Susquehanna International Group, LLP (SIG) is a privately held global trading and technology firm. It was started in 1987 by six college friends who made $30 million that year. Today, co-founders Jeffrey and Gerald Yass, along with the rest of them, are seasoned billionaire investors.
The firm is a designated market maker in about 600 equity options and 45 index options as well and holds shares in giants like Alphabet (GOOG), Microsoft (MSFT), Goldman Sachs (GS), JPMorgan Chase (JPM), and PepsiCo (PEP). It even reportedly holds a stake in TikTok.
But do you know the story of how Susquehanna got started?
It’s a dominating force in the market, and its Quantitative Trader program helps it consistently recruit and train top young talent. The company guides traders through a combination of practical training and ongoing theoretical classroom work to get them on the right track.
The firm has roots involved in gambling and poker which has added to the aura of mystery surrounding its early days. There’s no market the company won’t touch, and it’s often ranked among the best financial services companies to work for in the United States. But its founders and owners have a reputation for being secretive and shy away from the public eye.
To understand Susquehanna, we need to first examine its mysterious co-founder.
Before the Firm’s Founding
Jeffrey Yass was born to a middle-class family in 1958 in Queens, New York. His father Gerald was an accountant who ran a fintech firm called Datatab. Gerald taught Jeffrey everything he knew about warrants and options, and they studied the financial news and markets together.
When he was in high school, Jeffrey made his first trade through his father. He bought options in Alcoa (AA) after running the math several times and showing Gerald the profitability. By the time he enrolled in college, he was deeply engaged in math, gambling, and investing. Although he wasn’t just throwing money away without calculating the odds.
At SUNY Binghampton, Yass found a group of like-minded friends who would often play poker and bet at racetracks. In fact, they would often skip class to attend races and play their bets, but that didn’t stop the friends from passing tests with A-grades and earning degrees. They were known as intellectuals who were more interested in gambling than reading books and taking tests.
Yass graduated with a math degree, but he jokes that he majored in poker. He summarized his knowledge of probabilities and game theory in a paper called “An Econometric Analysis of Horse Racing,” which was published in Gambling Times.
After college, Yass and his friends pooled their money to rent a studio apartment in Las Vegas. Their goal was to become professional poker players, but Yass took a lot of hard knocks while learning the ropes of that industry.
He returned to New York, where NYU alumni Izzy Englander, offered to back him to start trading. It’s the move that would set both men up to be future tycoons.
Yass bought a seat on the Philadelphia Exchange in 1981 for $30,000 with a 50 percent revenue share. Subsequently, he asked his college buddies to join him at the firm, and they quickly made their marks too. They bet against bad traders and figured out the statistical odds.
On Poker Tables and Stock Markets
Yass bootstrapped his way into trading using the winnings from poker tables and racetracks. And it’s the instincts and skills he picked up along that path that ultimately led to his success with the firm.
He charted out numbers and figured out the odds of profitability – and successfully handicapped options and found an edge to stay ahead of his competition.
In fact, he adapted a professional poker mantra for the options market that made him a legend – always bet against the mark. When you sit at a poker table, you don’t have to beat everyone. You simply need to beat the weakest player, and that’s essentially what options contracts are meant to do.
He even said so in the Bet the Process podcast last year.
“All of sports betting, all of playing poker, and all of options trading is making sure you’re betting against someone you’re smarter than,” Yass told the Bet The Process podcast a year ago. “If you’re not asking yourself, am I the sucker, or am I the [bait], you get arrogant and you get crushed.”
Buying a call or put contract is a bet that the price will go up or down to a certain price point within a specified timeframe. Shorting a stock that you know is going to perform poorly is a common strategy used by hedge funds that was attacked in recent years. In fact, Susquehanna joins Citadel Capital in processing the bulk of Robinhood’s bets.
This means that the WallStreetBets subreddit community essentially used Yass’ own strategy against him in 2021. That’s because Susquehanna is a juggernaut on a lot of major exchanges, and it continued to grow and control about 10 percent of the market-maker volume trading over 130 million shares in 50 countries each day.
Susquehanna: A Global Trading Giant
Susquehanna is one of the 20 largest investors in the world, according to most estimates. The firm holds tens of billions of dollars’ worth of investments in countries like the United States, China, and Israel. It holds major stakes in companies like Payoneer, Credit Karma, and Agora Inc.
On top of this, it’s returning to its roots by getting involved in the sports betting market too. Nellie Analytics, the firm’s Dublin-based trading unit, is a powerhouse market maker in sports gambling. This growing market raked in an estimated $3 billion in bets in one month, and the year-over-year growth of 53.5 percent in the industry means $237.5 million in revenue.
By 2024, analysts estimate $81 billion will be bet, which is a big increase from the $20 billion total wagered from 2018-2020.
The company made its founders billionaires, and Yass continued watching gambling and other money-making opportunities throughout his life.
In 1985, he and his friends brought $250,000 to the racetrack in duffel bags. It was a super bet jackpot from Yass’s gambling syndicate that netted them $600,000 in a single day.
Like the MIT math team who gamed the casino blackjack system, Yass was inevitably marked by many betting companies. He was too successful, and that represented a risk to the companies he was cashing out with. And walking around with duffel bags of cash is not secure – so he moved into the stock market.
They started Susquehanna with their own money and kept the firm private for decades. It made $30 million on puts during the October 1987 market crash and became a trading giant in a controversial market.
Yass institutionalized the firm in the 1990s with its aforementioned training program. It started earning billion-dollar annual profits by applying quantitative skills to trading convertible bonds, index options, and commodity options. By the 2000s, it spawned an entire industry and ushered in the age of technology.
Susquehanna adapted to technology well and remained successful. In fact, it’s one of few trading firms from the 1980s that survived the shift to technology, and it’s still on the cutting edge today. That’s why Yass is known as one of the most influential men on Wall Street.
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