funds, ETFs, and so they’re utilizing us for their clearing needs across redundant FCMS, but they also, many of them use our 24 hour desk six days a week, which is very unique and very rare, and provides a tremendous amount of value. The banks and non-clearing FCMS, or non-bank FCMs, I should say, don’t really provide this service anymore, and so when we started this, it was a loss leader, and it was something I wanted to get rid of so much, because I posted a
Jeff Malec 46:28
few meetings saying, “Hey, if they’re all trying to get out of it, why are we leaning into it,
Bobby Schwartz 46:32
right? And it turned out to be a really good thing for us financially. Yes, it worked out, but also we provided a service and an expertise, and built our own order management system and execution system into all the exchanges, including China, which we can get into,
Jeff Malec 46:52
and the street term for that now is outsource trading, like we never really called it that, we said we have a desk, but really it’s outsourced trading,
Bobby Schwartz 46:59
correct? So now we, so we run this 24 six outsource trading desk, which allows ETFs, hedge funds, mutual funds, whatever else to reduce their head count and offset that risk by passing it on to us to manage and execute their flow based on what the criteria that they gave us is, and we can do that in many ways, whether it be voice or files that they send us. It’s a pretty, pretty great system, and so therefore that helped us keep and retain clients. And I think that’s kind of the story of RCM, is as we’ve grown, we try to figure out how to add more services to help facilitate clients’ needs, and as different clients and segments of clients, such as ETFs or mutual funds, have come into play, their needs are different than, let’s say, CTAs or hedge funds, and so we’ve had to adapt, and that’s one thing we’ve done that no one else has been able to do is that we adapt very well to provide that value to our different clients, and that could include like clearing execution, back and middle office support, marketing help, helping define what they want to do when they launch an ETF, working with the entire ecosystem of an ETF, mutual fund, auditors, you know, legal, whatever it is, to help them come together and create a successful vehicle for them to trade and ultimately make money, which allows us to make money as well. The other side of the equation is that
Jeff Malec 48:38
before you go on the other side, talk a minute on the right, people think of clearings, just whatever, that’s easy, these groups do it, but as clients get bigger, the needs change, right? So talk for a minute about capacity and risk, and yeah, you can’t just go on to interactive brokers and buy,
Bobby Schwartz 48:57
yeah, 100,000
Jeff Malec 48:58
VIX futures,
Bobby Schwartz 48:59
right, that’s a big misnomer, right. So, as you become larger, let’s say you go from a million bucks to $100 million The clearing firms only have a certain amount of money to offer out to all their clients, and so there’s capacity issues, and it’s all going to come down to how much are they going to make off any individual client and what is the risk associated with that client and that’s going to determine how much capacity of their money they’re going to give you
Jeff Malec 49:31
and that’s all part of the how the system works the the clearing rooms have to post capital the exchange as a backstop in case someone blows out so that every trade is guaranteed for like every
Bobby Schwartz 49:41
trade is guaranteed, and it actually starts with us, because we guarantee the trades, and the FCMS lean on us, and then the FCMS then guarantee the trades, and then the exchanges and default funds guarantee those trades. So it’s worked for north of 100 years. It’s a great system, and fortunately. You’ve never had any major, major issues with that. Now, when there’s capacity issues, now you’re getting into billions of dollars, potentially they need access to margin or potentially different product suites at different FCMs. The benefit of RCM is that we will manage that entire process for you. We will set up the paperwork. We have all the information, and because we have the relationships with the different different FCMS, and the amount of business we do at these FCMS, we have the ability to get stuff done fast, effective, and very efficient to make sure that there’s no downtime. We have the proper redundancy, and the FCMS know that because of our size of our FCR of RCM, our risk group internally at RCM, we’re a pretty well-oiled machine, so they really rely on us to do 95% of the heavy lifting, and they just then get it done based on what we’re looking to do, so and that’s a big benefit for these clients, and it’s a real problem in the industry right now, is that capital is scarce, the banks are either wanting to be in the FCM in the futures business or not, they’ll facilitate it with their huge clients that are, you know, 25 you know, like a citadel, they’ll facilitate or a big pension because they’re making money across four other areas at the bank, versus a lot of these middle market groups, where I think we try to focus on, although we’ve had clients start with 10 million that have now gone up to 60 billion, right, having multiple ETFs and whatnot, they need, they need guidance, they need expertise in futures in, like what we do is very niche and a very specialized expertise, and that’s what we focus on, and so we’re able to really help out in every aspect of it, certainly on the ETF mutual fund side, where there’s such a massive ecosystem that we help navigate and drive that on behalf of our clients,
Jeff Malec 52:07
right? It’s almost that the ETF space is bigger than the future space, but they need the future. So, how do you navigate that? How do you get that big square peg into that small futures round hole? Is what we’re solving for,
Bobby Schwartz 52:19
exactly. I mean, and you obviously, there’s more ETFs. I don’t know how many there are. I think there’s 12,000 or something now. I think
Jeff Malec 52:25
there’s more than securities, right?
Bobby Schwartz 52:26
Yeah, more than securities, more than words that you can put together with the
Jeff Malec 52:32
output.
Bobby Schwartz 52:32
It’s a lot of people are coming out and launching ETFs. They don’t understand necessarily how much it’s in cost, how to do it, and whatnot, and they really do rely on us to help them navigate that in some cases, or I would say in most, we’re telling them you don’t stand a chance because of x, y, and z, don’t waste your time and money, which is equally as important, and then if they think they have a fighting chance, then we’ll help navigate the best way for them to do it, and once again, that’s one of the value adds, I mean, we look at a couple of the strategies that we have now that we’ve converted that we’re trading long on the equities, but traded the futures because certain efficiencies, and we helped them create the strategies and figure out the position limits and how to do it, set up the multi redundant FCMS, work with all the different fund administrators, and so on, and really are the connective tissue, making sure that all the connective tissue works together.
Jeff Malec 53:30
So that’s side one, asset managers, everything you do. And then I cut you off. Side two,
Bobby Schwartz 53:35
side two is really working with investors, and investors could be ultra high net worth looking to invest part of their portfolio into futures, because they like leverage, they like SMA, separately managed accounts, and we help put their portfolio together, and then once again set up the clearing and the POA accounts with the different CTAs, and do all the due diligence for them based on what their risk tolerance is, and then we deal with family offices, some pensions, endowments, some sovereign funds, all looking to us to help create that due diligence process, because of we manage all these, we’re always constantly doing due diligence on all the major CTAs, hedge funds and whatnot that are out there, and so when you’re a family office and you have 5 billion, or you’re, you know, a pension, endowment, insurance, or whatever it may be, you’re not going to invest more than 5% of your allocation in the futures, even though if you’re putting $25 million in, it’s probably going to be trading like 50, which is a big benefit of futures, assuming that you’re comfortable with the risk, sometimes even more, but you’re going to depend on us to do that research. You’re not going to spend 50% of your time doing due diligence and research on what ultimately is going to be your 5% allocation. And we have a phenomenal team that does it. Also, one of the things, which obviously you run, you know better than me, is that we at. Apa funds, which, when Attanian came over to us at RCM, they had a fun platform, and that allows us to create fund to fund models for different investors that just want to sit there and plug and play and get access to certain exposure, whether it be on the offensive side, the defensive side, and then different types of products, and it will fit into once again their portfolio based on what they’re trying to accomplish.
Jeff Malec 55:28
I want to ask you, which side do you like better, like the managers or the investors better?
Bobby Schwartz 55:35
You know, I’m not good at dealing with investors, so it’s.. I don’t.. I can’t ask anyone for money unless I’m putting money in myself, so I like dealing with more the strategy, dealing with managers, helping them understand the nuances, dealing with the FCMS, the banks. I’m not good with sales. It’s never been my role, my role is to help sales people make sure they get what they need done operationally, same thing, and then really negotiate out the deals for any type of M and A business that we’re doing, or creating strategy, and then working with our, our, our highest level clients,
Jeff Malec 56:16
which is weird, you’d think you’d be great at sales, you’d like to talk, you got stories, I’ve got
Bobby Schwartz 56:21
great stories, you, I mean, listen, there’s a reason why you know Paul and some of these other guys pull me into dinners with some of our large because I, they love the stories, and also, you know, they also know I can be very serious and get the stuff done as well, so, but yeah,
Jeff Malec 56:38
money, and then who’s your favorite partner
Bobby Schwartz 56:42
at RCM?
Jeff Malec 56:43
Yeah,
Bobby Schwartz 56:44
yeah, you obviously, yeah, you know, the one thing I would say about RCM, which is really rare, is that our retention rate at the firm is unparalleled to anybody else on the street, right? Well, I mean, what are we 90 plus percent retention since we started a firm, so that could swing both ways. One to me, it’s like it’s it’s a testament to our culture, which sometimes works, sometimes doesn’t, doesn’t always gel. But we have a phenomenal group of people here. I don’t have to look over my shoulder, which is great, which obviously, as a trader, you always have to do that. We built a really good team, and once again, entrepreneur, we support our people, and we can get into China, ag, whatever it is, to go off and build different business units based on, you know, coming up with a case study in a thesis, and then we back into a compliance, legal, risk, money, you know, women, and then we back these guys, and we back everybody to try to go off and let them make more money, as well as us make more money. So we have a really great team that’s been here, but you know, I tell people we have a 90 plus percent retention rate, and they’re like, well, you’re not managing these people, you should be firing x amount of people every year, yeah, and, and so on, so it kind of swings both.
Jeff Malec 58:03
Yeah, so talk quickly to other, so outside those two main pieces, the business managers, investors dealing with futures, we have two kind of side types of the business, ag and China. So, talk about those two quickly.
Bobby Schwartz 58:28
Sure. Once again, Ag, run by Jeff Eisenberg, inside the firm, was a managed futures broker, essentially, and came up with this idea that, hey, we want to get in this part of the business, we have some people that are ag brokers, and, and so we said, “Okay, how much is going to cost? And we just got behind it, and we said, “Great, let’s go build it. And ultimately, now what do we have? 40 people on that, roughly 40 people in several different states, and we’ve been able to build a good business, not just on brokerage or crop marketing, but now trading the different verticals, and in working with massive financing companies, some of the largest in the world, that are taking clients that we have, whether it be producers or buyers, whatever you know, in Latam, Indonesia, whatever it is, and we help the entire process of the value chain, from, you know, the crop, figuring out the financing to logistics all the way across, as well as traditional hedging and whatnot. So I think it’s a
Jeff Malec 59:39
good example of the ethos of the whole business, right, of like, hey, we’re what do you need, what, and someone’s like, I need financing because I have this, I need to buy this grain out of Suriname or something, and I need the financing to get it on a boat, and we’re like, well, that’s not really what we do, but let’s figure it out, yeah, so that I think that permeates through the whole company, yeah, it’s really.
Bobby Schwartz 1:00:00
It’s, and it’s allowed us to grow. I mean, you know, you throw a little bit of shit against the wall, and you see what sticks, right? I think we’ve been good at saying, “Great, let’s go, and then realizing this is not going to work pretty quick, and just cutting it off, which is equally as important, you know. But we do take stabs, and we built the 24 hour desk, right? We bought out attain, we bought out the the Algo Group, which was called RCMX, where we saw that there was a need for algo execution in the business, and there was one player, everybody was paying through the nose, and we’re like, great, Ed, and I knew the technology, we knew the people that were running it, because we all traded the other back in the day, we bought it out from Web Bush, and ultimately we built this algo company, and we sold it to private equity three years ago, and still own a piece of it, and get an exclusive license, and whatnot. So, we’ve done some really interesting things, but it all comes back to, like, you’re saying, How do you service the clients? Like, what are their needs? What are the biggest pain points, and how do we solve for it? And fortunately, we’re well financed, right? We’ve never taken out outside dinner like that, and we’re able to take some risks that no one else has. I mean, you look at different IBS, they’re the kind of mom and pop shops, versus us, we’re really the size of FCMS, and we provide almost more services than FCMS, certainly, as it pertains to marketing and cap intro, and for our desk. Yeah, remember, we have four FCMs that utilize our 24 hour execution desk for their clients. So,
Jeff Malec 1:01:33
and you’ve thrown around before, like a mini prime, we kind of act as, right? It’s like we need a new category, basically, like we’re not really an introducing broker,
Bobby Schwartz 1:01:40
right? I mean, we also still have our – we have a broker dealer, we have an RIA. We – there’s a lot of different components of RCM that a lot of people don’t realize, but yes, when I go out there and I’m at an ETF event in Omaha, Nebraska, last week with, you know, a bunch of different issuers and RIAs, I see where Mini Prime on the future side, because that’s really what we
Jeff Malec 1:02:01
do. So, what’s next, what’s on the future board? Where do you see the industry going? Where what’s RCM going to do about
Bobby Schwartz 1:02:10
it? That’s a good question. It’s moving fast, right? I, you know, we’ve seen that obviously more and more products are coming out, more and more exchanges, or what we call DCMs, have been approved by the CFTC. There’s 27 more in the hopper to get approved, and essentially, what these exchanges are, you think a CME Group, you think of ICE, you think of UX, they offer their products, but we’re getting into prediction markets, right? Sports betting, you know, betting on different events, whether we’re going to go hit Venezuela, where there’s been a lot of controversy, and there’s Kalshi, that’s done a great job on that, that’s now become a regulated unit. You have Polymarket has become regulated. Well, those are the two most well-known, but you have some of these, you have 30 plus entrants that are coming into the space that are trying to do something like that, or a derivative of it, as well as different clearing organizations, but putting those pieces together, and then taking in perpetual contracts, which CME is now suing the CFTC for approving it. The game is changing very fast. As soon as crypto came out, over, you know, a couple years ago, next thing you know, we’re talking about stable coins, we’re talking about, you know, all these different products, which enabled the universe of what we do to become more globalized and also move in different directions and more creative directions than the way we’ve always done things, I think it’s good for the industry, but I also think there’s, there’s challenges, right, because everybody’s talking about 24/7 trading and some of the things that are going on, and perps and perpetuals, and what are the benefits of those? Are there’s there going to be institutional flair for it? Cal she is, and Polymarket are just kind of crazy no-brainers, you know. I was betting on the Super Bowl, that took five minutes, and I had 30 bets. My wife, who is English, who could care less about the Super Bowl, put in all the bets into ChatGPT, and she crushed it, and I got crushed. So, you know, it’s.. it’s pretty interesting where it’s going. It just, it
Jeff Malec 1:04:20
just came out. Polymarket was paying content people to like put fake trades on their screens that I made all this money on Polymer, so there’s a little dark underbelly to some of it too, but,
Bobby Schwartz 1:04:32
but you know, the thing is, like, that all came out of Chicago, right? Polymarket, that the guy who owns it is the nephew of one of the biggest prop groups out in Chicago, which here we all know the name, and Kelsey came out of, you know, they were a DCM at Ledger X, which was owned by FTX, which was out of Chicago, so there’s a lot of things here that. We’re well aware of, or at least I was aware of, what was going on, didn’t understand it, and didn’t think it was going anywhere. I thought was ludicrous, like when I met with the Kalshi guys, or we looked to buy Ledger X. Now it’s just become insane, right? That you know people are building these different exchanges, and they think, okay, I’m going to be able to go off and now put a S P look-alike product on there, or something like that, or create betting, and because Bitcoin or Coinbase bought a new exchange called Ferrex, probably five years ago, or so, for $300 million it was doing no volume, but had the license, now it’s created this craziness where if you are able to get the license, you have massive firms like Kraken and you know Ripple and who else buying all these different companies, which have now made prices go up, and they have to justify that, and if they have all those retail client bases, they’re going to create these products and sell them internally at their clients, and there’s a, there’s a demand for,
Jeff Malec 1:06:05
and a DCM is essentially a derivatives exchange, right?
Bobby Schwartz 1:06:08
Correct. So, you know, in layman’s terms, it’s Chicago, Merck, and the CME Group, it’s ICE, it’s UREX, right? They’re the same concepts,
Jeff Malec 1:06:17
but you would sit there and go, “Who, who in the world can compete with CME, but Poly Market Cal Sheet proved like there you can if you build a platform and get enough retail, probably in there.
Bobby Schwartz 1:06:29
I mean, you know, you look at a couple of these, look at Ninja, right, Ninja Trader, which got bought by Kraken, and they also Kraken also bought Bit No Meal, which is another DCM and DCO, so clearing and an exchange, exchange essentially is where you offer products. Clearing is who clears those products for traders. It’s similar but different, and so CME has a exchange, they also have a clearing outfit, but Ninja was an FCM, they sold for $1 billion Now the guys that ran that, one of them was my assistant at the prop firm, the other one was my CTO that came out of Peta Freeze Company, Timber Hill, and now they’re looking at me like, hey son, where’s my coffee, you know?
Jeff Malec 1:07:25
Yeah,
Bobby Schwartz 1:07:25
no, but they’re great guys, I’m happy for them, but that just goes to show you that if you have a retail client base that’s worth a certain amount of money, because you know, look at Robin also, now you can start offering wealth management, you could offer all, you know, Coinbase is 60 million, or maybe a 6 billion users, or some, some crazy number, 600 just some bizarre number, and they’re trading just their, if they were all of a sudden saying, okay, we’re going to have CME products, we’re going to offer stocks or equities, think how much wallet share they can get,
Jeff Malec 1:07:58
yeah,
Bobby Schwartz 1:07:58
you know, and that’s kind of the way these other groups are looking at it,
Jeff Malec 1:08:01
so the main thing to me is like the lines are blurring, right? Like, we were talking the other day, I was just thought, like Kansas City Board of Trade, Minneapolis Wheat Exchange, like those just were came with the earth, like they just existed for all time, but like no, someone back then said, like, I go compete with the Board of Trade, and started up some upstart exchange,
Bobby Schwartz 1:08:23
yeah, and it makes sense, it makes sense, but I can tell you, sitting here as we speak, 98% of the people that are on calci or poly market don’t understand it’s a regulated entity as a DCM or a DCO or an FCM that is foreign to them, it’s absolutely foreign, because they can open it up with their credit card in five minutes, or an ACH versus like institutionally you want to trade spoohs, or you know, UX, you know, or any of these other products, I mean, we trade 300 markets globally, and that’s without all these prediction markets,
Jeff Malec 1:09:02
right?
Bobby Schwartz 1:09:03
You gotta.. it’s a process.
Jeff Malec 1:09:05
Any thoughts? Does you think anyone will, like, lose sight of, like, lose track of the ball? Like, there’s so focused on getting a new DCM and all this retail that they kind of ignore what’s happening in the core institutional services, right? We can RCM can kind of fit right in there, like, hey, you go ahead and do all this retail stuff.
Bobby Schwartz 1:09:24
Yeah, we love it, right? I mean, they, I, we know different FCM, so they’re saying, okay, we’re focused on that, we’re cutting back risk on clients because we’re going to put money and capital towards this. They don’t really have any edge, they don’t have their own DCM, they don’t have their own DCO, right. So, what happens to them? I think we’re in a great position at RCM, knowing that we have the multi-clearing relationships and the execution and everything else that we do to really focus on that middle market business, and that’s what we do well. That’s what we do well, because all these other groups, there’s so much noise. How many. Not saying that noise is irrelevant, it’s very relevant, but it’s not what really the institutional world really does, and so, yeah, I think people are overlooking that, and that’s where, you know, we’ve seen it, we step in and we’re able to solve for those problems and utilize our services to get them to where they need to be, those FCMs and some of these other groups, they’ll, they don’t even, they’re not involved in anymore, they don’t have the capital to deal with anymore, so,
Jeff Malec 1:10:28
and maybe they’re become the winners in their eyes, but, like, not for those types of clients, like, hey, listen, we can’t, we, you know,
Bobby Schwartz 1:10:35
we can’t be everything to everybody, but what we do well, we do, you know, what we do, we do it well, and we’re able to really service our clients, and that’s not going to change. All
Jeff Malec 1:10:55
right, we’ll finish up. Give me four. This is Chicago month, so four Chicago-themed trader stories, Gibson’s ish type stuff, whatever, whatever you got.
Bobby Schwartz 1:11:09
So, I’ll tell you a couple floor stories first. So, I was clerking on the floor my second week, and I was doing the ARP, and my broker was a second
Jeff Malec 1:11:18
week.
Bobby Schwartz 1:11:18
What’s that second week? Your second week, so
Jeff Malec 1:11:20
you’re 20 something,
Bobby Schwartz 1:11:21
yeah, but I would go on my elevator every day. I lived on 36 floor, I’d go 123456, and that’s how I was able to quickly do the the the arm signals. But I remember turning around to my broker, Joe Santoro, two and a half, three minutes left in the day, and this guy from Deutsche Bank, this Danny, is a complete, utter scary lunatic, gives me flashes, being in order. I give it to Joe. He’s on the floor, having a grip or a heart attack, and I’m going, ‘Help, man. Oh my god, holy shit, help me. And the guy from Deutsche Bank goes, ‘Fuck you, dude, you’re out. And he gives
Jeff Malec 1:11:55
it my mouth.
Bobby Schwartz 1:11:56
And then it wasn’t until the bell, and everybody was really close, that somebody came and, and started working on,
Jeff Malec 1:12:05
oh my god, yeah,
Bobby Schwartz 1:12:07
that was my first thing. And then I remember seeing somebody OD, and I’m like, holy shit, you know, another guy went crazy, took his pants off, and started running around, but, and there
Jeff Malec 1:12:18
were often fist fights, all that stuff,
Bobby Schwartz 1:12:20
I mean, I was one of the best cases when I was getting doing, you know, Goldman was doing due diligence on me for the entertainment business. They said, what is this infraction that you had, where you had to go in front of the board of directors for this fight, and I said, well, I was a top step trader, there was a local in front, and we were playing for a lot of money, and he tried to get in front of my way, and I grabbed him. He called me, you know, dirty Jew, or a couple other words, and I grabbed them, and the pit reporter said, “Yogi, don’t do it, it’s a $10,000 fine, and I go boom, boom, I said, “Bill me, and then you know, two days later, we’re in front of a board, they’ve got seats out both directions, so we’re not sitting there, we move the seats together and be like this
Jeff Malec 1:13:10
is
Bobby Schwartz 1:13:10
common day practice, like you know, it’s not a big deal, we went out for beers afterwards, it’s you know, when you’re, when you’re, it’s a full contact sport down there, and you’re playing for big money, but yeah, we used to, you know, our team, we had 80 people on the floor, whatnot, and all these guys were enormous, they were linemen, you know, and we would travel in packs, and when we went out, man, we Chicago traders ran Chicago, now it’s lawyers and PE, and whatever else, and the floors are irrelevant, but we would go out and just clean house, walk into Gibson’s. There’d be 15 of us, and you know we’re just taking it over, and we were spending a lot of money. We
Jeff Malec 1:13:51
literally moved people out of table, like we
Bobby Schwartz 1:13:53
had, we, you know, we had Gibsons, we had this place called Jilly’s, which was a big mob hang out, Snatchers Bodyguards place, and then Rosebud, which was a big deal here. Who now has gone on the Chicago Cut. He owns Chicago Cut. Yeah, we’d be like, they’re in our table, they need to move. I remember John Cusack was at the table, we’ll buy him dinner, get him away, you know. And, and they would do it, because we were just, you know, just
Jeff Malec 1:14:17
a Chicago guy, too, right?
Bobby Schwartz 1:14:19
Yeah, I used to, I used to live on the top floor of a building, and he was my neighbor, he was
Jeff Malec 1:14:24
a.. and we’re talking like 10s of 1000s of dollar meals and whatnot, right?
Bobby Schwartz 1:14:30
Oh yeah, I mean, this is back in the day where you would have banks that were in New York or London, and they were coming out from Thanksgiving to like the second week of December was when everybody’s coming out and you’re putting them up at the peninsula, you’re getting a lot of other things for them that they wanted, and they’d whack you on dinner, and you’d be spending 30, 40,000 which back then in the late 90s. Early 2000s was a tremendous amount of money, right?
Jeff Malec 1:15:03
Yeah,
Bobby Schwartz 1:15:03
which is steak was
Jeff Malec 1:15:06
only $40 back then, not 110 like it is today, but
Bobby Schwartz 1:15:09
we, I mean, they were hitting you for Chateau Lafite, right? Any, the best wine out there, and so we had some clouded these different restaurants because they knew we rolled big, and, but we demanded certain things. I mean, it was that’s the way it was. Traders really ran the same, and then CME traders, specifically Nasdaq, where I was always on the cover of Wall Street Journal, or, you know, FT overseas, whatever it was, because I was so animated on the floor, and I was a lunatic, and they would have me grabbing people, or you know, when the bear shows his hands, because my acronym was Yogi, everybody knew who I was, and so I remember, you know, I go on a date to jokes, don’t grab with this girl that was a knockout, and she’s like, what do you do, I go, I do this, and the, I didn’t really explain it. Next thing you know, the maitre d comes over. Bobby, we have your corner table running for you. Mayor Daley’s over, he wants to say hello. You know, I mean, just crazy shit. And it was a blast.
Jeff Malec 1:16:12
We’ll leave it there and tell people we launched a new website that has all this. If Bobby didn’t explain it well, go check out the new website, rcmalts.com.com and you can learn more.
Bobby Schwartz 1:16:25
Thank you.
Jeff Malec 1:16:28
All right, that’s it for the pod. Thanks to Bobby, thanks to RCM for supporting, thanks Jeff Berger for producing. We’ll be off next week for the fourth of July, 250th birthday. Go USA, and go USA in the soccer, too. It’s been fun watching. We’ll be back the week after that with someone good. I don’t know exactly who it is yet. Peace.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
