When Tom James was nine years old, he swapped a favorite comic book for a copy of the Financial Times. Seven years later, he launched a little business – trading warrants on equities.
“That’s when I heard about these things called futures and options,” he recalls. “I applied for a job on the floor of the International Petroleum Exchange, now ICE Europe, instead of going to university.”
That was 1989. He was 17 years old and his family was shocked. “They’re a very academic bunch with PhDs coming out of their ears,” he says. But what he wanted to learn couldn’t be found in a classroom, so he hit the floor and was soon filling paper, a task he left after six months to segue onto the energy trading desk of Mocatta Commercial. “That gave me a chance to learn about and see how the international markets operated,” he recalls.
He saw quite a lot in 1991, when the Gulf War sent a wake-up call to Asian oil refineries. “At the time, the only hedging vehicles available to them were crude oil futures contracts,” he says. “But after the war, they had a new appreciation of the evolving over-the-counter (OTC) swaps markets.”
James, working from London, mentored Asian clients in hedging both crude oil and refinery margins for petroleum products in Asia, moving to Singapore in 1996 at the age of 23 to set up a new derivatives marketing and trading operation for Credit Lyonnais Rouse Derivatives.
Working from Singapore had its disadvantages and James learned to utilize emerging technology. “That convinced me that I should leverage the then-emerging Internet as much as possible to get the most out of the limited specialized human resources available.” He set up a Web site for clients to request quotes online before confirming deals over the phone, and in 1999 set up SwapNet Ltd., the first secure Internet-based platform for OTC commodities swaps. “We built our own IT and legal framework from scratch,” he recalls. “There was no precedent for trading on the Internet — for determining how participants were identified and trades concluded.” A joint venture with Garban Intercapital (now ICAP), SwapNet enabled straight-through processing of data, secure trading, and automated risk management. It pioneered many tools in use today, including a mechanism for providing de-facto credit clearing controls.
In 2001, James joined Credit Agricole in Europe to build a business around his ideas for a credit risk mitigation and clearing platform that would encompass futures, OTC swaps and physical commodity deals — a hot topic after Enron imploded in the winter of that year.
“If there’s a theme to my career, it’s trying to find niches in the real needs of the market. Asian oil firms needed to be trained and guided in trading and price risk management solutions, and I filled that need,” he says.
“When I started in the industry, there were no courses or degrees remotely applicable to commodity and energy trading,” he says. “You had to just do it and learn on the job, and I started giving ad hoc talks to other professionals in 1995.” A self-described ‘technofundamentalist,’ James teaches young traders to learn their fundamentals, but keep an eye on the charts. “You have to start your day looking at the charts and then look at the real world to see if it all stacks up,” he says. “Pure technicians will have big blowups because they miss the sidewinder missile that comes in after a fundamental shift in the real world.”
The first of his five books, “Energy Price Risk: Trading and Price Risk Management,” was published in 2003. Although he’d never gotten an undergraduate degree, the books led to a masters in energy markets from Middlesex University. “I wanted to see if I could quantify in an academic context what I had learned,” he says. And, he also wanted to pass that knowledge on by mentoring young people, most recently as a chair professor at India’s University of Petroleum & Energy Studies, a five-year-old start-up that has more than 3,000 students across five campuses.
“But I never really stopped being close to the market,” he recalls. “I was always trading or advising on trading for firms, but by 2007 I really wanted to get back onto the trading desk.”
Specifically, he wanted to develop a new kind of commodity fund, one he’s in the process of developing at London-based Liquid Capital Markets, a major market-maker in equities derivatives looking to branch into various commodity asset classes.
Besides asset classes, he’s also focusing on the classes and lessons-learned he’d like his children to emulate. James is now a sure-fire candidate for a doctorate in energy price risk management. You can bet his professors are taking notes.
