Raising The Stakes
Bloomberg Markets|December 2018 / January 2019

With poker and option theory, Susquehanna International has become a key player in the fast-expanding ETF market.

Annie Massa

On city avenue in the Philadelphia suburb of Bala Cynwyd, Pa., across the street from a TGI Fridays and California Pizza Kitchen, sits a bland building that looks like any other corporate office. The only notable feature is in the parking lot: a large oak labeled a “significant tree” because it survived the American Revolution.

And yet within that dull gray-brown edifice, away from the trading hubs of New York and Chicago, sits a crucial engine of the $5 trillion global exchange-traded fund market, one increasingly relied upon by investors ranging from hedge funds to individuals. What’s more, the little-known billionaires behind the operation have groomed a generation of canny market experts.

Like its headquarters, Susquehanna International Group LLP is hidden in plain sight. It keeps a low profile even though its fingerprints are everywhere in financial markets. In addition to ranking among the largest U.S. traders of ETFs, it’s a giant in options trading and has plowed into sports betting, private equity, and even Bitcoin.

Susquehanna, as well as other under-the-radar, closely held competitors created by its alumni, such as Jane Street Group LLC, grease the wheels of the ETF market, keeping the instruments inexpensive and easy to trade. As better-known Wall Street companies such as Goldman Sachs Group Inc. have stepped back from performing this function in recent years, regulators have started asking more questions about the stability of the market, which has become dependent on Susquehanna and its brethren.

Susquehanna built its empire on poker. All six co-founders met in the late 1970s at the State University of New York at Binghamton, where they gathered to play cards before advancing to Las Vegas casinos. One of the six, Jeff Yass, had the insight that card skills could transfer to Wall Street. That bloomed into Susquehanna’s philosophy that poker provides the best training for the type of probability- based decisions in uncertain circumstances that are needed in markets.

Yass proved to be a preternatural trading talent. He was in his 20s when Izzy Englander, now chief executive officer and founder of Millennium Management, one of the world’s largest hedge funds, sponsored him for a seat on the floor of the Philadelphia Stock Exchange.

Yass persuaded his five college buddies to join him in Philadelphia. With Steve Bloom, Eric Brooks, Arthur Dantchik, Andrew Frost, and Joel Greenberg, he founded a firm in May 1987 to deploy their poker skills in the options markets. They named it after the 444-mile river that runs from near their alma mater in upstate New York through Pennsylvania, the home of their new venture.

“My friends and I took poker very seriously,” Yass said in an interview in the book The New Market Wizards: Conversations With America’s Top Traders by Jack Schwager, published in 1992. “We knew that over the long run it wasn’t a game of luck, but rather a game of enormous skill and complexity. We took a mathematical approach.”

Neither Yass nor his co-founders would comment for this story, according to Dave Pollard, Susquehanna’s head of strategic planning and special counsel. The following account is based on interviews with current and former employees and people familiar with the firm.

Five months after Susquehanna was founded, the U.S. stock market crashed, with the Dow Jones Industrial Average suffering its largest ever one-day percentage decline. Susquehanna not only survived, but thrived. By October 1988 the firm had 100 employees, and it had brought in about $30 million in its first year, compared with $43 million earned by PaineWebber & Co., which had about 12,900 employees, according to a Washington Post story at the time.

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