Incorporated: 1945 as B.G. Cantor & Co., Inc.
NAIC: 523120 Securities Brokerage; 523130 Commodity Contracts Dealing
SIC: 6211 Security Brokers & Dealers; 6221 Commodity Contracts Brokers & Dealers
Best known to the general public as the firm that survived the terrorists attacks of September 11, 2001, when 658 of its employees were killed in the upper floors of the World Trade Center towers, Cantor Fitzgerald, L.P., continues to maintain its headquarters in New York City and remains an important global financial services company. Since the early 1970s Cantor has been an important dealer in the secondary market for U.S. government bonds. The firm also deals in global equities, fixed income products, and derivatives; provides brokerage services; and is involved in investment banking and asset management. Long known for its high-tech capabilities, Cantor operates an electronic U.S. Treasury futures exchange and offers electronic trading of sovereign debt, while Cantor Gaming lends its expertise to online gaming and mobile gaming concerns. In addition to its New York headquarters, Cantor maintains about a dozen other offices in North America, as well as offices in London, Paris, Zürich, Milan, and Hong Kong.
Founder Born 1916
Cantor Fitzgerald's founder, Bernard "Bernie" Gerald Cantor, was born in 1916 and raised in a family of modest means in the Bronx, New York, where as a teen he occasionally worked as a vendor at Yankee Stadium, selling peanuts, popcorn, and hot dogs. Even then he kept an eye out for an edge, later claiming to have worked only Sunday doubleheaders because the time between games allowed him to sell more of his goods. After graduating from high school, Cantor enrolled at New York University (NYU) in 1935 to study law but switched his focus to finance after spotting a lawyer he knew working construction for the Works Project Administration, created during the Great Depression to provide employment opportunities. Cantor soon switched to night classes so he could work days as a junior analyst for the Wall Street firm of Brown, Young & Co. He never completed his degree at NYU, leaving in 1937 to become a stockbroker. Cantor's career was interrupted by a stint in the military during World War II. He served as a paratrooper in the South Pacific, an episode that he would refuse to discuss for the rest of his life.
After the war Cantor founded his own investment banking and general brokerage firm, B.G. Cantor & Co., Inc., in 1945. At the time, the brokerage business was dominated by the Irish. In 1947 Cantor, who was Jewish, brought in a partner, John J. Fitzgerald, an insurance company president, who took a 10 percent stake in the firm and lent his name to the company letterhead, which read Cantor, Fitzgerald & Co. Other partners included Jack J. Bernstein, Louis G. Behr, and Ernest Butt. Fitzgerald remained a partner until his death in 1964, but there was never a doubt as to who was the driving force in the firm.
Cantor became involved in the entertainment field. In 1949 the firm served as the underwriter for Hotelvision, Inc., a Long Island City-based company that developed a master control system allowing hotels to deliver television signals to a large number of rooms via coaxial cable. In the 1950s a Beverly Hills office was opened and Bernie Cantor soon gained a reputation as the stockbroker to the stars, especially adept at creating elaborate tax strategies, employing shelters, straddles, and other elaborate schemes. His clients included Kirk Douglas, Clint Eastwood, Zsa Zsa Gabor, and Eli Wallach. In the 1960s Bernie Cantor also lent his talents to the conglomerate builders of the time, such as Meshulam Riklis, a pioneer in the art of leveraged buyouts.
Turn to Bond Market: 1972
Cantor experienced a turning point in 1972 when the firm transformed itself into a broker of government securities. While equities, other than the top 50 stocks, were not faring well, Bernie Cantor recognized that there was less competition in the government bond market, a field that was also less regulated. Moreover, he spotted an edge, a struggling company called Telerate, which listed interest rates for commercial paper (essentially company IOU's) on computer terminals. The company had been founded in 1969 by a young college dropout, Neil S. Hirsch, who had taken a job as a clerk at a Merrill Lynch brokerage office. Here he became familiar with electronic stock quote monitors and soon realized that prices for other money market instruments had to be gathered by calling a number of participating firms. He launched Telerate to streamline and computerize this process. Although Hirsch was able to secure several dozen customers, he was soon in need of more money to grow the business and about to sell stock in the company to the public when Bernie Cantor intervened, initially paying $500,000 for a 25 percent stake and eventually buying control of the operation for $3 million.
Cantor was one of five major brokers that served as middlemen in the market for Treasury bonds, notes, and bills, selling these instruments to dealers, who then sold them to investors. Because of its unique position, Cantor was one of just a handful of firms with inside information about the interest rates the government planned to offer when it borrowed money, information that was guarded closely. U.S. Treasury securities comprised the world's largest debt market, thus driving the price of all other money market instruments. Thus, Cantor possessed extremely valuable information that impacted investors of all stripes, and through Telerate the firm had a way to deliver that information for a fee.
According to Financial World, by broadcasting live bids and offers for government securities over the network, Bernie Cantor gave birth to what became known as "screen brokerage," part of the changes that "broke the old-boy network in government bonds." Aside from giving birth to computerized trading, "Cantor broke from tradition by dealing not only with primary dealers but with the largest institutions as well. ... He would broker trades for smaller lots than dealers were accustomed to, and for much smaller commissions, resulting in narrower spreads. ... It led to greater volume overall, helping to set the stage for the roaring 1980s." Cantor sold Telerate for $100 million in 1981, reaping a considerable profit, and continued to make money from the service by arranging an exclusive deal to provide pricing information. It was also in 1981 that Bernie Cantor moved the firm into some of the top floors of the World Trade Center, receiving an attractive 25-year lease because most tenants did not wish to be located so high up. It was a time of explosive growth for the firm, which benefited from the Reagan administration's rapid accumulation of debt through the issuance of 30-year bonds, escalating interest rates, and an international demand for the bonds. Cantor drastically cuts its fees but more than made up the difference by increasing its volume of business. Moreover, Cantor prospered by offering a variety of other fixed-income products, including mortgage-backed securities and foreign issues, such as Eurobonds and French government securities.
While Bernie Cantor was forging a reputation in Hollywood and on Wall Street, and growing quite wealthy, he was also becoming well known in art circles as a major collector, especially of the works of the sculptor Rodin. He first took notice of Rodin in 1945 while paying a visit to the Metropolitan Museum of Art, where he was fascinated by Rodin's "Hand of God." In 1947 he came across another version of the work in a Madison Avenue gallery and bought it. Over the next several years he turned his attention to paintings, most noticeably works by Kandinsky, but in the mid-1950s his interest in Rodin was rekindled after he bought "The Kiss." He became virtually obsessed with the sculptor. By 1968 he owned 84 Rodin sculptures, but that amount would pale in comparison to the hundreds of pieces he would buy in the next few years. He and his wife, Iris, either individually or through the foundation they created, lent out or gave away more than 450 Rodin sculptures while maintaining a private collection that numbered about 300. The couple also donated considerable sums of money to the Metropolitan Museum as well as to the Brooklyn Museum, which was located three blocks from where Iris grew up.
Bernie Cantor would share his love of Rodin with his protégé and the man he groomed to succeed him one day, Howard Lutnick, whose mother was a sculptor, painter, and college professor. His father taught history at Queens College. Raised on Long Island, Lutnick suffered the loss of his mother to leukemia in 1978 when he was a senior in high school. Then, after Lutnick enrolled at Haverford College a year later, his father died during a chemotherapy session. A year after earning a degree in economics from Haverford, Lutnick came to work at Cantor as a trainee. "For about 18 months," reported the New York Times, "Mr. Lutnick moved from one sector of the firm to anther, learning the ropes and gathering information. The last stop of his orientation tour was a desk in the corner of Mr. Cantor's office, where the boss frequently interrogated the young man about what he found in his travels around the firm." Often what Lutnick shared was something being kept from Bernie Cantor, who wasted little time in castigating the executive responsible. Lutnick told the Times, "I was aggressively lectured by every executive who walked out of his office. But hey, my theory was that the guy whose name was on the door was the one who mattered."
Bernie Cantor took a liking to Lutnick and assigned him the task of managing his personal investments, as well as those of some of his friends. Lutnick made the most of the opportunity, bringing in outside clients that became the foundation for a new division, Investment Strategies Group, which moved aggressively in the retail sector of the Treasury market, selling directly to a wide range of customers from regional banks to wealthy individuals. By the time Lutnick was 29, in December 1990, Bernie Cantor named him his second in command and designated successor after the firm's president and a chief rival, James Avena, had tried to fire Lutnick that summer. A year later Lutnick was named president of Cantor Fitzgerald.
The question of who should succeed Bernie Cantor was hardly an academic question. In the late 1980s he broke his hip, and then his kidneys began to fail, leading to regular dialysis and a slow decline in his health. Although he wanted to leave Lutnick in charge, Bernie Cantor's original intention was to give ownership to his charitable foundation. However, he changed course, and because of tax reasons changed the firm from a corporation to a partnership in 1992. Soon 75 employees were named limited partners and allowed to buy stakes in the firm, and a succession plan was put in place that called for Lutnick and Cantor's wife Iris to serve as co-managing general partners. While he would exercise day-to-day control, she retained veto power over major decisions.
World Trade Center Bombed: 1993
Although Bernie Cantor spent most of his time in Los Angeles, he remained in constant contact with Lutnick in New York, as the firm faced a host of new challenges in the early 1990s, including increased competition from other inter-dealer brokers and the U.S. government's decision to reduce the number of new 30-year bond issues in favor of more short-term securities. The firm also had to contend with a completely unexpected problem. On February 26, 1993, a car bomb was detonated by terrorists in the parking garage below the North Tower of the World Trade Center, killing six people and injuring more than 1,000. Without a workable backup plan to rely on, Cantor was temporarily put out of business. "Perhaps even more damaging than the lost revenue," opined Industrial Investor, "Cantor's week-long absence showed that the market could get by without it."
By 1994 Bernie Cantor was legally blind due to retinal bleeding. In 1995 Lutnick and two other partners offered to buy the firm but Cantor refused. His condition worsened considerably at the start of 1996, forcing him to go on life support and prompting Lutnick to activate a five-person incapacity committee, three members of which then voted to hand over control to Lutnick because of Cantor's condition. Also a committee member, Iris Cantor abstained, as did a fifth member. She was furious over the move, which she maintained was premature and disrespectful to her husband and amounted to little more than a "palace coup," in the words of one of her advisers. The matter soon turned into a court battle, with the firm seeking to enforce the succession plan and Iris Cantor countersuing to have Lutnick evicted from his office. A day after the trial began in Delaware Chancery Court in May 1996, the two sides reached a settlement agreement that called for the Cantors' stake in the partnership to be reduced to 20 percent, and Lutnick solidified his position as the new head of the firm. Some bitterness remained, however, and after Bernie Cantor died in July 1996 Lutnick was barred from the funeral. Iris Cantor would also continue to spar with the firm over other issues in the years to come.
A major effort in the second half of the 1990s to keep Cantor at the forefront was the development of the eSpeed system to conduct electronic trading. It was first used internally in early 1996, but it was not until March 1999 that the trading platform was fully operational and ready for outside use. By the end of the year Cantor spun off eSpeed in a $220 million initial public offering of stock while retaining control of the business. In 2000 eSpeed and Cantor and a number of energy companies formed TradeSpark, L.P., which used the eSpeed platform to create an electronic energy trading marketplace. In February 2001 eSpeed enjoyed another important achievement when it signed a software solutions agreement with Federal Home Loan Bank.
The Events of 9/11
The successes as well as the challenges of doing business in a new century were soon rendered meaningless for Cantor Fitzgerald when, on the morning of September 11, 2001, a pair of airliners commandeered by terrorists were rammed into the twin towers of the World Trade Center. Cantor employees, who normally arrived at work early, had little chance, their escape from the towers cut off by the wreckage on the floors beneath them. When the towers crumbled to the ground, 658 Cantor employees were among the dead, about one in every four victims of the attack, three in ten of the Cantor workforce. Some key people in the firm were spared by chance, including Lutnick, who was delayed getting to work in order to accompany his son to the first day of kindergarten. He was only able to reach the World Trade Center site in time to witness the collapse of the towers.
Cantor and the survivors set themselves to the grim task of accounting for their living and their missing, presumably dead, colleagues, while setting up shop in temporary quarters and getting eSpeed back on line to allow the bond market to resume trading just two days later. After the experience of the 1993 bombing, the firm had established a backup center some 23 miles from the World Trade Center, and here employees worked around the clock to restore the computer systems. Lutnick was hailed a hero for his crisis management and pledge to look after the family members of perished employees, and then vilified when he made September 15 the last date for lost employees' paychecks, a move that outraged families, but one that he said he had to make in order to prove to bank regulators that the firm was determined to survive. In time, as the firm indeed recovered, the rancor dissipated as Lutnick and Cantor made good on its pledge to take care of surviving family members, dividing among them one-quarter of the firm's profits for five years and extending ten years of healthcare. Financial advice was also provided and regular town hall meetings were arranged for families and employees.
Up from the Ashes
After three years of rebuilding, Cantor resumed growing its business. In addition to its core bond business, Cantor enjoyed strong growth from its stock trading division, which was fortunate to have a large number of key employees working at locations outside of New York City. On the other hand, eSpeed had to contend with more competition and experienced some ups and downs. In 2007, Cantor made plans to spin off its brokerage unit, BGC Partners, in a public stock offering. After fielding criticism from eSpeed investors, however, the firm decided to combine eSpeed and BGC to create a new publicly traded company called BGC Partners, Inc., a deal to be engineered by eSpeed issuing about 134 million shares to acquire BGC. Cantor looked to new opportunities as well. In 2007 it formed Cantor Entertainment, a Los Angeles-based unit to provide information, marketing, advisory, and financial services to the entertainment industry. The firm also ran the Hollywood Stock Exchange, a virtual market that allowed traders to bet on movie box-office performance. In addition, Cantor was becoming involved in property and equity derivatives.
Principal Subsidiaries
BGC Partners Inc.
Principal Competitors
GFI Group, Inc.; ICAP plc; Tullett Prebon plc.
Further Reading
Atlas, Riva D., "Firm That Was Hit Hard on 9/11 Grows Anew," New York Times, September 10, 2004, p. C4.
Davis, Ann, and Aaron Lucchetti, "'New' Cantor Fitzgerald Now Looks to Compete," Wall Street Journal, September 10, 2004, p. C1.
Davis, Stephen, "Where Was Cantor Fitzgerald?" Institutional Investor, April 1993, p. 21.
Esterow, Milton, "Ex-Stadium Vendor Is Giving a Rodin to Museum," New York Times, May 13, 1968.
Gordon, Meryl, "Howard Lutnick's Second Life," New York, December 10, 2001.
Henriques, Diana B., "With Partners Like These, Who Needs Rivals?" New York Times, April 28, 1996, p. 3.
Henriques, Diana B., and Jennifer Lee, "Flinty Bond Trader Leads His Firm Out of the Rubble," New York Times, September 15, 2001, p. A10.
Hiday, Jeffrey L., "Accord Reached in Cantor Fitzgerald Case," Wall Street Journal, May 8, 1996, p. C29.
Jaffe, Thomas, "Getting Between the Wall and the Wallpaper," Forbes, October 20, 1997, p. 66.
Pace, Eric, "B. Gerald Cantor, Philanthropist and Owner of Rodin Collections, Is Dead at 79," New York Times, July 6, 1996.
Taub, Stephen, "Life After Bernie," Financial World, November 22, 1994, p. 64.
"To Hell and Back," Economist, August 11, 2007, p. 60.
— Ed Dinger
