From the May 01, 2011 issue of Futures Magazine • Subscribe!

Henry Jarecki: Jarecki’s law

Q&A

FM: What did the end of the gold peg mean for your business?

HJ: It certainly made it much more active. There was no trading in silver before the early 60’s. The U.S. government, because of the silver certificate, had established a price for silver, a price for which they were willing to buy it and to sell it. They were buyers and sellers so there couldn’t be a trading market. But after the early 60’s, they stopped making a two-way market in silver and that led natural market forces to prevail, which they did. Gradually the price of silver increased and when it did so, the bank notes (silver certificates) came to have greater and greater value: $1, $1.05, $1.10, $1.50. People would buy them in order to acquire the silver involved. It was a complicated process. The contract was $10,000 an ounce and it took about $13,000 silver certificates to buy one. At the top of 1 out of every 4 bank notes it said, “Silver certificate, pay to the bearer on demand $1 in silver.” That was understood to be 0.7734 ounces. I set up an organization to buy these from the public at large and bought many millions of them. I turned them in and got silver in return and ultimately sold that silver on the exchanges.

FM: What was your primary role with Mocatta?

HJ: I established an enterprise called Mocatta Metals. I called up Mocatta and Goldsmid in London (a 300-year old bullion dealing house) and told them my ideas for an arbitrage program, which was based on the difference between U.S. and English interest rates. To my surprise they said, ‘That is a very good idea, we will support this idea completely.” I made an agreement with them. They were superb, they supported it to no end and that went well for a year. At the end of that year the U.S. government stopped issuing silver certificates. I was chairman and chief executive. I came to take over the management of all of the Mocatta Companies and we [streamlined] them to work together. In 1986 my partners, which by that time included a British bank called Standard Chartered Bank, concluded that they wanted to own all of the company and made a proposal to buy out my shares. They took over that company from 1986-89. So I had moved from being chief executive in New York to being international chief executive shareholder and ultimately sold those shares to Standard Chartered Bank.

imageFM: How did you become involved in the futures markets?

HJ: Because we traded in silver both in the physical markets and in the overseas markets, as part of the overall arbitrage book, we would use the markets here. We bought seats on the Comex (New York Commodity Exchange), Chicago Mercantile Exchange and Chicago Board of Trade. That gave us arbitrage opportunities to buy in one center and sell in another. More important, if you owned a seat you could do brokerage for others. In those days you could function as a broker for other brokers. We would do trading with a company in Chicago and they would clear our trades and we would clear their trades in New York. So we became futures brokers ultimately. Then I got involved in a lot of industry issues and Leo Melamed asked me if I would serve on the board of the International Monetary Market (part of the CME). I served on that board, I served on the board of the CBOT and Comex and we traded on all of those markets. Ultimately if you are active, you wind up having to work on government affairs and tax issues. We formed Brody White to handle the futures brokerage. During that time it was not permissible for an enterprise owned in part by a bank, which Mocatta was, to do brokerage (that changed later). We eventually sold it to Fimat (now Newedge).

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