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In The Press

Derivatives Pioneers: Rich Tanenbaum, The Tech-Master

from Dow Jones News Service

By Paula Froelich, Dow Jones Capital Markets Report

NEW YORK (Dow Jones)--Years before he helped start the first derivatives trading group on Wall Street at Bankers Trust in 1985, Rich Tanenbaum was already enamored of the world of high finance. Tanenbaum was greatly influenced by his father, who traded options. So, for a social studies project in high school, Tanenbaum aimed high: while other kids were building model volcanoes and dioramas, he was busy structuring an options pricing model. It was the first of many ambitious undertakings.

More than a decade later, Tanenbaum, who now heads up a computer software company, would become well-known throughout Wall Street as the man who wrote the original computer programs that allowed equity and fixed-income derivatives to be traded and tracked on a regular basis.

"He used to do all the complex pricing and mathematical work," said David Aaron, an ex-Bankers Trust employee who used to work with Tanenbaum. Aaron also described Tanenbaum as particularly intense. "I have never seen a man sit so close to a computer screen than Rich," Aaron said.

Despite his intensity, those who know him describe Tanenbaum as something of ananomaly - an affable, nice guy even though he worked in a high-pressured arena. Dean D'Onofrio, managing director and head of convertible bonds and equity derivatives at Merrill Lynch, knew Tanenbaum when they worked together at Bankers Trust. "He had all the brains and none of the attitude - a rare combination on Wall Street," said D'Onofrio.

Politics At Bankers Trust

Tanenbaum was a member of the original derivatives trading group at Bankers Trust, which was formed in 1985. He joined the firm's asset management group in 1980, writing computer systems that could handle complex options and derivatives for fixed-income portfolios. The program he created, dubbed Controlled Risk Management, or CRM, was still being used at the time of Bankers Trust's recent merger with Deutsche Bank, although Tanenbaum had other ideas about what it should be called. "I wanted to call it Structured Hedging Investment Technique - better acronym," he joked to Dow Jones Newswires.

All puns aside, the software was considered to be the leading product in derivatives pricing, according to Aaron, who is currently is a director at Derivatech, a derivatives software company.

Tanenbaum left Bankers Trust,and Wall Street in 1989, due to what he calls a "changing climate" where he saw derivatives start to be used as tools of greed and harm. "I think one of the most common phrases used right before I left was 'cleaning their clocks,' which referred to whether or not we could really make money off of customers," Tanenbaum said.

The final straw for Tanenbaum came when, during a daily meeting, his derivatives group, which had grown to more than 20 employees by 1989, was discussing certain derivatives products. "A salesman who I had thought of highly before - he was a nice, quiet, religious man - stood up and said 'So, can we rape them with it?' He was referring to our customers," said Tanenbaum. "What was once a sleazy minority was becoming more and more prevalent," he added. It was this type of atmosphere that he abhorred, and which, he says, led to many of Bankers Trust's problems and well-publicized client blow-ups.

In 1989, Tanenbaum started his own software firm, which five years later became Savvysoft. His company specializes in derivatives pricing and hedging software.

High School, Bell Bottoms and Options

Soon after high school and the ambitious social studies project, Tanenbaum landed his first job assisting a trader on the floor of the commodities exchange in New York during breaks from Dartmouth College. "It was like Saturday Night Fever," Tanenbaum said, getting slightly nostalgic. "I used to show up every day in my blue polyester bell bottoms and matching day glow shirt with a huge collar - because I looked around and thought that was the uniform," he said.

While there was a lot of money to be made - Tanenbaum said it was not uncommon for traders to make over ten thousand dollars a day - he decided to head West to California to "use his brains and live the bohemian life."

In San Francisco, a year before he started at Bankers Trust, Tanenbaum did programming for an options trader at the Pacific Stock Exchange, while living in a rooming house, earning a "couple hundred bucks" a week.While there, Tanenbaum spent much of his time in computer stores, and one day a salesman showed him VisiCalc, the software for what is considered to be the first spreadsheet. "I said, 'Yeah, that's nice, but who would need that?'" Tanenbaum said, shaking his head at the thought of missing out on the precursor to spreadsheets like Excel.

Almost nine years later, he would hear almost the exact same words from others about his own software, Tanenbaum Options Pricing Software, also known as TOPS.

"When I started trying to sell my software, it took me a long time to realize that I was doing people some good - that they needed my product," he said. Tanenbaum had an aversion to marketers from his experience at Bankers Trust and at first tried to market the product himself. Five years later, with no paycheck or bank deposits he was almost broke, when a friend suggested he invest in a marketing team.

"I had been trying to sell the product by approaching people I knew on Wall Street and asking them, 'Do you know anyone who could use this?' They would say, 'It's interesting, but no." In 1994, he established Savvysoft and TOPS took off.

Tanenbaum declined to comment on his firm's revenues or his customers, but did say that since the start, the firm has been operating "in the black." Success has been long in coming for Tanenbaum, but not undeserved, and his company has just produced TOPS 2000 Credit, a credit derivatives pricing and hedging software package. "Now I have respect for salespeople and also for anyone who has ever started a business. Even if it fails," he said.

-By Paula Froelich; 201-938-2010


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