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Lynn Martin on Market Models and Meme Stock Trends · Masters in Business

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Speaker 1: I'm Barry Hults. You're listening to Master's in Business on
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Speaker 1: Bloomberg Radio. My extra special guest this week is Lynn Martin.
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Speaker 1: She is the president of the New York Stock Exchange,
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Speaker 1: the world's largest with over listed companies for a combined
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Speaker 1: market cap of about thirty six trillion dollars. She is
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Speaker 1: also chair of the Fixed Income and Data Services at
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Speaker 1: i c E Intercontinental Exchange. She began her career at
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Speaker 1: IBM in Global services and came to them with a b. S.
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Speaker 1: And Computer science and a master's degree in stats from Columbia.
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Speaker 1: Lynn Martin, Welcome to Bloomberg. Thanks so much for having me,
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Speaker 1: Thanks so much for joining us. I have so many
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Speaker 1: things to ask you about, but but I have to
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Speaker 1: start out with You're at IBM pretty much in its heyday.
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Speaker 1: Tell us what that experience was like. It was great,
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Speaker 1: And I'm going to date myself a little bit, but
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Speaker 1: I was there through the why two K crisis when
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Speaker 1: global Services was relied upon by customers around the globe
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Speaker 1: to get them through that crisis or near crisis or
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Speaker 1: almost crisis, one of those crisis. It wasn't your that's fair.
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Speaker 1: It wasn't a crisis in that I remember waking up
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Speaker 1: on New Year's Eve and going to work in a
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Speaker 1: call center because that's what that's what you do in
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Speaker 1: your twenties working at IBM, and we were watching the
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Speaker 1: Australia the clocks hitting in Australia, and everything was fine,
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Speaker 1: and we sort of knew that once Australia opened okay,
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Speaker 1: we were going to be okay. So was this like
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Speaker 1: a near miss or was this hey A lot was
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Speaker 1: made about something that turned out to be less of
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Speaker 1: I think the industry became very well prepared it. I
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Speaker 1: don't know that it was a near miss, but I
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Speaker 1: think we got ahead of a potential Channe challenge. There
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Speaker 1: was a technical challenge, and that computers only stood years
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Speaker 1: understood years uh in two digits as opposed to four digits,
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Speaker 1: so two thousand could have been and that could have
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Speaker 1: caused challenges. I don't know if those challenges would have
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Speaker 1: been as extreme as was forecasted or not, but I'm
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Speaker 1: really glad we didn't find out, to say the very least,
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Speaker 1: so so IBM. I'm sort of jumping ahead in the story.
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Speaker 1: You began your career in computer sciences coding on a
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Speaker 1: Commoto or sixty four. You would you like to explain
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Speaker 1: that for the you don't know what a Commodore six.
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Speaker 1: I remember when I came home from elementary school one
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Speaker 1: day and my dad, who was an electric electrical engineer
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Speaker 1: he used to design fuel gauges on on airplanes, came
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Speaker 1: home with this huge box. Uh. And it was a
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Speaker 1: Commodore sixty four. I said, what's that? He said, the
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Speaker 1: first home computer. And I said, at what's that? I
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Speaker 1: was a kid, I had no idea. Uh. And he
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Speaker 1: also brought home a stack of floppy disks, which were
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Speaker 1: quite large for the youth that don't remember, they were
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Speaker 1: literally floppy there. They were floppy. You could bend them,
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Speaker 1: twist them, whatever the case, though you shouldn't because your
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Speaker 1: program would not work if you did that. Um. And
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Speaker 1: I just became hooked on it. And as any good
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Speaker 1: kid does, you become hooked on video games first. So
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Speaker 1: that's really what got me into the Commodore sixty four.
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Speaker 1: So is that what led to a focus on data
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Speaker 1: service and computer science the simple C sixty four. Well,
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Speaker 1: what really led me in the path of studying for
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Speaker 1: my undergrad was my dad giving me really good advice
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Speaker 1: which was way ahead of its time in the early
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Speaker 1: nineties when I was applying to college where he suggested
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Speaker 1: I not go into the traditional engineering discipline but instead
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Speaker 1: go into computer science. It's mainly because not only was
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Speaker 1: I good at math and good at sciences, but he
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Speaker 1: said there will always be opportunities for women in computer science,
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Speaker 1: and it's something that was just way ahead of its time,
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Speaker 1: and it sounded good to a seventeen year old filling
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Speaker 1: out a bunch of college essays at the kitchen table.
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Speaker 1: So I ticked off computer science despite you know, not
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Speaker 1: having a tremendous amount of experience with a computer, aside
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Speaker 1: from playing with video games and fiddling around more as
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Speaker 1: a hobby than anything. And now you oversee a system
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Speaker 1: that is a combination of advanced data systems, lots of
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Speaker 1: hardware and software plumbing. You have to keep listed companies
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Speaker 1: up and running, trading as much as a billion shares
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Speaker 1: a day. How do you go from the common sixty
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Speaker 1: four to that? U Fortunately, technology has been significantly advanced,
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Speaker 1: and I think that's what's contributing to the volumes of
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Speaker 1: liquidity that you actually see in the markets, but also
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Speaker 1: the amount of incoming order messages that we see every day.
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Speaker 1: So when you say technology, it's the technology at the
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Speaker 1: New York Stock Exchange as well as the technology at
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Speaker 1: all the companies that are trading. Absolutely, and just macro technology.
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Speaker 1: I remember the first um classes I took in my
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Speaker 1: compsite major. I learned assembly language. I was coding on
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Speaker 1: a mainframe. I was moving from register one to register too,
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Speaker 1: and that's like the most basic form. And now mainframes
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Speaker 1: have become really thin machines. They've really moved into thin servers.
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Speaker 1: They've moved into storage capacity like the cloud. So that
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Speaker 1: the advancement of technology since I finished my degree in
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Speaker 1: the late nineties to where it is today has really
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Speaker 1: exploded into something that allows for more performance, more real
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Speaker 1: time type of interactions. There's a quote of yours I
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Speaker 1: really like, which which probably explains your career, which is
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Speaker 1: quote the amount of satisfaction I would get when I
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Speaker 1: compiled the program. In the program did exactly what I wanted.
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Speaker 1: It too, was beyond anything I had experienced previously. Explained
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Speaker 1: that absolutely, So I tend to view computer coding not
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Speaker 1: that dissimilar to communicating in a foreign language. A lot
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Speaker 1: of times you're learning your French Spanish to communicate with
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Speaker 1: someone in a different country. When you're learning computer coding,
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Speaker 1: you're just learning how to communicate with a machine. And
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Speaker 1: a lot of times when you're communicating with that machine,
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Speaker 1: you think you're telling them something really good and something
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Speaker 1: really positive, and what comes out is something really not positive.
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Speaker 1: So very frequently, maybe because I wasn't the best coder,
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Speaker 1: I would you know, come back with errors or stuff,
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Speaker 1: uh stuck in what is known as an infinite loop,
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Speaker 1: where the machine just keeps going and going and going
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Speaker 1: repeat exactly kept doing that. So on the days when
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Speaker 1: I would put you know, in code and the machine
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Speaker 1: would do exactly what I told it to, I was like, oh, wow,
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Speaker 1: that's great. So so you use the metaphor of a
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Speaker 1: foreign language, um verb, tense, syntax, punctuation, all these things
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Speaker 1: really matter when you code it sure does. Syntax absolutely matters.
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Speaker 1: Efficiency also absolutely matters. Think of the way I think
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Speaker 1: of efficiency around computer coding is not that different to
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Speaker 1: communicating with a local in in a in a foreign country.
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Speaker 1: They've got there, you've got your typical language, you know,
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Speaker 1: the stuff that you would learn in textbooks. But then
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Speaker 1: you've got you know, the more shorthand types of communication.
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Speaker 1: I kind of view efficient computer coding and the same
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Speaker 1: the same passion. Really quite interesting. Let's talk a little
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Speaker 1: bit about the I P O process. How does this work?
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Speaker 1: When a company decides they want to go public. So
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Speaker 1: a company will decide they want to go public, Typically
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Speaker 1: they will interview variety of exchanges. That could be domestic
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Speaker 1: US exchanges, it could be if they are a foreign company, um,
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Speaker 1: they will they will look at their home markets as well. Ultimately,
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Speaker 1: they have a certain objective in mind. Do they want
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Speaker 1: to raise capital, do they not want to raise capital?
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Speaker 1: If they want to raise capital, what investor base are
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Speaker 1: they really targeting? More often than not, a company will
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Speaker 1: select the US markets because we have the most diverse,
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Speaker 1: the deepest pools of liquidity, uh, the biggest access to investors,
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Speaker 1: the biggest opportunity for a company to gain a global following.
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Speaker 1: So typically they will they will select a US exchange.
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Speaker 1: So you guys obviously have to prep when a company
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Speaker 1: comes to you and says, hey, we're considering you and
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Speaker 1: some of your competitors. What is your process like to
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Speaker 1: prepare for. I don't know if we still use the
9:03
Speaker 1: phrase beauty contest, but that that was the old investment
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Speaker 1: banking phrase. How do you gear up to say, here's
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Speaker 1: why you should list with the NYC and not our competitors.
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Speaker 1: So my philosophy is very focused on how can we
9:16
Speaker 1: be a good partner to our listed companies and what
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Speaker 1: is that listed company seeking to achieve? And it's not
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Speaker 1: just about I P O day, I p O day,
9:27
Speaker 1: I kind of equate to a wedding day. You're going
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Speaker 1: to have a great day, um hopefully, hopefully. But what
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Speaker 1: I what I tend to think about is what happens
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Speaker 1: a month after you go public? What happened six months
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Speaker 1: after you go public? And how can we be a
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Speaker 1: good partner to that firm and their public company journey.
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Speaker 1: I love the visual of this as a wedding day,
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Speaker 1: So so now I'm thinking of mother the bride, father
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Speaker 1: the bride. Who are you working more closely with? Is
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Speaker 1: it the investment bank? Is it management of the company?
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Speaker 1: Who you're working with? Both? Yeah, exactly exactly. You're working
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Speaker 1: with the banks who are underrating the deal, the mother
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Speaker 1: and father of the bride. To use your analogy, you're
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Speaker 1: also working very closely with the company because the company
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Speaker 1: has a vision. The company has been successful in that
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Speaker 1: they've gotten to the point where they're graduating to the
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Speaker 1: public markets, which is something that should be celebrated. But
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Speaker 1: the company also has a two year, three year, five
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Speaker 1: year strategy of what they are really seeking to achieve,
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Speaker 1: not just raising capital to fund operations or to fund
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Speaker 1: research and development. They have may have M and A targets.
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Speaker 1: They may want to expand their business through leveraging a
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Speaker 1: community that the listings market, particularly the ny s C
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Speaker 1: brings to the table. They may have specific concerns about
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Speaker 1: certain areas of the market. One one topic that see
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Speaker 1: eos are very focused on at the moment is E
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Speaker 1: S g UM Environmental, social and governance and how they
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Speaker 1: are bringing sustainable practices to the market. So they want
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Speaker 1: to tell that story. So everyone's got a different objective.
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Speaker 1: So we spent a lot of time with CEO, CFO,
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Speaker 1: UM I, r O, the whole team, CMO, Chief Marketing Officer,
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Speaker 1: because they're the ones that are, you know, orchestrating the story.
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Speaker 1: So let's talk about the story a little bit. I
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Speaker 1: just finished watching Apple iTunes we crashed, and what was
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Speaker 1: so interesting was as they're marching towards an I p O.
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Speaker 1: It has nothing to do with the exchange, It has
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Speaker 1: nothing to do with raising capital. The narrative just seemed
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Speaker 1: to have taken over from your perch. You must see
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Speaker 1: these things go by all the time. Maybe not so
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Speaker 1: much this year, which is a lighter I p O year,
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Speaker 1: but last year. How do you look at at these
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Speaker 1: new breaking news stories and all these um all the
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Speaker 1: buzz and mania around an I p O for both
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Speaker 1: good and bad, how does that affect your job? Our
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Speaker 1: job is ultimately to ensure that when a company comes
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Speaker 1: to the market, they get the best experience possible when
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Speaker 1: that stock opens and when that stock closes, first week,
12:15
Speaker 1: first day, whatever the case may be, and that they're
12:17
Speaker 1: happy with the experience. Ultimately, if there is news around
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Speaker 1: the company, it may influence their decision to go public
12:26
Speaker 1: at a certain time. Ultimately, the company that you're referencing
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Speaker 1: did decide to go public, it just was at a
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Speaker 1: different different a little a little later, and and there
12:37
Speaker 1: have been stories where that doesn't necessarily work out well.
12:41
Speaker 1: Or a company like Facebook goes public, the initial rollout
12:45
Speaker 1: is a little dicey. They announced something about mobile and
12:47
Speaker 1: suddenly the stock takes off. So when you talk about
12:51
Speaker 1: the month or the year after the wedding, these stories
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Speaker 1: really very much change. It's not just about the I
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Speaker 1: p O day, is it. It's not just about the
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Speaker 1: IPO it, but that's about the CEO articulating their strategy
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Speaker 1: and executing on that strategy. And that's what's going to
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Speaker 1: give the CEO and the public company the next group
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Speaker 1: of investors. They're going to get a group of investors
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Speaker 1: on i p O Day, They're going to do their
13:14
Speaker 1: road show right before the i p O s They're
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Speaker 1: going to garner the initial set of interest, and a
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Speaker 1: lot of times companies will start that process even in
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Speaker 1: a soft manner, even before they're on the road for
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Speaker 1: the i p O. But post i p O day,
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Speaker 1: it's about execution. And when they have really exciting news
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Speaker 1: to share, the market tends to reward it, you know,
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Speaker 1: more people come into the stock. Let's talk about some
13:43
Speaker 1: other ways some people take their companies public. Um, we've
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Speaker 1: watched SPACs super popular last year. They all seem to
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Speaker 1: have blown up and done fairly poorly this year. How
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Speaker 1: does the NYC look at a product like a spack
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Speaker 1: as an alternative method did for a private company going public? Ultimately,
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Speaker 1: we think SPACs are still a viable form for companies
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Speaker 1: to go public. What you saw was a flood of
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Speaker 1: SPACs coming to the market at the same time. So
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Speaker 1: that may have contributed to some of the challenges that
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Speaker 1: have now have now happened given the time horizon that
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Speaker 1: is associated with SPACs. Uh. But ultimately we see as
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Speaker 1: a very viable form for companies to continue to come
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Speaker 1: to market. Spacks have been around for probably fifteen to
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Speaker 1: twenty years, and that's what those people forget is that
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Speaker 1: this was a form that companies were using to go
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Speaker 1: public way before the last two years. They just became
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Speaker 1: much more popular in the last couple of years, which
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Speaker 1: is why you saw saw the flood, to say the
14:51
Speaker 1: very least. Uh, there's been a little bit of agitation
14:54
Speaker 1: towards direct listings where there seems to be a decent
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Speaker 1: amount of controversy on both sides. How do you guys
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Speaker 1: look at direct listings as opposed to the I p
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Speaker 1: O process. But we pioneered the direct listing. We pioneered it,
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Speaker 1: I believe three three or four years ago, UM, and
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Speaker 1: we are quite proud of that innovation. It's just another
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Speaker 1: innovation allowing for private companies in this case that didn't
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Speaker 1: want to raise capital, that didn't need to raise capital
15:23
Speaker 1: to become public companies, to have that public currency, to
15:28
Speaker 1: be able to do to fund their operations and or
15:32
Speaker 1: to do M and A and or all the other
15:33
Speaker 1: great things that come out along with with being a
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Speaker 1: public company, including providing investors the opportunity to participate in
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Speaker 1: the upside associated with the company. What about the circumstances
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Speaker 1: where investors can participate in the upside? Specifically, a lot
15:52
Speaker 1: of these venture backed companies have stayed private for much longer.
15:57
Speaker 1: They kept doing rounds and have grown to sizes that
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Speaker 1: we previously would think of as hey, they should have
16:03
Speaker 1: gone public years ago. How do you guys look at that?
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Speaker 1: Is this something that you pay attention to? Where do
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Speaker 1: you think this go? Yeah, I mean, we believe in
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Speaker 1: the power of public markets. We believe in the upside
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Speaker 1: that comes along with being a public company. Transparency, good governance,
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Speaker 1: you get, you're able to reward your employees, You're able
16:26
Speaker 1: to reward shareholders, allow a diverse group of shareholders to
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Speaker 1: participate in the upside. And based on the feedback that
16:34
Speaker 1: we hear from companies who are private, the public currency
16:38
Speaker 1: is still very strong. There is, despite the fact that
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Speaker 1: there's volatility in the market. There is still demand for
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Speaker 1: companies to go public. They're just trying to figure out
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Speaker 1: what time makes sense for them. Interesting. My extra special
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Speaker 1: guest this week is Lynn Martin. She is the president
16:56
Speaker 1: of the world's largest stock exchange, the n y s C.
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Speaker 1: They host listed companies with a market cap somewhere in
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Speaker 1: the neighborhood of thirty six trillion dollars doing more than
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Speaker 1: a billion shares on a good day. That sounds like
17:13
Speaker 1: a pretty complex situation just to begin with. What's it
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Speaker 1: like managing something with so many moving parts? There are
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Speaker 1: a lot of moving parts, But because I'm a technologist,
17:27
Speaker 1: I feel really good about the service that we provide.
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Speaker 1: You know. One of the first things when I hopped
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Speaker 1: into this role in January, unsurprisingly that I focused on
17:37
Speaker 1: was system capacity and thinking about how what what's our
17:42
Speaker 1: average response times? What what sort of capacity do we
17:47
Speaker 1: have in the system to handle peak days. I'm glad
17:50
Speaker 1: I did that because a couple of weeks after that,
17:53
Speaker 1: we had tremendous volatility. The week of January around then,
17:57
Speaker 1: which is pretty funny because the prior year was almost
18:01
Speaker 1: no volatility. Was the quietest year in alone. Started to
18:04
Speaker 1: see it a bit in December. So we saw the
18:07
Speaker 1: signs in December that volatility was starting to creep into
18:10
Speaker 1: the market that we hadn't seen that to your point,
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Speaker 1: you know, really since the pandemic um the way we
18:15
Speaker 1: look at capacity is incoming order messages for those listening
18:19
Speaker 1: and coming order messages is buys coming into the system,
18:23
Speaker 1: cells coming into the system, trades uh happening in the system.
18:29
Speaker 1: And very quickly we started to see days that were
18:32
Speaker 1: in excess of above pandemic levels from a messaging standpoint,
18:37
Speaker 1: and equated to half a trillion messages being processed by
18:42
Speaker 1: our systems every day, So have a trillion and by messages,
18:47
Speaker 1: it's by sell trade buy cell trade. That is an
18:52
Speaker 1: incoming order messages, which is tremendous. And the fact that
18:55
Speaker 1: we were processing those with average response times in the
19:00
Speaker 1: box of about thirty micro seconds micro MicroC that's incredibly incredible. Yeah,
19:07
Speaker 1: and you know that really has continued. It's been something
19:10
Speaker 1: I've had my eye on throughout the year. But our
19:13
Speaker 1: technologists have done a great job. We've recently upgraded our
19:16
Speaker 1: systems to our next generation matching engine technology and our
19:21
Speaker 1: systems have Touchwood held up beautifully from a response time standpoint.
19:25
Speaker 1: So when all these things go right, we never hear
19:28
Speaker 1: about it. But when there's a little snaff who it's
19:31
Speaker 1: front page of the Wall Street Journal. Um, let's let's
19:34
Speaker 1: talk about some of those. Let's talk about what took
19:37
Speaker 1: place on the flash crash back in Do we really
19:41
Speaker 1: know whatever happened to that or did just And I'm
19:45
Speaker 1: gonna give you guys credit. These are all old data systems.
19:48
Speaker 1: Everything that existed then have more or less been replaced upgraded. Well,
19:53
Speaker 1: I think in a situation like that, you have seen
19:57
Speaker 1: a market structure evolve two to the point where there
20:02
Speaker 1: have been system safeguards from a market structure standpoint put
20:05
Speaker 1: in place around volatility halts. Let me before you go there,
20:10
Speaker 1: let me just back up a little bit. So this
20:13
Speaker 1: used to be a fairly manual system, with individual specialists,
20:17
Speaker 1: human beings at different posts on the floor for each
20:21
Speaker 1: individual stock. I kind of forget, having grown up with that,
20:24
Speaker 1: I kind of forget. A lot of people are wholly
20:26
Speaker 1: unfamiliar with that. And there was a transition process where
20:31
Speaker 1: a lot of the manual processes were replaced with electronics
20:36
Speaker 1: and and automated computers. There's still humans involved, but much
20:41
Speaker 1: less than they once were. What was that part of
20:44
Speaker 1: the impact in in the flash crash? And how has
20:48
Speaker 1: that transition happened A lot of which took place long
20:51
Speaker 1: before you got there. Yeah. Not, It wasn't necessarily as
20:55
Speaker 1: a result of any one particular area other than just
20:59
Speaker 1: an evolution of the market. What I like to say
21:01
Speaker 1: is the most technologically advanced companies employ humans um and
21:09
Speaker 1: employ human interaction. Humans are there to make sense of
21:13
Speaker 1: what's going on in the market, apply human judgment, remove
21:17
Speaker 1: noise from the system. It goes back to what we're
21:19
Speaker 1: talking about very early on during our conversation today, which
21:25
Speaker 1: is when you're writing code, frequently what's going to come
21:28
Speaker 1: back is an error that because that is just the
21:32
Speaker 1: computer reacting automatically to something. If you don't have the
21:37
Speaker 1: human who can go in and fix the error, you're
21:40
Speaker 1: going to remain in an error state. So the humans
21:44
Speaker 1: job is really to remove the noise from the system,
21:48
Speaker 1: is to remove the volatility from the system. It's something
21:51
Speaker 1: that I employed in my previous role where we value
21:56
Speaker 1: to point eight million securities and the fixed income opaque
21:59
Speaker 1: so out of the market. Uh. Using a lot of
22:03
Speaker 1: great systems, a lot of great mathematical mouths and also
22:06
Speaker 1: a couple hundred humans. And the reason why we have
22:10
Speaker 1: the best data set out there is because I have
22:13
Speaker 1: those humans who are all former bond traders and former
22:17
Speaker 1: uh MUNI specialists who can make noise of what's coming
22:21
Speaker 1: into the system. I think the floor model is the
22:24
Speaker 1: exact same thing. During really volatile days, you saw the
22:28
Speaker 1: human element really come into play. We saw two times
22:31
Speaker 1: less volatility on n y C issued stocks at the open,
22:35
Speaker 1: three times less volatility on n y C issued stocks
22:39
Speaker 1: at the close, and there's a hundred percent because of
22:41
Speaker 1: the job of the floor Really interesting. So let's talk
22:46
Speaker 1: about So you have stocks that are listed and some
22:49
Speaker 1: of this is NYC and some of this is into
22:51
Speaker 1: Continental Exchange. So they do stocks, they do bonds, they
22:56
Speaker 1: do options, they do derivatives. What else I don't know
23:00
Speaker 1: if I left anything out futures? What what else is
23:03
Speaker 1: traded at either ny s C or I sees family
23:09
Speaker 1: of exchanges. We also have six clearing houses globally that
23:12
Speaker 1: cleared the bulk of the credit to false swaps market.
23:17
Speaker 1: Where are where are those six around the around? Our
23:21
Speaker 1: largest clearing house is based in Europe. Is uk f
23:26
Speaker 1: C a registered We've got a clearing house based in
23:29
Speaker 1: the US. We have a clearinghouse based in Singapore UH
23:33
Speaker 1: as well as one in the MIDA one in Canada.
23:35
Speaker 1: So we've we've got We've got them sprinkled throughout the globe.
23:38
Speaker 1: And some of this is regional and some of this
23:40
Speaker 1: is redundancy and back up, and it makes it makes
23:43
Speaker 1: a whole lot of sense. So I've been talking. I
23:45
Speaker 1: keep talking about the n y s C like it's
23:47
Speaker 1: just the exchange. Let's talk about the n y C group.
23:51
Speaker 1: That's four electronic exchanges UH NYC ARCA, which is the
23:56
Speaker 1: leader in et f S NYS American Exchange of Exchange,
24:00
Speaker 1: National Exchange, plus two options exchanges, the American Options and
24:05
Speaker 1: our options which I think one is the New York
24:07
Speaker 1: one is in San Francisco? Was that right? The floor
24:10
Speaker 1: is in San Francisco. So how do all I just
24:15
Speaker 1: mentioned four electronic exchanges to options changes? How do all
24:19
Speaker 1: of these integrate with the n y c S operations?
24:23
Speaker 1: So common technology UM is REELI what pulls all of
24:26
Speaker 1: the exchanges together. The different medallions are really there to
24:29
Speaker 1: try different market models, different matching algorithms on the on
24:32
Speaker 1: the options side of the business, um different UH market
24:37
Speaker 1: models from the equity side of the business. It gives
24:41
Speaker 1: us more flexibility to have to be responsive to our customers.
24:44
Speaker 1: Quite fascinating. So I mentioned was sort of aberrational. At
24:50
Speaker 1: no point in the year was the market less than
24:54
Speaker 1: five percent from all time highs. That led to very
24:58
Speaker 1: very little volatility and a year UM. How does a
25:02
Speaker 1: lack of volatility affect your daily work or UH? Really
25:07
Speaker 1: the right way to ask that is, when volatility spikes
25:10
Speaker 1: like we saw it this year, does that make your
25:12
Speaker 1: job harder? It makes your job different. It makes your
25:17
Speaker 1: job focused more on thinking about things like system capacity
25:21
Speaker 1: response times. You're looking at that super closely because you've
25:24
Speaker 1: always want to have a very responsive matching engine. You
25:28
Speaker 1: spend a little bit less time though, welcoming I p
25:31
Speaker 1: o s to the market because many companies are not
25:35
Speaker 1: going to want to go out in a very volatile environment.
25:40
Speaker 1: So this raises an interesting question, what can you guys
25:44
Speaker 1: do to I don't know if you can end volatility,
25:47
Speaker 1: but what can you do to tame it or make
25:49
Speaker 1: it more manageable? Is there anything in your trading process
25:53
Speaker 1: that can facilitate taking some of the spikes and volatility well?
25:59
Speaker 1: That's where that's where our market maker model really resonates.
26:02
Speaker 1: Sounds really resonating with those companies who still believe in
26:06
Speaker 1: the public current public market currency, which there's many of them,
26:10
Speaker 1: when they're thinking about coming to the market. Because you
26:14
Speaker 1: can't predict volatility. No one can control volatilly. No one
26:17
Speaker 1: can predict volatilly, but we can do things because of
26:19
Speaker 1: our market model to help the companies that are listed
26:24
Speaker 1: on us have a less volatile experience. So our market
26:27
Speaker 1: model requires a designated market maker UM whose job is
26:32
Speaker 1: to trade that stock from the floor and they create
26:36
Speaker 1: an orderly market, correct correct, and they smooth out volatility,
26:40
Speaker 1: not just intra day, but also the open and the clothes,
26:43
Speaker 1: the open end, the closure incredibly important moments in time
26:47
Speaker 1: for a company, particularly if you think of a company
26:51
Speaker 1: having quarter end or they're having share repurchases or whatever
26:55
Speaker 1: the case may be. So that's actually meaningful dollars even
26:58
Speaker 1: post an I p O in a CFOs mine when
27:01
Speaker 1: they're doing shared by backs, things of that nature. So
27:04
Speaker 1: that's where our market model really resonates, particularly in times
27:08
Speaker 1: like this when you see the volatility in the market,
27:11
Speaker 1: you see the VIX over twenty but you know that
27:13
Speaker 1: companies still want to go out in the public market.
27:16
Speaker 1: You know, I think the public is probably less aware
27:20
Speaker 1: of some of the institutional order flow like buy on
27:23
Speaker 1: open or sell on clothes, which it doesn't hurt to
27:27
Speaker 1: have a professional overseeing that process so it doesn't get
27:32
Speaker 1: too well and also smooth at any imbalances because you're
27:34
Speaker 1: not necessarily going to have a balance book at the
27:37
Speaker 1: end of which means they're literally taking positions longer short
27:40
Speaker 1: in order to satisfy those those orders at um. So,
27:44
Speaker 1: so let's talk about some some imbalances. Uh, And I'm
27:49
Speaker 1: thinking about the sort of meme stock mania that began
27:54
Speaker 1: in when everybody was stuck at home during the pandemic
27:57
Speaker 1: and just exploded in one. It was really a very
28:02
Speaker 1: unexpectedly wild ride, especially the companies involved. What was that
28:07
Speaker 1: experience like for you watching this You weren't yet president
28:11
Speaker 1: of the NYC in one, but you were still there.
28:16
Speaker 1: Tell us what that experience was like. I mean, it
28:19
Speaker 1: was incredibly interesting to watch the the new retail interest
28:26
Speaker 1: in certain stocks and why they had picked certain stocks.
28:30
Speaker 1: And I think it's just still something that is is
28:33
Speaker 1: fascinating intellectually more than anything. I can't really comment on
28:37
Speaker 1: any of their decisions, but it's it's been interesting to
28:41
Speaker 1: watch how social media has really emboldened a new class
28:46
Speaker 1: of trader. My favorite moment of that was the young,
28:50
Speaker 1: pretty handsome, young couple. And the way we subsidize our
28:53
Speaker 1: lifestyle is we buy stocks. We only buy the stocks
28:57
Speaker 1: that are going up, and when they go up, we
28:59
Speaker 1: sell them, and and we just do that over and
29:01
Speaker 1: over again from home. And I'm like, oh, I had
29:03
Speaker 1: no idea. Was that easy to get rich trading stocks?
29:07
Speaker 1: Why did someone tell me that thirty years ago? I
29:09
Speaker 1: tend to take the view that having a very balanced
29:12
Speaker 1: portfolio and knowing what you invest in, investing for the
29:15
Speaker 1: long term is probably nine times out of tend, the
29:19
Speaker 1: maybe nine and a half times out of tend, the
29:21
Speaker 1: right philosophy to have. I think Warren Buffett wouldn't find
29:25
Speaker 1: anything to disagree with with that. Um And yet we
29:30
Speaker 1: see people pilings companies of questionable potential. My favorite example was, um,
29:38
Speaker 1: was it Hurts that was bankrupt and everybody decided to
29:40
Speaker 1: buy Hurt Since then, so so as you're observing, this
29:44
Speaker 1: is part of your brain saying we have to do
29:46
Speaker 1: excellent Y and Z to stop this or is it Well,
29:50
Speaker 1: that's gonna be an interesting uh end when when that all?
29:54
Speaker 1: When that train stopped. So our job is to make
29:57
Speaker 1: sure the markets are open and are a vali to
30:01
Speaker 1: the most diverse set of investors. No paternalism, you just
30:05
Speaker 1: exactly here's the platform. Ultimately, if there is questionable behavior,
30:10
Speaker 1: we police. That are red group. Who is a separate
30:14
Speaker 1: group police is that works closely with the regulator. So
30:16
Speaker 1: let's talk a little bit about that. You see behavior
30:19
Speaker 1: that sometimes it's just that looks pretty stupid, and sometimes
30:23
Speaker 1: it's like, hey, this is looking a little suspicious. Something
30:26
Speaker 1: doesn't smell right here. What happens when your systems start
30:31
Speaker 1: flashing little alerts, Hey look at this stock. Something seems
30:35
Speaker 1: to be on kosher here. So that would be the
30:37
Speaker 1: job of reg to to look at various trades internally regulation. Yeah,
30:42
Speaker 1: they are a separate organization from from the business, but
30:45
Speaker 1: they they are an internal organization and then you know
30:48
Speaker 1: they would either take enforcement action if it was suspicious activity. Um,
30:55
Speaker 1: not stupid, not stupid. It's not our job again to
30:58
Speaker 1: take views on whether not a stock is worth something
31:01
Speaker 1: that's for the market right aside? Uh And then if
31:05
Speaker 1: appropriate refer it to the regulators. So I would assume
31:09
Speaker 1: the NYC has a fairly close relationship with the SEC,
31:13
Speaker 1: and there's probably a lot of back and forth on
31:16
Speaker 1: on a regular basis. Uh, tell us a little bit
31:19
Speaker 1: about that. How does they are a regulator? We're an
31:22
Speaker 1: s R. Oh, so we did have a very close
31:25
Speaker 1: working relationship with them. UM so your self regulating organization.
31:31
Speaker 1: But you also have a relationship with the government regulator. Absolutely,
31:36
Speaker 1: and I would imagine that's a fairly productive relationship. It is,
31:41
Speaker 1: it is. Obviously we're have a very strong rule book.
31:44
Speaker 1: We any time we make a change from market structure standpoint,
31:49
Speaker 1: from an order type standpoint, that has to be fully
31:52
Speaker 1: approved by the Commission. So we spend a lot of
31:54
Speaker 1: time with the SEC going through various rule changes. We
31:58
Speaker 1: want to introduce a new order type, we want to
32:00
Speaker 1: introduce a new different fee. Uh, there's a variety of
32:04
Speaker 1: reasons why we need to do so. Let's use a
32:08
Speaker 1: let's use an example. I'm always again. Now I'm gonna
32:11
Speaker 1: show my age. The circuit breakers from the eighties and
32:15
Speaker 1: nineties were pretty modest, and things really had to go
32:19
Speaker 1: off the rails before they kicked in. UM circuit breakers
32:22
Speaker 1: have very much been brought up to speed, both on
32:26
Speaker 1: the broad market and individual companies. Tell us about the
32:30
Speaker 1: circuit breakers, Is that coming from the NYC? Is that
32:32
Speaker 1: coming from this? So that is something in the wake
32:35
Speaker 1: of the volatility that has occurred at various points, various
32:38
Speaker 1: instances of stress in the market. I mean this goes
32:43
Speaker 1: back to an absolutely pandemic um. The market has really
32:48
Speaker 1: the positive of every time there has been a challenge,
32:50
Speaker 1: the market has developed system safeguards for lack of their description,
32:55
Speaker 1: so and they apply to all of the exchanges. So
33:00
Speaker 1: utility halts for an example, we have volatility halts for
33:04
Speaker 1: securities individual securities, but then we also have system halts
33:08
Speaker 1: when the entirety of the market has a certain drop.
33:13
Speaker 1: For example, you saw the market wide circuit breakers kicking
33:16
Speaker 1: I believe four times during the pandemic, really during the
33:19
Speaker 1: height of the pandemic. And that Yeah, And the way
33:22
Speaker 1: that works is if the SMP is trading seven percent
33:26
Speaker 1: below uh, it's it's opening level, it'll automatically hall opening
33:32
Speaker 1: level of previous close. So we close at three thousand,
33:37
Speaker 1: and we open points below that. There's a whole price there. Yeah,
33:44
Speaker 1: makes sense. And individual companies. What are those circuit breakers
33:47
Speaker 1: like it's I believe five um upper upper down. That's
33:53
Speaker 1: the tempt and the first halt. Actually, to be fair,
33:55
Speaker 1: it depends on the liquidity in the stock. It could
33:58
Speaker 1: be five percent, could be why are depending on the
34:01
Speaker 1: overall liquidity and market. But when we when we see
34:03
Speaker 1: a liquid stock take a five or an eight or
34:06
Speaker 1: a ten percent haircut, they tend to keep trading. You'll
34:10
Speaker 1: have a very short halt and then just to let
34:13
Speaker 1: the book sort of re rejigger. So the first halt
34:17
Speaker 1: is how how many minutes? Uh? Five minutes? I think
34:21
Speaker 1: it's ten minutes, all right, And then the second halt
34:24
Speaker 1: is longer, and then if this continues to be a
34:27
Speaker 1: mess it's halted for the day. So the first second,
34:31
Speaker 1: third strike, they're they're out. We haven't seen that in
34:34
Speaker 1: quite a while. What happens the next day when we
34:37
Speaker 1: when we reopen, how is that priced? Is it? Is
34:41
Speaker 1: it just the messages and orders or is there a
34:44
Speaker 1: specialist trying to special If that's where the open, that's
34:47
Speaker 1: where our market model shine. You have the opening auction
34:50
Speaker 1: and the closing auction, which again perform that function I
34:54
Speaker 1: mentioned earlier of smoothing at any imbalances, whatever the case
34:58
Speaker 1: may be, to make for us smoother open and or
35:02
Speaker 1: a smoother clothes And that's why when I mentioned earlier
35:05
Speaker 1: that we've seen two two times less volatility at the
35:09
Speaker 1: open and three times less volatility at the close this year.
35:13
Speaker 1: That's what I'm talking about, the opening and the closing
35:15
Speaker 1: off because the person is essentially a person is trying
35:18
Speaker 1: to make sense, smoothing that out and make neat a
35:20
Speaker 1: little more balance that might have been. And that means
35:23
Speaker 1: they're also going at risk and taking positions to facilitate that. Um. So,
35:29
Speaker 1: so you mentioned a couple of things I didn't get to.
35:31
Speaker 1: I want to follow up on. One is um the
35:34
Speaker 1: dual listing? So when a company is listed here and
35:38
Speaker 1: overseas or is that the only reason to be a
35:41
Speaker 1: dual listening? How often? What are the other reasons to
35:44
Speaker 1: be besides geographic to be dual listed? A lot of
35:48
Speaker 1: times it's geographic. Very infrequently. There are some securities that
35:53
Speaker 1: are dual listed on US and our closest competitor in
35:59
Speaker 1: the US, but that's very infrequent. So it's typically to
36:03
Speaker 1: get access to a different group of of investors. A
36:06
Speaker 1: lot of times. You'll also see a primary listing and
36:09
Speaker 1: then something called an a d R be listed in
36:12
Speaker 1: the US. What we'll do the primary that's more foreign
36:15
Speaker 1: issuers that will want to have their primary listing on
36:19
Speaker 1: the home market, but then tap the liquidity in the
36:23
Speaker 1: US market, so they'll issue uh a d R. And
36:27
Speaker 1: then what about additions and subtractions? I know, we occasionally
36:31
Speaker 1: see companies that were once smaller companies listed it more
36:35
Speaker 1: region what used to be considered regional exchanges, graduate to
36:40
Speaker 1: the NYC. And then every now and then somebody, uh
36:44
Speaker 1: you know, is past their cell by date and they
36:46
Speaker 1: get delisted. Tell us a little bit about what that
36:49
Speaker 1: process is like, Yeah, I mean the de listing process.
36:51
Speaker 1: You know, there's a lot of things that go into
36:53
Speaker 1: the d listing to it's pretty mathematical. Check these boxes.
36:57
Speaker 1: It is, we've got a regg has a variety of
36:59
Speaker 1: requirement to maintain your listing. It could be certain financial
37:05
Speaker 1: wherewithal it could be the amount of shareholders and have
37:09
Speaker 1: individual shareholders that are participating in your stock. So there
37:13
Speaker 1: is a formula that that gets followed. And what about
37:16
Speaker 1: the opposite, what about somebody graduating a better phrase to
37:20
Speaker 1: the n Y yeah, and we've seen actually quite a
37:23
Speaker 1: few companies graduate to the n y C um this
37:27
Speaker 1: year alone. We've actually seen quite a few companies transfer
37:30
Speaker 1: to the n y C this year. I think we've
37:32
Speaker 1: had fourteen so far to date at which is which
37:35
Speaker 1: is our best year on record. But um, we've we've
37:40
Speaker 1: seen we have a smaller listings venue called n y
37:42
Speaker 1: C American which for the smaller cap companies. And you know,
37:46
Speaker 1: we're really happy when we see them graduate to the
37:49
Speaker 1: big board for lack of a better description, because it
37:51
Speaker 1: means they're having success, They're having a tremendous amount of
37:53
Speaker 1: success in the public markets. All right, let me throw
37:56
Speaker 1: you a little bit of a curve ball. I'm going
37:57
Speaker 1: to ask you a question you can't possibly answer, but
38:00
Speaker 1: I feel compelled to ask it. So I remember getting
38:04
Speaker 1: a tour of the floor of the Exchange a million
38:07
Speaker 1: years ago, and it was giants, room after room after
38:11
Speaker 1: room down on Wall Street and Broad and literally where
38:15
Speaker 1: physical um chairs were being traded, traded physically person in person.
38:21
Speaker 1: That has slowly been computerized, that's slowly been um morphed
38:27
Speaker 1: into the modern market structure. But I have very fond
38:31
Speaker 1: memories of that massive building then it takes up like
38:34
Speaker 1: two city blocks. Is there always going to be a
38:37
Speaker 1: physical exchange? This is the question that I don't know
38:40
Speaker 1: if anybody can answer, But is there always going to
38:43
Speaker 1: be a physical exchange on Wall Street? At what point
38:46
Speaker 1: does that just you know, become a venue for for
38:50
Speaker 1: you know, aftermarket I p O parties and things like that.
38:53
Speaker 1: There is always going to be the New York Stock
38:55
Speaker 1: Exchange at the corner of Wall Abroad. We've been here
38:57
Speaker 1: for two hundred thirty years count and not as being
39:00
Speaker 1: here for the next two hundred thirty years. We've survived
39:03
Speaker 1: many a war, pandemic, volatility, crisis, all sorts of all
39:09
Speaker 1: sorts of unfortunate events. Um, so there will always be
39:13
Speaker 1: a exchange at the corner of Wallombrod. That's really good
39:17
Speaker 1: to hear. I have very fond memories of that, and
39:20
Speaker 1: not too far from there, the tour of the Federal Reserve. Right,
39:26
Speaker 1: So those were I think I'm trying to remember that
39:28
Speaker 1: was a high school teacher or a college teacher. It
39:31
Speaker 1: was it was a ways ago. Um, all right, so
39:34
Speaker 1: I know only have you for a few minutes more.
39:36
Speaker 1: Let me jump to all my favorite questions. We ask
39:39
Speaker 1: all of our guests starting with what did you do
39:42
Speaker 1: to keep yourself entertained during the pandemic? What were you
39:45
Speaker 1: watching or listening to? Well? During the pandemic, I had
39:49
Speaker 1: the unique privilege of homeschooling to children in addition to
39:53
Speaker 1: doing my day job, which was focused on keeping the
39:57
Speaker 1: fixed income markets moving forward. UM. So that was that
40:03
Speaker 1: was a challenge. UM, But I have to say I
40:07
Speaker 1: look back on it with fond memories, not just because
40:11
Speaker 1: our fixed income business provided a lot of transparency in
40:15
Speaker 1: a really opaque market, but also I got to spend
40:18
Speaker 1: some time, a lot of time with my kids. That
40:21
Speaker 1: that sounds like fun. Um. Let's talk about your mentors
40:26
Speaker 1: who helped to shape your career. I would say that
40:30
Speaker 1: I've had the opportunity to have mentors that have been
40:34
Speaker 1: bosses all throughout my career. It really started with my
40:39
Speaker 1: first project executive who was helping guide me through IBM,
40:44
Speaker 1: who taught me a lot of really important lessons that
40:47
Speaker 1: I still stay true to, one of which is you
40:50
Speaker 1: can never over communicate. Um. But throughout my career, I've
40:55
Speaker 1: been lucky fortunate that my bosses have always given me
41:00
Speaker 1: stretch jobs where they give me an opportunity to do
41:06
Speaker 1: a job that maybe I didn't have the background for,
41:09
Speaker 1: or I didn't think I have the background for, but
41:11
Speaker 1: they thought I was the right person for that job.
41:13
Speaker 1: Sounds interesting. Um, what are some of your favorite books?
41:17
Speaker 1: What are you reading right now? Books? Are books are
41:20
Speaker 1: a challenge mainly because uh, I have I have a
41:24
Speaker 1: finite amount of time in my day right now, you know,
41:29
Speaker 1: continuing to read a couple of interesting business books. Like
41:32
Speaker 1: you know, I always go back to the Michael Lewis
41:34
Speaker 1: books because they're just a good read on on top
41:38
Speaker 1: of anything. Um, they're they're they have They're a unique
41:42
Speaker 1: mix of storytelling and business, so it kind of scratches
41:46
Speaker 1: both itches. For lack of a better description, I just
41:51
Speaker 1: reread Liars Poker on its thirtieth anniversary. It holds up
41:56
Speaker 1: surprisingly Yeah, and you could see you could see the
42:00
Speaker 1: outlines of oh, it's not quite a full Michael Lewis book,
42:04
Speaker 1: but there are hints of the right he's about to
42:06
Speaker 1: become really quite Also, like Moneyball, Moneyball is one of
42:09
Speaker 1: my favorites. I mean, like that's hard to be in
42:12
Speaker 1: baseball season. I'm a baseball fan, so therefore I'm gonna,
42:16
Speaker 1: you know, focus on we may we may see the
42:20
Speaker 1: Mets go this year. I'm not gonna I'm gonna hold
42:25
Speaker 1: my breath entering September. And you know what usually happens
42:28
Speaker 1: to to our boys from flashing in September. Right, they
42:33
Speaker 1: seem to be a little different team this year under
42:38
Speaker 1: another market participants, Stevie Cohen. Um, you gotta believe, right,
42:44
Speaker 1: I listen, I grew up with you know, the Lenny
42:47
Speaker 1: distra of of you. It's so easy to get to
42:52
Speaker 1: say stadium. We used to go to games all the time,
42:55
Speaker 1: and frequently to be disappointed, but so far, all I
42:59
Speaker 1: remember my first games were six, I mean, and that's
43:04
Speaker 1: when I just fell in love with them. The little
43:08
Speaker 1: dribbler through the legs. That was it, exactly. I can't
43:11
Speaker 1: Bill Buckner and his name will go down and infamy,
43:14
Speaker 1: I assume in Boston. But man, that felt good in
43:18
Speaker 1: New York, right, So uh, And watching that team was
43:21
Speaker 1: a lot of fun with Strawberry and Ron Darling and
43:25
Speaker 1: who I think is a great broadcaster by the way,
43:27
Speaker 1: I turned into a great broadcaster. Um. You know, they
43:31
Speaker 1: were always an interesting team, even if they didn't bring
43:35
Speaker 1: home as many they were they were. I remember going
43:40
Speaker 1: to the Subway Series between them and the Yankees in
43:42
Speaker 1: the World Series in two thousand. I think that was
43:46
Speaker 1: UH and is that a playoff for you know? There
43:49
Speaker 1: was the they were in the World Series together. Really
43:54
Speaker 1: kind of a blur to me that that was a
43:59
Speaker 1: like O eight nine that that year was a little
44:01
Speaker 1: bit of a blur um our. Last two questions, what
44:05
Speaker 1: sort of advice would you give to a recent college
44:08
Speaker 1: grad who was interested in a career involving data services,
44:14
Speaker 1: listed stocks, any sort of training or exchange based work.
44:21
Speaker 1: The advice that I would give is to, in some
44:24
Speaker 1: respects expect the unexpected. And what I mean by that
44:27
Speaker 1: is your traditional degrees aren't necessarily going to be what's
44:32
Speaker 1: going to make you successful. So be intellectually curious about
44:36
Speaker 1: the things not just involved in finance. Be intellectually curious
44:41
Speaker 1: about the technology under that underpins the systems. And clearly
44:47
Speaker 1: never be afraid to speak up if you want an
44:50
Speaker 1: opportunity or take on an additional project that may not
44:54
Speaker 1: be in your day to day but maybe something that
44:58
Speaker 1: that is just an area that interest to you interesting.
45:01
Speaker 1: And our final question, what do you know about the
45:04
Speaker 1: world of data services, exchanges, market training, UH, and public
45:11
Speaker 1: companies today. You wish you knew twenty or so years ago.
45:18
Speaker 1: That is a great question. We saved it for last
45:22
Speaker 1: for a reason. I guess I wish I knew how
45:28
Speaker 1: important I wish I knew how important the role of
45:32
Speaker 1: the programmer was going to become in financial markets. I
45:36
Speaker 1: understood then that effectively fair value was determined by a
45:44
Speaker 1: variety of mathematics about a bunch of math for lack
45:47
Speaker 1: of better description. Those mathematical models became much more sophisticated
45:51
Speaker 1: over time, But I don't know that I fully appreciated
45:55
Speaker 1: that the guy who or girl who was writing the
45:58
Speaker 1: code was going to be the one that was interacting
46:01
Speaker 1: with the systems twentysomething years ago, and the importance of
46:05
Speaker 1: efficient interaction quite fascinating. We have been speaking with Lynn Martin.
46:11
Speaker 1: She is President of the New York Stock Exchange. Thank you,
46:15
Speaker 1: Lynn for being so generous with your time. If you
46:18
Speaker 1: enjoy this conversation, be shure and check out all of
46:21
Speaker 1: our previous four hundred or so podcasts we've done over
46:24
Speaker 1: the past eight years. You can find those at iTunes
46:28
Speaker 1: or Spotify, or wherever you get your favorite podcasts from.
46:32
Speaker 1: We love your comments, feedback, and suggestions right to us
46:36
Speaker 1: at m IB podcast at Bloomberg dot net. Sign up
46:40
Speaker 1: from my daily reading list at Rid Halts dot com.
46:43
Speaker 1: Follow me on Twitter at rid Halts. I would be
46:46
Speaker 1: remiss if I did not think the crack team who
46:48
Speaker 1: helps put these conversations together each week. Bob Bragg is
46:52
Speaker 1: my audio engineer, Paris Walden is my producer. Atika val
46:56
Speaker 1: Bron is my project manager. Sean rue So is my
47:00
Speaker 1: head of research. I'm Barry Ritolts. You've been listening to
47:04
Speaker 1: Masters in Business on Bloomberg Radio.