Hustler

It was one of those improbable meetings that people say should be in the movies, but can actually only happen in real life. The year was 1998, and Peter Beck, a Hungarian-born serial entrepreneur--he'd already been a chef, a commercial real estate broker, a bottler of Niagara Falls water, a pet-food delivery-service operator, a long-distance telephone service reseller and an internet porn provider--had recently opened his own securities dealership, Swift Trade Securities.

The firm was crammed into two rooms in an old warehouse on Toronto's Richmond Street West, steps away from Bay Street physically, but a world away in every other way. Just four young staffers scrambling between cardboard boxes filled with computer equipment.

Yet who should arrive for a lunch date but Tony Fell, chairman and CEO of RBC Dominion Securities, the most powerful brokerage in the country. With him was Doug Steiner, a friend of Beck's who had worked for Fell (and who lately is a columnist for this magazine).

Fell is always looking for new ideas, and new ways to save a dime. "This man can teach me something about controlling overhead expenses," he said to Steiner after stepping off the elevator.

Beck, new to the Street, came forth to meet the lunch-time visitor.

"Who did you say you worked for again?" Beck asked.

"Peter, I work for the Royal Bank," deadpanned Fell.

After lunch, Fell, the dean of the Street, brought Beck to the bank's gold-windowed headquarters. Beck surveyed a massive RBC Dominion trading floor. "It was just one floor," he recalls, "but I thought, One day I'm going to own one like this."

Had this been a movie script, we would flash forward here to find Swift Trade ensconced as a Bay Street powerhouse. It isn't. Still privately owned by Beck and a minority partner, Swift Trade is now a proprietary trading outfit: In other words, it trades its own capital. In 2003, revenue totalled $35.1 million, not even close to the big leagues. Head office takes up a floor of a modest building in midtown Toronto. The brightly coloured office dcor is more multiplex than brokerage.

But for Peter Beck, the hustler behind a dozen ventures, hope springs eternal. He speaks of Swift Trade offices colonizing the entire globe. And there's more than patter to the idea. Swift Trade is still on the radar screens of plenty of industry heavyweights like Fell. One reason for that is its rapid-fire, highly specialized technology, which allows even a small firm to trade in huge volumes at very low cost. This direct-access electronic trading is driving down trading costs and opening up competition, especially in the United States. On most days, Swift Trade is among the 10 largest dealers by volume on the Nasdaq. And it also does boast some global reach, with 17 offices across Canada and eight more around the world. The offices operate like franchises--a partner provides the capital for investment, while Swift Trade supplies the technology and receives a share of the profits.

Beck plans to open 17 more foreign offices by the end of the year. He figures his model will work on just about any technologically advanced stock exchange. Industry insiders say that's not hubris. "The operation is, in my mind, unique in Canada and probably around the world," says Claude Lamoureux, president and CEO of the $76-billion Ontario Teachers' Pension Plan. "I've never seen anything like this."

Besides technology, the other reason for Swift Trade's profile on the Street is Beck himself, a soft-spoken go-getter whose shoulder-length locks, eclectic pursuits and sardonic humour are the antithesis of Establishment. He's got into a fair number of legal scrapes as well, ranging from low-level landlord-tenant disputes to a more serious wash trading case in the U.S. in 2002. He is completely unfazed by it all: "It's a very rough-and-tumble world out there, my friend."

Peter Szigeti was born in Budapest in 1955. Even as a boy, he knew he'd have to leave Hungary to get ahead in life. His parents were both Holocaust survivors. His father, George, now 94, was a silversmith and later a bookkeeper at a state-owned construction firm. His mother, Sara Beck (Peter adopted her more anglo-friendly surname in Toronto in 1983), had an office job at the ministry of health.

More than two decades after the war ended, Beck still encountered brutal anti-Semitism at school. "I was always called a dirty Jew," he says. Other kids told him "the Germans didn't do a good job because you are still here." Talking about that experience, or any difficult subject, Beck looks you in the eye and speaks calmly. He only gets animated, waving his hands and raising the pitch of his sensually accented voice, when recalling business successes or telling funny stories. Negativity seems to have no place in his being.

At home, George Szigeti would gripe constantly about Hungary's Communist regime. "It made me a rebel," says Beck. He was kicked out of school several times, mainly for pranks. "I was a shit disturber, to put it plainly," he says. As a result, his high school marks were far from good enough to get into university, and the prospect of being drafted into the military loomed. He needed to find a trade or profession that would give him an exemption. He also wanted a skill that he could use in any country.

Hello, haute cuisine. Beck landed an apprenticeship in an upscale Budapest restaurant. Along with developing a taste for fine food and wine, Beck learned how to manage people. The restaurant's proprietor made a point of eating dinner with the staff every night. These days, Swift Trade serves a catered lunch to head-office employees every day.

Outside the restaurant, Beck picked up other entrepreneurial skills. There were always gluts of items in some Soviet bloc countries, and shortages in others. "It was, you know, an arbitrage opportunity," he says. One scheme involved purchasing hard currency illegally from tourists in Hungary, buying blue jeans in Poland, then trading the jeans for antique religious icons in Russia. Finally, Beck smuggled the icons back to Hungary in a box with a kitchen fan--importing appliances was legal.

Wily thinking also got Beck a passport to go to the West. He needed a permission form from the military. By pure coincidence, the head of the relevant department was also named Peter Szigeti. Beck staked out his office and observed that Szigeti left for lunch every day at 12:30. Beck dashed in one day after his namesake had left and asked, "Is my uncle still here?" The receptionist replied that, unfortunately, he had just left. "Aaaah! He told me to come before 12:30. He's going to stamp my paper," said Beck. "No problem," said the receptionist. "I will stamp it for you."

A few months later, on April 1, 1979, Beck was on a flight to Frankfurt.

After staying briefly with a friend in Germany, beck landed a job as a chef in the south of France. But that only made him more impatient to get out of Europe. Apart from the locals' distrust of foreigners and Jews, he found the "fundamental mentality" all wrong. Europe, he says, was built by catering to the idle rich, whereas North America was built by innovating.

Beck obtained status as a political refugee and flew to Toronto on Dec. 12, 1979. He worked as a short-order cook at first, later opening his own deli. But prospects in restaurants were limited. "Don't forget, in those days there were no celebrity chefs," says Beck. "The best you could hope for is that you'd become an executive chef in a hotel."

He scrambled a fair bit. In 1982, Toronto's Village by the Grange shopping mall sued Beck and a partner for unpaid rent. The court ruling on the case commented, "Mr. Beck delivered a 17-paragraph affidavit of merits in a somewhat chatty, literary style that combined allegations of fact, argument, comment and complaints about the state of the law. Within the verbiage there are issues which merit scrutiny."

Looking for another career, he was impressed by the real estate agent who sold his deli. "She lived well, you know, drove a nice car," says Beck. He got his real estate licence in 1981. Later that year, with mortgage rates over 20%, the residential market tanked. Yet Beck says he still did well over the next three years by focusing on commercial real estate, where his restaurant experience came in handy. The federal government had geared up its immigrant entrepreneur program, and many of those investors were looking for coffee shops or other small retail outlets. "The problem is I just got bored very quickly," says Beck. "I didn't see any future in it."

A series of far-fetched ventures followed. "I started up so many stupid businesses you wouldn't believe it." Bottled Niagara Falls water, a pet food delivery service, a plan for a sports betting magazine, business centres that provided shared office space--none worked. The failures made him fearless. "What can you lose sometimes?" he asks with a shrug. "You learn, on the other hand."

Once Beck decides to do something, he rarely heeds any warnings, says his friend Andrew Gyenes, Hungarian-born president of Toronto-based Interactive Executive Offices Worldwide Corp. "We never take each other's advice. We always do the opposite. That's why both of us are successful. It's also why we're still friends."

In 1987, while Beck was shopping for a phone system for his business centre, he found a regulatory Achilles' heel in Bell Canada's telephone monopoly--a CRTC ruling that said that, within some limits, reselling of private phone lines was legal in Canada. Beck applied for 17 credit cards and got about $40,000 in cash advances. He used the money to buy 10 private lines from Toronto to Buffalo. From there, calls could be routed through Sprint, AT&T and other providers in the deregulated U.S. long-distance market. ITN Corp., one of Canada's first long-distance resellers, was born.

At first, the profits were astonishing. As Beck remembers it, in 1988, Bell charged $1.07 a minute plus tax for calls from Toronto to California. "I purchased the same minute in Buffalo for seven cents. It was damned good margin." But by 1992, the CRTC had deregulated the long-distance market, and big competitors such as Unitel Communications were up and running. Beck's margins were down to 15%. "That was not enough for my liking, so I said, 'That's it, let's get out.'"

He won't disclose what he received for ITN in 1993, but friends figure it was several million dollars. His lifestyle had certainly improved: He had upgraded from the $300-a-month apartment and the Volvo of his early days in Toronto to a condo in Granite Place and a BMW. At age 38, he figured that it was time to return to Paris, not to do business, but to retire. Despite his misgivings about Europe, the City of Light was obviously the place to live the good life--writing, studying art, sitting in cafs, whatever struck his fancy.

Within six months, Beck was bored out of his mind.

"I was still single, so I had all the benefits Paris has to offer," says Beck. "But after a while, it's just, 'Why am I getting up this morning?'" He thought of starting businesses, but the red tape was maddening: "I was used to incorporating a company in Toronto in 10 minutes. You would get the forms, fill them out, take them down to [the courthouse on]University Avenue, you'd pay $380, and it's done."

Beck flew back to Toronto in December, 1994, eager to sink his teeth into "something major." He struggled at first. CD ventures, internet businesses, telecom consulting--nothing panned out. He even tried the internet porn business in 1996, getting about two dozen websites up and running. But the industry was getting too competitive. "It became a commodity business," says Beck. "I licensed content from a guy in Montreal. Most of the other sites didn't. They just stole it."

Then, in the spring of 1997, he read an article in Wired magazine on the booming day-trading business in the United States. Beck figured he could try it in Canada. As with telecommunications a decade earlier, friends told him he was nuts to dive into the securities business. Giant competitors had billions in their war chests; regulations tangled you at every step.

Neither of those things worried Beck. "How can you compete against a Goliath?" he says. "Well, Goliaths move very slowly." As for the regulations, Beck bought a copy of the Ontario Securities Act. "I went through it page by page--only 780 pages," he recalls. "I realized there was nothing in that act that would prevent me from doing this. Nothing." He completed the Canadian Securities Course and a course for directors and officers in just three months. Beck then applied for a securities licence and received it two months later.

After that, he quickly made a deal with a brokerage firm in New York to buy off-the-shelf trading software, and set up a direct line to their offices. Swift Trade has developed its own software since then, but the key features remain the same. "There is no secret sauce," says former Nasdaq Canada president Helen Kearns. "They have taken the basic tools and made them work for Swift."

Swift Trade opened for business in April, 1998, with the 1990s bull market still roaring. Many of the traders were the proverbial bored doctors and dentists who had the required minimum of $25,000 (U.S.). Beck still delivers the spiel with convincing lan. "It was so easy to make money then," he says. "Some guys, all they did was buy 1,000 shares in the morning, they sold at 3:30, they made $40,000 that day."

In fact, even after Swift Trade's six-week training course, most of the traders couldn't hack the pressure. There are two broad day-trading strategies. Some traders rely on momentum, trying to get in and out of a stock quickly, often within seconds, as its price starts to move either up or, in the case of short sellers, down. Others are "scalpers" who try to capture some of the difference between quoted bid and ask prices--the highest price buyers are prepared to pay, and the lowest price sellers are prepared to accept. Either strategy is a grind that requires the sort of discipline most people just don't have.

At the height of the day trading craze in early 2000, Swift Trade had about 700 clients in offices across Canada. Then the bottom dropped out of the business.

North American stock markets peaked and started a long decline in 2000, but the day of reckoning for day trading didn't arrive until April, 2001, when the major markets completed the switch from traditional fractional pricing to decimalized prices. Under fractional pricing, even the smallest spread between bid and ask prices was one-16th of a dollar, or 6.25 cents. Capture that spread on a small order of 2,000 shares, and traders would make $125, minus a $25 commission to Swift Trade. But with decimalization, the spreads on many stocks shrank to a penny. About half of Swift Trade's day traders disappeared within a couple of weeks.

Beck was already looking at proprietary trading--hiring traders and allotting them some of the firm's own capital to trade. Decimalization forced him to adapt immediately or die. "If a revolution is slow, it doesn't give you a wake-up call," he says. Former Nasdaq Canada president Kearns agrees: "There is nothing worse than slow death. If it's a guillotine, you recognize it." She was impressed by Beck's quick transition. "I gained even more respect for Peter."

Prop trading the way Swift Trade practises it is not a glamorous or high-stakes business. It's a grind where young recruits do much of the work. It is based on two principles. One is immediate electronic access, which is why Swift Trade trades on Nasdaq and other automated U.S. on-line markets such as Inet and Archipelago. A second is risk control: Swift Trade's traders each have a limited amount of capital. They have a daily loss limit as well, and they are shut down if they reach it. Also, unlike banks and other institutions that trade on their own account, Swift Trade doesn't hold positions overnight. That way it can't be hurt by any crises that arise while markets are closed.

During a lunch-hour lull at Swift Trade, Neal Roberts, 24, and Daniel Schlaepfer, 23, explain how it's done. The two of them stare at screens with coloured columns of price quotes of about eight stocks at once. Roberts has just sold 5,000 shares of a Nasdaq-listed video-game maker called Acclaim for 37.4 cents (U.S.) a share. He bought them an hour earlier for 37 cents. That's a whopping total profit of $20 (U.S.).

Other traders might concentrate on one big stock all day, such as Cisco or Microsoft. The long-term fundamentals of a company really don't matter, so long as the share price moves. Any news that causes a spike can be good news. "I've been in the washroom and made $300," says Schlaepfer. Even buying and selling at the same price can yield a few dollars--several U.S. electronic trading networks offer rebates of, for instance, $1 per 1,000 shares, to encourage traders to use their service.

Both Roberts and Schlaepfer joined Swift Trade last October, fresh out of university. After three months of classroom training and on-the-job instruction, recruits get some of the firm's money--as little as $2,000 (U.S.)--to start with. In Canadian offices, they get to keep 35% of the first $10,000 of their monthly profits. The share can rise to 50% if they bring in more. The computer system sets the daily loss limit as low as $50 (U.S.) to start. Roberts and Schlaepfer each now have about $500,000 (U.S.) of capital to work with. On a typical day, they take home about $200 (U.S.). "You come in here and there's foosball, food, casual dress, massages--it's definitely a sweet deal," says Schlaepfer.

But Beck says just three or four out of 10 recruits make it out of the training course, and they rarely stick around more than a couple of years. "They have a life cycle," he says. As well, trading strategies go stale fast. "That's why international expansion is so important," he says, "because finding fresh talent is so much easier in countries like China, where there are 1.2 billion people."

Expansion also means more money coming into the business, as partners pay for the setup of their own office and supply their own capital. Of course, there are a couple of ways to bring in more capital to the company as a whole: Go public or sell out to a large institution. The latter is the industry trend. In the U.S., several specialized direct-trading firms have been bought out recently by big players: Last February, Bank of America bought Direct Access, and in July, Citigroup took over Lava Trading. But Beck just smiles when such scenarios are raised. "We have sufficient capital," he says.

To Ontario Teachers' Claude Lamoureux, Swift Trade and the U.S. direct-trading firms are part of a classic pattern--small, aggressive outsiders who shake up an entire industry. "Very few people reinvent their own business," says Lamoureux. "Did IBM believe in the PC? No. They were eventually forced into it, but they never believed in it in the beginning." Within the securities business, Lamoureux points to Michael Milken, who essentially created the junk-bond market, and Jimmy Connacher, whose relatively small Gordon Capital rocked Bay Street in the 1980s by pioneering so-called bought deals.

Given Beck's personal history, you have to wonder how long this phase of his business life will last. His home life is certainly more settled. He was introduced to Sondra Splatt, then in public relations, in 1996, and they married in 1998. They have two daughters, Sarah, 3, and Medora, 1. With family comes focus. "When you are a single guy, you want to get laid, that takes up a lot of energy," he says. "It takes your attention away from business." Looking back, however, Beck says he had "a relatively easy time with that one" because he could cook--which is the fastest way to a woman's heart, he says. "Sondra's been telling me, You should write a book about it."

Gyenes says the only time he's ever seen Beck even a bit mad was just after he had bought a motorcycle. He fell off his shiny new wheels right in front of three women in Toronto's Yorkville boutique district. "He was sort of the schmuck under the bike," says Gyenes. But he knew Beck had changed when the two of them took a motorcycle trip in Spain just before Beck got married. Pretty much all Beck did was phone Sondra. "I know every single goddamn telephone booth between Madrid and Barcelona," says Gyenes. "I put him on an airplane, sent him home, and continued by myself."

As with his business failures, Beck now looks back on his frenetic single life sardonically. After a recent meeting of Swift Trade executives in Cuba, he told a friend the country is "a bachelor's paradise. And a married man's nightmare."

Beck bought a three-storey house in Toronto's wealthy Forest Hill district in 2000, and he travels little for business these days. Yet he's still chronically hyper. He has a professional kitchen at home, and a custom-built wave pool right beside it that allows him to swim in place. On the third floor, he has a gym where he meets twice a week with a personal trainer. On a one-week family vacation in Jamaica, he wrote 25,000 words of a book on income trusts. He's also done a pilot for a cooking show.

He remains restless at work as well. "I need the challenge of running a business," he says. "It's not the money." Despite Swift Trade's growth, he still occasionally operates by the seat of his pants. He pulled a midnight move last December when Swift Trade shifted its headquarters. The landlord sued for $1.7 million in lease obligations, unpaid rent and costs. In its statement of defence, Swift Trade complained of overcharging. The case was settled in July for an undisclosed sum. Beck declines to reveal what it was, but a friend says it was less than 20 cents on the dollar.

Beck got into a far more serious dustup with the U.S. National Association of Securities Dealers in 2002. The NASD said that Swift Trade engaged in wash trading--buying and selling a security at the same time. The regulatory beef is that wash trading, applied to a single stock, creates a false impression of activity and can be used to manipulate share prices. In Swift Trade's case, traders were doing the simultaneous buy/sell on Nasdaq-100 index units, which are impossible to influence with wash trades; the traders were simply going after rebates from an electronic trading network. Beck flew down to Washington, and managed through personal intervention to negotiate a relatively light penalty: He and Swift USA were censured and fined $75,000 (U.S.), and had to give up $26,000 (U.S.) in trading profits. "No matter whether you're doing business with Peter, or passing him on the street, he's extremely charming," says one high-level industry source in New York.

Beck's mastery of the art of the schmooze and his utter fearlessness will be put to greater tests as Swift Trade opens its new branches around the world. It's no wonder he dismisses any suggestion of selling out or going public. From a passport office in Budapest, through a dizzying series of harebrained schemes, to the haunts of bigwigs in Toronto, Washington and beyond, Beck's instinct has been all the capital he's needed.