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Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · Masters in Business

• 0:03
  Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Hi,
• 0:08
  Speaker 1: welcome to the podcast. This is Barry rid Holts and
• 0:11
  Speaker 1: my guest today is Joe Saluzi. You probably know him
• 0:16
  Speaker 1: as co author of the book Broken Markets or a
• 0:20
  Speaker 1: blog poster at Famous Trading. He's actually UH an institutional trader,
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  Speaker 1: agency trader, agency broker on behalf of big mutual funds,
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  Speaker 1: hedge funds, what have you. Joe and his partner sal
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  Speaker 1: were very early in identifying problems with markets with market structures.
• 0:41
  Speaker 1: They identified some glitches from algorithmic trading, from high frequency trading,
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  Speaker 1: issues with dark pools, and they've been a pretty vocal
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  Speaker 1: set of um more than critics, but participants in the
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  Speaker 1: markets who want to make them better, fairer, less expense
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  Speaker 1: of uh more even handed for for all participants. Uh
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  Speaker 1: they've brought a lot of um let's call it malfeasance
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  Speaker 1: to the public's attention. Their first white paper had come
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  Speaker 1: out in two thousand eight, right in the middle of
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  Speaker 1: financial crisis, when no one was thinking about things like
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  Speaker 1: market structure. But once we had the two thousand and
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  Speaker 1: ten flash crash, I think people started paying a whole
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  Speaker 1: lot more attention to them. I know these guys probably
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  Speaker 1: for five or six years, um, through the usual circuits, radio,
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  Speaker 1: TV conferences, what have you. You know, it's a really
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  Speaker 1: small world and you end up bumping into them. Today's
• 1:37
  Speaker 1: conversation is a little technical, a little wonky. If you
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  Speaker 1: find this sort of stuff interesting, I think you'll find
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  Speaker 1: it fascinating. Uh. There are very very few people who
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  Speaker 1: are as as knowledgeable from a trading perspective about market
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  Speaker 1: structures and potential flaws in what's going on. And you'll hear.
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  Speaker 1: You know, things have gotten better for the flash crash,
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  Speaker 1: but not nearly as as good as as Joe and
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  Speaker 1: sal would like to see them. Um. So that's a positive,
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  Speaker 1: but you know, we're still not quite there, and there's
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  Speaker 1: still risk of another flash crash, not only in equities,
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  Speaker 1: but as we've seen in treasuries, in currencies. It turns
• 2:19
  Speaker 1: out that commodities maybe the best structured market there is
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  Speaker 1: because they have some inherent rules and inherent structures built
• 2:27
  Speaker 1: in that work better than some of these other markets.
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  Speaker 1: So I could keep babbling about this for hours, but
• 2:32
  Speaker 1: rather than do that, let's just go right to my
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  Speaker 1: conversation with Joe Saluzzi. Of Famous Trading. This is Masters
• 2:43
  Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. My guest
• 2:47
  Speaker 1: this week is Joe Saluzzi of Famous Trading. Him and
• 2:51
  Speaker 1: his partner are the authors of Broken Markets. How high
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  Speaker 1: frequency trading and predatory practices on Wall Street are destroying
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  Speaker 1: investor confidences and hurting your portfolios. Joe, Welcome to Bloomberg.
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  Speaker 1: Very thick, great, thanks for having me here today. So
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  Speaker 1: I wanted to have you guys on, and by coincidence,
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  Speaker 1: it works out that you follow a week where we
• 3:11
  Speaker 1: had a quant Cliff ast Nest fascinating conversation, but he's
• 3:15
  Speaker 1: been a fairly he calls it tepid defender of high
• 3:19
  Speaker 1: frequency trading before. So so it just turned out fortuitously
• 3:24
  Speaker 1: that we have you on the week after UM and
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  Speaker 1: coming up we have Brad Katsuyama from i X and
• 3:30
  Speaker 1: he's also going to discuss market structures. But before we
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  Speaker 1: get into the nitty gritty of this, a little background
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  Speaker 1: about yourself. UM finance, bachelor's at n y U and
• 3:40
  Speaker 1: then an NBA at Chapel Hill down at North Carolina.
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  Speaker 1: Before you, guys founded Famous Trading, you worked at instant
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  Speaker 1: at But the question I really have to ask is
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  Speaker 1: how did you find your way into investigating issues in
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  Speaker 1: market structure. Yeah, that's a great question. And if you
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  Speaker 1: to ask me, you know, five or eight years ago,
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  Speaker 1: would we be here saying absolutely not. You know, our
• 4:04
  Speaker 1: our job is to trade stocks. That's what we do
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  Speaker 1: for a living. Where agency brokers, we trade for institutional clients,
• 4:10
  Speaker 1: hadge funds, mutual funds, and so on. But we got
• 4:12
  Speaker 1: our start as you mentioned, Sal and I both worked
• 4:14
  Speaker 1: at Instant in the nineties, in early nineties before electronic trading,
• 4:18
  Speaker 1: just as electronic trading was really taken off in the
• 4:20
  Speaker 1: equities business, so we kind of we cut our teeth
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  Speaker 1: trading electronically. We learned a lot there, We really saw
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  Speaker 1: it progressing, and then started to see the rule changes
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  Speaker 1: happening mainly at the SEC some things like regg ets
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  Speaker 1: and a few other regulations. So let's let's get into
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  Speaker 1: that in a little bit. But for for the lay
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  Speaker 1: person who may be listening to this and not familiar
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  Speaker 1: with Instant, I began my career as a trader, So
• 4:42
  Speaker 1: you had either a level two or level three depending
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  Speaker 1: on the access, whether you were buyer or whether you're
• 4:47
  Speaker 1: making markets and Instant. It was a private network that institutions.
• 4:52
  Speaker 1: Institutional network used to buy and sell stocks with each
• 4:56
  Speaker 1: other when they maybe were trading a little outside of
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  Speaker 1: the market, outside of the been asking moving real size
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  Speaker 1: so as to not disrupt the market. Is that a
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  Speaker 1: fair Yeah, that that was its original intent exactly you said. Um.
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  Speaker 1: Eventually brokers came on the system, just like today, finding
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  Speaker 1: liquidity was tough back then when you had two institutions
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  Speaker 1: trying to cross stock, they didn't exactly always meet. Brokers
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  Speaker 1: were then allowed on the system, but the real action
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  Speaker 1: on Instant was between institutional investors was blocking up stock,
• 5:25
  Speaker 1: was trying to put up fifty a hundred thousand shares
• 5:28
  Speaker 1: without moving the stock. And and that's the trick and
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  Speaker 1: even today there's still the trick to the trading stocks
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  Speaker 1: is trying to find a piece of liquidity, trying to
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  Speaker 1: find that block without having the noise come through and
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  Speaker 1: a lot a lot of that excess leakage. So that's
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  Speaker 1: what our job was. Our job was to facilitate trades.
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  Speaker 1: We weren't prop traders or any agency guys just like
• 5:45
  Speaker 1: we are now. So so you traded on behalf of
• 5:47
  Speaker 1: endowments foundations truss hedge funds, which were much moller way
• 5:51
  Speaker 1: back then. Mutual funds were the big boys on the
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  Speaker 1: block in those days, and so your business were commissioned brokers.
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  Speaker 1: You would get paid for the trade you executed on
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  Speaker 1: their behalf right and even better, actually the clients had
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  Speaker 1: the system on their desk themselves, so we were actually
• 6:06
  Speaker 1: we were more coverage people. So we covered an account
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  Speaker 1: and whether it's you know, you kind of helped that
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  Speaker 1: account along, but they can actually hit the keys themselves.
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  Speaker 1: They didn't need us. And the power that the buy side,
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  Speaker 1: particularly the institutional investment community got, that was the first
• 6:19
  Speaker 1: time where they were really involved in the process and
• 6:21
  Speaker 1: they really liked it, which is why the instant revenue
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  Speaker 1: stream went like a ski slope from the early nineties.
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  Speaker 1: It really ramp. It was so from back in the nineties.
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  Speaker 1: What has changed in the markets? A lot, uh, well,
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  Speaker 1: a lot for the good, A lot for so you know,
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  Speaker 1: we're known as critics and so on, but we don't
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  Speaker 1: we see a lot of good that has come over
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  Speaker 1: over the last ten fifteen years in the market. Narrowing spreads,
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  Speaker 1: lower commission costs um and that came about really around
• 6:48
  Speaker 1: two thousand and two that's when decimalization came out, when
• 6:51
  Speaker 1: they changed those audits and quarters right that we were
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  Speaker 1: trade actions and everybody back, everybody who was on a
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  Speaker 1: trading desk knew what teenys were teeny the courts even
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  Speaker 1: it was crazy stuff. It was sixteenth of a of
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  Speaker 1: a cent. And I was good at doing math in
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  Speaker 1: my head, but a lot of people had a hard
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  Speaker 1: time with it. Decimalization was good for the people who
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  Speaker 1: were a little fractionally challenged. Let's call it absolutely a
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  Speaker 1: good thing. Um. One thing that they forgot about was,
• 7:18
  Speaker 1: you know, putting in some sort of minimum spread. But
• 7:20
  Speaker 1: we can get to that later when it comes to
• 7:21
  Speaker 1: small caps. But really, electronic trading is what brought down
• 7:25
  Speaker 1: the cost of trading right today. There could be this
• 7:27
  Speaker 1: whole argument, we can get into it later about high
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  Speaker 1: frequency trading and whether or not that increased or decreased cost.
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  Speaker 1: But the real fact, and you look at charts and
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  Speaker 1: you can see this transaction cost for institutional investors dropped
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  Speaker 1: around two thousand and two, two thousand and three four,
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  Speaker 1: that's when the real drop and the real decline came in.
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  Speaker 1: Since so oh seven, we're oh, wait, we've kind of
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  Speaker 1: leveled off. We haven't. We've gone down and we've pretty
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  Speaker 1: much stay down there. So that drop in trading costs,
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  Speaker 1: did it imbute to the advantage of the investor the institution?
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  Speaker 1: Where did that squeezing of margins end up falling? That
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  Speaker 1: that should go directly to an investment because you're a
• 8:02
  Speaker 1: if you're a hedge fund or an investment advisor and
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  Speaker 1: you have fees and expenses, transaction costs is certainly one
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  Speaker 1: of them, or at least explicitly commissioned costs. You know,
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  Speaker 1: there's more of an implicit transaction costs, which will you know,
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  Speaker 1: we talk about all the time on the on the
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  Speaker 1: institutional world, is how much does it costs you to
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  Speaker 1: really get into it and out of that stock? How
• 8:19
  Speaker 1: much leakage was there? Did you move the stock a
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  Speaker 1: certain amount, did you get the v wap the volume
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  Speaker 1: weight at average price, or did you actually increase it
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  Speaker 1: because you left a lot of trails and that that
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  Speaker 1: is really what implicit transaction cost is, and that, you know,
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  Speaker 1: that's one of those things that's kind of stayed the
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  Speaker 1: same over the last few years. So the approach of
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  Speaker 1: big institutions, or at least it used to be and
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  Speaker 1: I'm assuming to some degree it still is is to
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  Speaker 1: be a little stealthy and to try and get these
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  Speaker 1: trades off without just you know, the signs in the
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  Speaker 1: marina are at this point on it's five miles per hour,
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  Speaker 1: no wake. They don't want to leave a giant wake
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  Speaker 1: in the market. They want to sneak in and sneak out.
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  Speaker 1: And really that's my job, my real job now, and
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  Speaker 1: when we're not writing books and writing log posts, to
• 9:01
  Speaker 1: trade for clients and to leave is little weak and
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  Speaker 1: that's a great way of looking at it as possible
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  Speaker 1: so that others aren't pretty much attaching to what you're doing.
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  Speaker 1: And it's difficult, even though everyone thinks that there's all
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  Speaker 1: electronics and algorithms and whatnot, it is really difficult to
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  Speaker 1: make sure that you're not being spotted and taken advantage of.
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  Speaker 1: And that's how you lower your transaction costs. You lower
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  Speaker 1: them by not being spotted. I'm Barry ridd Holts. You're
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  Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
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  Speaker 1: today Joe Saluzzi of Famous Trading, co author of the
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  Speaker 1: book Broken Markets. Let's continue our conversation a bit about
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  Speaker 1: what you've described as a market structure that's become broken.
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  Speaker 1: So we were talking earlier about the nineties, how things
• 9:43
  Speaker 1: change today, They've changed a lot when it comes to
• 9:45
  Speaker 1: the actual who's trading lot and the types of players
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  Speaker 1: that are out there, and the the diversity of liquidity
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  Speaker 1: and diversity of market participants. So what we found out,
• 9:54
  Speaker 1: and I'll just back up in real quickly, we found
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  Speaker 1: as we were trading throughout the middle of two thousands too,
• 10:00
  Speaker 1: thousand and six, two thousand and seven, two thousand and
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  Speaker 1: eight really changed a lot. And there was a reason
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  Speaker 1: why it changed a lot, and it was because of
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  Speaker 1: a regulation called Reagan MS that the SEC approved. That's
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  Speaker 1: the National market system. What what did that regulation do?
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  Speaker 1: It pretty much exploded the equity universe. Were used to
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  Speaker 1: have particularly listed names on the ux dock scene, names
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  Speaker 1: where there was a specialist down on the floor and
• 10:23
  Speaker 1: a human was actually buying and selling and and setting
• 10:26
  Speaker 1: the price correct. And they had about eight percent market
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  Speaker 1: share on the New York Stock Exchange pre oh seven,
• 10:31
  Speaker 1: pre Reagan MS. Now they're around and that dropped on
• 10:35
  Speaker 1: was overnight as soon as the rule was put in place.
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  Speaker 1: Reagan MS, basically it was intended to help competition. It
• 10:40
  Speaker 1: wanted to allow other exchanges and other venues to post
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  Speaker 1: their bids and offers and have people interact with them
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  Speaker 1: and not ignore those quotes. Conceptually, that's a great idea.
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  Speaker 1: You should have to trade with a venue that has
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  Speaker 1: a better price, right well thinks, in other words, the
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  Speaker 1: best bit. So if you're a seller, you should your
• 10:57
  Speaker 1: broker who's operating in your half, on your behalf, be
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  Speaker 1: hitting the highest bid, the best bid as opposed to
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  Speaker 1: just what's most convenient. That's exactly it. And and one
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  Speaker 1: of the parts of the rule is called the Trade
• 11:07
  Speaker 1: through Protection or rule six eleven. And that's what it says.
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  Speaker 1: If the best bid or offer before you can trade,
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  Speaker 1: let's say you say the best offers ten cents before
• 11:15
  Speaker 1: you can trade a fifteen cents, you've got to clear
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  Speaker 1: the ten cents. So that for a block trader that
• 11:19
  Speaker 1: becomes potentially a problem. You've got to kind of sweep
• 11:21
  Speaker 1: through those levels, which we can do through what they
• 11:24
  Speaker 1: call electronic give They have an ISO orders into market
• 11:27
  Speaker 1: sweep boarders with. But the bottom line was, all of
• 11:29
  Speaker 1: a sudden, once this this fragmentation with the sec called competition,
• 11:33
  Speaker 1: we call fragmentation it allowed noise and different types of
• 11:38
  Speaker 1: venues to start coming through. And that's where the games began.
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  Speaker 1: And that's where the high speed traders, the high frequency
• 11:44
  Speaker 1: traders as their so called, so they invent they started
• 11:47
  Speaker 1: coming in. So let's define that, because I know people
• 11:49
  Speaker 1: are gonna say, I hear about h f T. I
• 11:52
  Speaker 1: hear about, but what are high frequency traders? Really? It's
• 11:55
  Speaker 1: a great question. And I was on a CFTC subcommittee
• 11:58
  Speaker 1: and the and the job of our sub committee was
• 12:00
  Speaker 1: to define high frequency trading, and we really didn't come
• 12:03
  Speaker 1: up with a very good definition. I actually dissented to
• 12:05
  Speaker 1: a public and when they finally came up with it,
• 12:07
  Speaker 1: because it's really hard to define. It's it's it's not
• 12:10
  Speaker 1: exactly you know, it's certainly obviously using speed and using
• 12:13
  Speaker 1: technology to you know, it's and we think it's certainly
• 12:16
  Speaker 1: a matter of when it comes to inventory and net
• 12:18
  Speaker 1: positions being close to zero at all times. They're not
• 12:21
  Speaker 1: holding huge positions, although they could be long one particular
• 12:24
  Speaker 1: options contract and short the stock, or a long an
• 12:27
  Speaker 1: ETF and short the future. But at the end of
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  Speaker 1: the day, the net kind of neutral. They're not carrying
• 12:31
  Speaker 1: any inventory. They're in and out very very quickly, very
• 12:35
  Speaker 1: short holding periods exactly well, and now some of them
• 12:38
  Speaker 1: will hold and and actually now we're starting to see
• 12:40
  Speaker 1: some public statements. There's an s one out there from
• 12:42
  Speaker 1: one particular HIPT. They're holding positions, but they're usually being
• 12:45
  Speaker 1: netted out against others. And we don't necessarily have a
• 12:48
  Speaker 1: problem with a high frequency trading market maker. I don't
• 12:52
  Speaker 1: have a problem if there I want to trade with
• 12:54
  Speaker 1: any participant in a market, in a pool that's all
• 12:57
  Speaker 1: trading on a transparent and fair way. Why wouldn't I
• 12:59
  Speaker 1: want to trade? Diversity is a good thing. We take
• 13:02
  Speaker 1: issue with some of the high frequency traders who are
• 13:04
  Speaker 1: more when there's lots of pinging and sniffing, and and
• 13:07
  Speaker 1: we can get into exactly how this goes. So let
• 13:09
  Speaker 1: me ask you a series of questions, or rather than that,
• 13:13
  Speaker 1: I'm gonna give you one word and I want you
• 13:15
  Speaker 1: to define it. And I have about ten of these.
• 13:18
  Speaker 1: We'll see how far these go. Let's start with co
• 13:21
  Speaker 1: located servers. A co location is you can put your
• 13:24
  Speaker 1: server at the New York Let's use the New York
• 13:26
  Speaker 1: Stock Exchange facility right next to the main matching engine,
• 13:29
  Speaker 1: which sits in Mahwah, New Jersey, not on you with
• 13:31
  Speaker 1: you know, the stock change is not on Wall Street,
• 13:33
  Speaker 1: it's in Mahwah, New Jersey. You can rent a cabinet
• 13:36
  Speaker 1: they call it a cage and put your server in there.
• 13:40
  Speaker 1: It's got an equal length cord just like everybody else
• 13:42
  Speaker 1: in the facility to get to that engine. If the
• 13:45
  Speaker 1: trick is to be as close as possible so that
• 13:47
  Speaker 1: you can see the data coming at or process the
• 13:50
  Speaker 1: data as fast as possible before your competitors a process
• 13:54
  Speaker 1: so relative to co location, let's talk about latency arbitrage.
• 13:59
  Speaker 1: Great question, Okay, So lazy RB is basically the matter
• 14:01
  Speaker 1: of having two separate quotes. What I mean is if
• 14:05
  Speaker 1: I was a high speed trader and I can build
• 14:08
  Speaker 1: my own quote. So what I do is there's twelve,
• 14:10
  Speaker 1: there's eleven stock exchanges soon to be twelve again. But
• 14:13
  Speaker 1: what you would do is you would take all those
• 14:14
  Speaker 1: stock exchanges, get a direct data feed into them, co
• 14:17
  Speaker 1: locate your computers and basically take out any sort of
• 14:20
  Speaker 1: latency or time to little delay and create a quote.
• 14:24
  Speaker 1: Will create an NBBO, a national best bit or offer
• 14:26
  Speaker 1: that is most likely going to be faster than what
• 14:30
  Speaker 1: the public sees because they see it through something called
• 14:32
  Speaker 1: a SIP or a security information processor. So there's a
• 14:35
  Speaker 1: difference in time, and there will always be a difference
• 14:38
  Speaker 1: in time because the SIP has to aggregate all of
• 14:41
  Speaker 1: those various exchanges or eleven or twelve and then show it,
• 14:45
  Speaker 1: whereas if you're just doing one, you could be a
• 14:46
  Speaker 1: little well, you're doing your own and you're picking and choosing,
• 14:49
  Speaker 1: and you're creating your own quote. And the problem with
• 14:51
  Speaker 1: the SIP is that NASDAC, the for profit exchange, runs
• 14:55
  Speaker 1: the SIP. They're actually the provider of the SIP for
• 14:57
  Speaker 1: a couple of years. Last year I had a little
• 14:59
  Speaker 1: problem with the SIP, and the question became, are they
• 15:01
  Speaker 1: spending enough money upgrading the technology so that the SIP
• 15:05
  Speaker 1: is as fast as everyone else? And currently it used
• 15:07
  Speaker 1: to be around a millisecond time delay. Now it's at
• 15:10
  Speaker 1: a half of the millisecond. It sounds like nothing, right,
• 15:12
  Speaker 1: but a half of a millisecond, So I Frequency Trader
• 15:14
  Speaker 1: was all the time in the world. We'll talk a
• 15:16
  Speaker 1: little bit about flashboys later, but the book begins with
• 15:20
  Speaker 1: the story of creating a fiber op to cable in
• 15:23
  Speaker 1: a perfectly straight line from New York to Chicago in
• 15:28
  Speaker 1: order to shave a couple of minutes, literally a couple
• 15:31
  Speaker 1: of milliseconds off trading. And the guys who did that
• 15:34
  Speaker 1: spent a billion dollars on it, and it was an
• 15:36
  Speaker 1: enormous return on that investment. Let's keep going. What is
• 15:41
  Speaker 1: quote stuffing? Quote stuffing is a theory. It's never been
• 15:44
  Speaker 1: proven at the SEC, but it certainly does seem to
• 15:46
  Speaker 1: exist what we've seen evidence of it. Nan X by
• 15:49
  Speaker 1: the way, he puts out these fabulous graphics showing all
• 15:52
  Speaker 1: these giant surges of quotes that show up for a
• 15:56
  Speaker 1: millisecond and then disappear. Incredible work that NanoX eric over
• 15:59
  Speaker 1: And now I mean he could be he should be
• 16:01
  Speaker 1: working for the SEC. That the amount of data that
• 16:03
  Speaker 1: he processes, things that he sees, it's amazing that the
• 16:06
  Speaker 1: folks in that the SEC or the other regulators don't
• 16:08
  Speaker 1: see this, which kind of scares us a bit. But
• 16:10
  Speaker 1: quote stuffing is that if stocks trade on what they
• 16:13
  Speaker 1: call channels, is maybe there's eight is eight D in
• 16:16
  Speaker 1: one channel e F and another. If if you're looking
• 16:19
  Speaker 1: at stock in the A channel, you can kind of
• 16:21
  Speaker 1: go after another stock send through a whole bunch of
• 16:24
  Speaker 1: quotes and then kind of extract out that to make
• 16:26
  Speaker 1: your processing faster. It's an interesting theory and it's certainly
• 16:30
  Speaker 1: that it's been proven. It's actually been talked about in
• 16:32
  Speaker 1: some regulatory documents as well. I'm Barry rid Helts. She
• 16:35
  Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
• 16:38
  Speaker 1: today is Joe Saluzzi. He is one of the partners
• 16:41
  Speaker 1: of Famous Trading and the co author of Broken Markets
• 16:45
  Speaker 1: and a long standing critic of market structures, high frequency
• 16:49
  Speaker 1: trading and some of the other things that we discuss
• 16:53
  Speaker 1: that works uh to the investors disadvantage. Earlier we were
• 16:57
  Speaker 1: discussing um things like co okay ation and packet sniffing.
• 17:01
  Speaker 1: Let's talk a little bit before we get to the
• 17:03
  Speaker 1: flash crash. Talk a little bit about spoofing and walking away.
• 17:08
  Speaker 1: What what is spoofing. Spoofing is placing bids are offers
• 17:11
  Speaker 1: where you have no intention of trading them, and there's
• 17:14
  Speaker 1: actually been a couple of cases just recently. The CFTC has,
• 17:17
  Speaker 1: by the way, has much more the Commodity Futures and
• 17:19
  Speaker 1: Trading Commission much more power now under Dodd Frank to
• 17:22
  Speaker 1: go after spoofers than the SEC does. It's kind of
• 17:25
  Speaker 1: a weird thing where how it was written in the rules,
• 17:27
  Speaker 1: But they've come after a couple of guys recently and
• 17:29
  Speaker 1: have settled a few cases where folks or these firms
• 17:32
  Speaker 1: high speed firms, because you really you could manually spoof,
• 17:35
  Speaker 1: but it's really not going to be effective. But they
• 17:37
  Speaker 1: were basically placed layering the book really, which is another
• 17:39
  Speaker 1: term layers, so at different prices, a whole bunch of
• 17:41
  Speaker 1: orders that look like there's a big buy or look
• 17:44
  Speaker 1: like there's a big seller to move the price, and
• 17:46
  Speaker 1: then of course as soon as someone comes in they
• 17:48
  Speaker 1: cancel all those orders gone. There's never an intention, and
• 17:51
  Speaker 1: that's the thing, and how do they prove that. It's
• 17:53
  Speaker 1: an intense se scenario. And the CFCC again has a
• 17:56
  Speaker 1: lot more leeway. So if you're a few, if you're
• 17:58
  Speaker 1: a guy in the in the future, his world, and
• 18:00
  Speaker 1: you're spoofing, you should be a little scared now because
• 18:02
  Speaker 1: the CFCC has a much much more powerful regular relation
• 18:05
  Speaker 1: that they can use against you. I mean, isn't that
• 18:07
  Speaker 1: really an attempt to manipulate markets with no intention to
• 18:11
  Speaker 1: actually execute a trade? Yes, And that's exactly one of
• 18:14
  Speaker 1: the problems that we have with certain high speed trading
• 18:16
  Speaker 1: or any trader for that matter. You know, we're we're
• 18:19
  Speaker 1: critics of of potential problems in the market of market structure.
• 18:22
  Speaker 1: Spoofing has no business being in the market, right, So
• 18:25
  Speaker 1: here's my proposal. Tell me what the result of this is.
• 18:28
  Speaker 1: If you want to put a bit of a quote
• 18:29
  Speaker 1: out there, you have to have it stay there for
• 18:32
  Speaker 1: a tenth of a second? Is am I being ridiculous
• 18:35
  Speaker 1: or what's the know? And and we actually had recommended
• 18:37
  Speaker 1: that once also, But the the high speed community the
• 18:39
  Speaker 1: other side will say that that's going to mess up
• 18:41
  Speaker 1: their models. They can't place bids and offers and therefore
• 18:44
  Speaker 1: they can't arbitrage certain scenarios. Let's let's say it's an
• 18:47
  Speaker 1: et F arbitrage ore and he's gonna under you know,
• 18:50
  Speaker 1: he's gonna trade five hundred stocks against the SMP five
• 18:52
  Speaker 1: hundreds if he's forced to place a bitter offer for
• 18:55
  Speaker 1: a tenth of a second, which you know, I'm blinking
• 18:57
  Speaker 1: our eyes in ridiculous. You know, we certainly wouldn't have
• 19:00
  Speaker 1: a problem with that. They would scream bloody murder. And
• 19:03
  Speaker 1: then here's the flip side. They're gonna say, well, if
• 19:05
  Speaker 1: you do that, I'm gonna take away my quote unquote
• 19:07
  Speaker 1: liquidity and I'll be gone. And that's where everyone gets scared.
• 19:10
  Speaker 1: So now let's let's talk about walking away, which is
• 19:13
  Speaker 1: going to lead us to ultimately to the flash crash.
• 19:16
  Speaker 1: You know, when you had a specialist down on the exchange,
• 19:19
  Speaker 1: they were there theoretically to provide an orderly market. They
• 19:23
  Speaker 1: were ready, willing and able to to buy or sell
• 19:26
  Speaker 1: stocks at an equilibrium price. Uh. The counter argument, as
• 19:30
  Speaker 1: you go back to and hey down one day, I
• 19:35
  Speaker 1: think that was a different era. You know, everything was
• 19:38
  Speaker 1: fairly manual back then. But that taking away the liquidly Uh.
• 19:44
  Speaker 1: Don't they have essentially no obligation to make a market?
• 19:48
  Speaker 1: Can't they just walk away anytime they want? Spot on exactly?
• 19:51
  Speaker 1: And that's the problem. Obligations are nowhere to be found
• 19:55
  Speaker 1: in the market making community anymore, although they will tell you.
• 19:58
  Speaker 1: I mean some of the exchanges have an obligation of
• 20:01
  Speaker 1: eight percent within the n b b O, which means
• 20:03
  Speaker 1: you can, quote, for a want to wait on a
• 20:05
  Speaker 1: hundred all of stock, Thank you very much, I'll take you. Know,
• 20:07
  Speaker 1: you can have that liquidity, But if you don't have
• 20:09
  Speaker 1: an oblimy. That's a touch more than the flash crash. Well,
• 20:13
  Speaker 1: we had stub quotes then they were trading mid zero, right,
• 20:15
  Speaker 1: that was how crazy was that? But you know, people
• 20:18
  Speaker 1: will say the specialist system, they were problems and they
• 20:20
  Speaker 1: land them with handcuffs and all. If there were problems,
• 20:23
  Speaker 1: and they were, we would call those out if we
• 20:24
  Speaker 1: were back in the nineties. Right now, sal and I
• 20:26
  Speaker 1: will be talking about problems back in the specialist world,
• 20:28
  Speaker 1: because that doesn't get rid of a hold of these problems. Right,
• 20:32
  Speaker 1: But let's think about it. At least the specialists had
• 20:34
  Speaker 1: what they call an affirmative and a negative obligation, which
• 20:37
  Speaker 1: means they had to buy stock at certain times and
• 20:39
  Speaker 1: they couldn't sell its other times. And the customer knew that,
• 20:42
  Speaker 1: and there was there was the confidence. So let's let's
• 20:46
  Speaker 1: talk about the flash crash. May six, two thou and ten.
• 20:50
  Speaker 1: All of a sudden, the down plummets. I remember this
• 20:53
  Speaker 1: because I was on a flight back from Dallas. I
• 20:55
  Speaker 1: missed it. But and every time I fly now people
• 20:58
  Speaker 1: point out that the market gets color crush, But um,
• 21:02
  Speaker 1: what happened. What happened on that day? That was an
• 21:05
  Speaker 1: evaporation in liquidity basically, right. And let me read you
• 21:08
  Speaker 1: just a real quick quote from after the flash. Crasty
• 21:11
  Speaker 1: sec CFTC Advisory Committee put out a report which we
• 21:14
  Speaker 1: thought was one of the best pieces that ever came
• 21:16
  Speaker 1: out of DC. Listen to these words they said talking
• 21:18
  Speaker 1: about the flash crash. Indeed, even in the absence of
• 21:21
  Speaker 1: extraordinary market events, limit order books can quickly empty and
• 21:25
  Speaker 1: prices can crash simply due to the speed and numbers
• 21:28
  Speaker 1: of orders flowing into the market and due to the
• 21:30
  Speaker 1: ability to instantly cancel orders. So the books emptied. There
• 21:35
  Speaker 1: was a situation, there was grease going on like there
• 21:37
  Speaker 1: is today, right, same, sorry. And then there was a
• 21:39
  Speaker 1: supposedly a large e mini order in the futures market.
• 21:42
  Speaker 1: Not it was an order, right, and by the way,
• 21:46
  Speaker 1: it was a seventy contract order, which half of it
• 21:49
  Speaker 1: wasn't even executed until after this was over, So it
• 21:52
  Speaker 1: really is kind of an it's a bad excuse, and
• 21:55
  Speaker 1: it wasn't the cause. The cause was the market was
• 21:57
  Speaker 1: on pins and needles. The bids and offers just evaporated.
• 22:00
  Speaker 1: And there was a professor, actually he was at the
• 22:02
  Speaker 1: CFCC that his name is Andre Carolinko. He turned the
• 22:05
  Speaker 1: phrase hot potato trading where they basically the h f
• 22:08
  Speaker 1: T guys started flipping back and forth between each other
• 22:11
  Speaker 1: until their position limits got exhausted, and then they just
• 22:14
  Speaker 1: walked away. And there was even one in the market
• 22:15
  Speaker 1: that said he hit the button h f T stop,
• 22:18
  Speaker 1: which meant get me out. Everything was done. Everybody just
• 22:21
  Speaker 1: walked away. I'm Barry rit Helps. You're listening to Masters
• 22:23
  Speaker 1: in Business on Bloomberg Radio. My guest today is Joe Saluzzi.
• 22:28
  Speaker 1: He is the co author of Broken Markets with his
• 22:31
  Speaker 1: partner Sal Arnuck. The two of them run Famous Trading,
• 22:34
  Speaker 1: and we were previously discussing the causes of the flash crash,
• 22:40
  Speaker 1: so let's let's go back to that. So it's May
• 22:43
  Speaker 1: two thousand and ten, and suddenly stocks that normally trade
• 22:47
  Speaker 1: at eight are a penny. The Dow loses some crazy
• 22:53
  Speaker 1: I almost want to say ten percent. Is that a
• 22:55
  Speaker 1: bullpark number? In a matter of minutes and a half
• 22:58
  Speaker 1: hour later, everything come snapping back as if it was
• 23:02
  Speaker 1: no big deal. How on earth does that happen in
• 23:05
  Speaker 1: the twenty one century in America? Yeah, I think they're
• 23:08
  Speaker 1: still looking into that, the regulators, right, But it happened,
• 23:12
  Speaker 1: you know. But basically the problem a lot of the
• 23:14
  Speaker 1: retail investor's face was folks who had stop loss orders
• 23:17
  Speaker 1: in there. If a stock got to a certain level,
• 23:19
  Speaker 1: they wanted to sell it. Those stop losses became market
• 23:21
  Speaker 1: orders once they activate, well they really what happens with
• 23:24
  Speaker 1: a market order. Normally it'll get sent over to what
• 23:27
  Speaker 1: they call an internalizing broker. They will normally pick up
• 23:30
  Speaker 1: this market order. They'll trade against it because they consider
• 23:32
  Speaker 1: retail flow dumb. I'm sorry, that's that's their word's not mine,
• 23:36
  Speaker 1: and they want to basically give it a subpenny price improvement,
• 23:39
  Speaker 1: and then they're off they and they're trying to trade against.
• 23:41
  Speaker 1: In this scenario, the internalizers tend they walked away as well.
• 23:44
  Speaker 1: So these market orders got exhausted to the let exchanges
• 23:47
  Speaker 1: over New York and to the NASDAC and there was
• 23:50
  Speaker 1: no bids or offers there. So what does a market
• 23:52
  Speaker 1: order do. It goes down and starts looking for the
• 23:54
  Speaker 1: best bit or offer until it finds something. And even
• 23:58
  Speaker 1: and even at selling Johnson and John's in it, Accentura
• 24:01
  Speaker 1: was traded at a penny of share, so I think
• 24:03
  Speaker 1: was Sam Adams too, which is whatever's stock price now
• 24:05
  Speaker 1: a penny of share. It was absurd and it was
• 24:07
  Speaker 1: basically it was called a stub quote, where a market
• 24:10
  Speaker 1: maker could place a one sided quote. So he'll put
• 24:12
  Speaker 1: a penny bid offered at a hundred dollars whatever it
• 24:14
  Speaker 1: may be. Say, you know, the SEC has since bann
• 24:17
  Speaker 1: stub quotes. But that wasn't the problem. The problem was
• 24:19
  Speaker 1: why did that market or to come into the system
• 24:21
  Speaker 1: and have no bids or offers. Why did the limit
• 24:23
  Speaker 1: order books that we talked about before just disappear? Well,
• 24:26
  Speaker 1: it's not really real liquidity. It was kind of a
• 24:28
  Speaker 1: phantom liquidity. It's there when you don't need it, and
• 24:31
  Speaker 1: when you really need it it disappears. That's the big crew.
• 24:34
  Speaker 1: That's one of my big complaints bearing him on sooon
• 24:37
  Speaker 1: and disappears in the draft. So so so, there are
• 24:40
  Speaker 1: some people who I've actually had on the show and
• 24:43
  Speaker 1: had conversations with. Jack Brennan is chairman of the Vanguard Group.
• 24:47
  Speaker 1: Cliff Astness, the c i O of of a q R,
• 24:50
  Speaker 1: who have said high frequency trading and the modern competition
• 24:54
  Speaker 1: have made costs of execution lower. They've tightened spreads, they've
• 24:59
  Speaker 1: done the number of things, although the reality is, you know,
• 25:02
  Speaker 1: the spread is tightened, but it's for forty seven shares.
• 25:04
  Speaker 1: If you have to buy five thousand shares, is the
• 25:06
  Speaker 1: spread is still ten or twenty or thirty cents. But
• 25:10
  Speaker 1: when when the chairman of Vanguard said, hey, this has
• 25:13
  Speaker 1: made our costs a lot lower, how do we argue
• 25:16
  Speaker 1: against that? Well, that's wonderful for Vanguard, who makes money
• 25:19
  Speaker 1: on you know how many trillions of ETFs they have
• 25:21
  Speaker 1: right now, three trillion dollars. It's you know, I wouldn't
• 25:25
  Speaker 1: want local, you know. But for them, it's a different
• 25:27
  Speaker 1: business model, right they're running something and for a quant
• 25:30
  Speaker 1: it's a different business mode because they're flipping in and
• 25:32
  Speaker 1: out of numerous, numerous positions throughout the day. But we're
• 25:36
  Speaker 1: talking about a traditional institutional and investor who's trying to
• 25:39
  Speaker 1: buy a hundred thousand shares of a stock that trades
• 25:41
  Speaker 1: a million shares. Things have changed dramatically for them because
• 25:45
  Speaker 1: that footprint they're leaving is basically the one that everyone's
• 25:48
  Speaker 1: trying to pick off. That liquidity that's there disappears quickly.
• 25:52
  Speaker 1: The obligations of a market maker are no longer. They're
• 25:55
  Speaker 1: the average trade size now on both lit and dark venues.
• 25:59
  Speaker 1: Is less than two hundred chairs, less than two Trade says,
• 26:02
  Speaker 1: it's incredible. How do you get anything done? So when
• 26:04
  Speaker 1: we look at the flash crash, what's to prevent that
• 26:08
  Speaker 1: from happening again? Nothing? Okay? What about that on a
• 26:13
  Speaker 1: D do stop? Well, you won't have the O and
• 26:16
  Speaker 1: U and A ninety two. So in other words, they'll disappear.
• 26:18
  Speaker 1: But they don't have to be there. They don't have
• 26:20
  Speaker 1: to know that well they would, you know, to be
• 26:22
  Speaker 1: considered a market maker, you have to be there. But
• 26:23
  Speaker 1: if you can easily just shut it off and say
• 26:25
  Speaker 1: I'm not going to be a market maker right now,
• 26:26
  Speaker 1: but get to do that for the day, all right,
• 26:30
  Speaker 1: And that means that the exchange won't give you the
• 26:32
  Speaker 1: special pricing that they give to these market makers. But
• 26:34
  Speaker 1: just as an example, October fifteenth of last year, there
• 26:38
  Speaker 1: was a flash crash in the Treasury mark Remember, okay
• 26:41
  Speaker 1: that that day should be on everybody's on the blackboard,
• 26:44
  Speaker 1: just like May six was. That was a very very
• 26:46
  Speaker 1: disturbing event because that's the most liquid acid in the
• 26:48
  Speaker 1: world and it crashed in a matter of minutes and
• 26:51
  Speaker 1: then it's zapped right back again. Just like the equity mark.
• 26:54
  Speaker 1: Bigger move was the yields are from my two tents
• 26:56
  Speaker 1: and one. I think it was huge in minutes and
• 27:00
  Speaker 1: apparently no, we know it's a Ukraine situation. Whatever. It
• 27:03
  Speaker 1: was the same scenario, But why did the treasury market
• 27:05
  Speaker 1: now that it's a known fact that high frequency traders
• 27:08
  Speaker 1: are now in the treasury market. Electronic trading has taken
• 27:10
  Speaker 1: over the treasury market. So it's the same scenario that,
• 27:14
  Speaker 1: like I read before, limit order books can quickly evaporate,
• 27:17
  Speaker 1: and that's what we're dealing with. So our our issues.
• 27:19
  Speaker 1: How do we build those limit order books again? How
• 27:21
  Speaker 1: do we put diverse liquidity back into there where people
• 27:23
  Speaker 1: feel comfortable that they're not gonna get picked off all day?
• 27:26
  Speaker 1: So you're sided. In the book Flash Boys, which was
• 27:31
  Speaker 1: Michael Lewis's book, I actually read it on vacation last year,
• 27:34
  Speaker 1: and his books are perfect beach reading. I find them
• 27:38
  Speaker 1: both entertaining and and informative. And we'll have to get
• 27:42
  Speaker 1: Michael on the show one of these days. But you
• 27:45
  Speaker 1: guys are mentioned in there. Tell us a little bit
• 27:47
  Speaker 1: about what took place in that book and what some
• 27:50
  Speaker 1: of the solutions to high frequency trading are coming down
• 27:55
  Speaker 1: the pipe because we've been hearing h f T is
• 27:58
  Speaker 1: less profitable than it used to be. Either, there's a
• 28:00
  Speaker 1: ton of competition. The rule changes have affected them somewhat.
• 28:04
  Speaker 1: What what's happening now? Well, the book was usually the
• 28:07
  Speaker 1: book was tremendous just to get to debate really moving forward.
• 28:10
  Speaker 1: And we've been struggling with this since oh eight, right,
• 28:12
  Speaker 1: so two thousand and eight we were at our first
• 28:14
  Speaker 1: white paper. We've been you know, we were on sixty
• 28:15
  Speaker 1: minutes and two thousand intent. It's been a long time,
• 28:17
  Speaker 1: a long struggle. Michael Lewis came in like a steam
• 28:20
  Speaker 1: roller and everyone is talking about which is fantastic, but
• 28:22
  Speaker 1: you know, he used the word rigged, which really got
• 28:25
  Speaker 1: people from sixty minutes. Michael Lewis said, the markets are rigged.
• 28:29
  Speaker 1: Do you agree with that? The structure of the market
• 28:33
  Speaker 1: is ragged. Okay, they're they're are forces. The stock exchange
• 28:37
  Speaker 1: model is broken there, they're poor profit companies that have
• 28:40
  Speaker 1: different incentives than they should have now. They used, for
• 28:44
  Speaker 1: people who may not be familiar with this, for most
• 28:46
  Speaker 1: of their histories, The New York Stock Exchange was a
• 28:49
  Speaker 1: nonprofit entity up until the whole situation with their former
• 28:55
  Speaker 1: chairman getting paid bonuses that they wasn't supposed to when
• 28:58
  Speaker 1: you're running a nonprofit, that ultimately lead um okay, well,
• 29:02
  Speaker 1: if you don't want to take a bonus as a nonprofit,
• 29:05
  Speaker 1: let's become for profit company. Right, and it changed their
• 29:07
  Speaker 1: philosophy a change. Okay, we're now for the bottom line.
• 29:10
  Speaker 1: We have to return money to investors because that's what
• 29:12
  Speaker 1: public companies do. Right. NASDAC, for instance, has less than
• 29:15
  Speaker 1: ten percent of their money generated from equity cash transactions.
• 29:19
  Speaker 1: That means stock market So where's old money coming from?
• 29:22
  Speaker 1: Data sales? Various things related to co location data feeds,
• 29:27
  Speaker 1: which is a huge profit generator for stock exchanges. So
• 29:30
  Speaker 1: they're and even one stock exchange is owned by brokers. Okay,
• 29:33
  Speaker 1: there's used huge conflicts of interest in the stock exchange model,
• 29:37
  Speaker 1: which has created the problems that we see in what
• 29:39
  Speaker 1: they call these smart order routers from the broker level,
• 29:42
  Speaker 1: where they go to one exchange first because that offers
• 29:45
  Speaker 1: a better rebate than it does from another exchange, or
• 29:48
  Speaker 1: they go to a dark pool because it doesn't charge
• 29:50
  Speaker 1: them anything. Define dark pools for listeners. Sure, dark pools
• 29:53
  Speaker 1: are off exchange venues that don't need to publish their quotes.
• 29:57
  Speaker 1: Back in the day, when I was an instant that
• 29:58
  Speaker 1: we called it a crossing net work at night because
• 30:00
  Speaker 1: we wanted the cross chunks of stock. Now they operate
• 30:03
  Speaker 1: throughout the day. And an average trade size on a
• 30:05
  Speaker 1: dark pool is no bigger than a lip pool now
• 30:07
  Speaker 1: less than two hundred shares. But but back then it
• 30:09
  Speaker 1: was big and fifty blocks. And there's still a couple
• 30:12
  Speaker 1: of dark pools now liquid that in particular that's still
• 30:14
  Speaker 1: over forty shares on the average trade size. Those are
• 30:17
  Speaker 1: institutions crossing stock, reducing transaction costs. And some may say, well,
• 30:21
  Speaker 1: you're shutting out the retail investor. No you're not, because
• 30:24
  Speaker 1: those institutions are trading on behalf of retail fund, that
• 30:28
  Speaker 1: retail money in an individual stock exactly. So that argument
• 30:33
  Speaker 1: doesn't hold any water. But dark pools themselves have been
• 30:36
  Speaker 1: so perverted and so over the years. What the Barkley's
• 30:40
  Speaker 1: case that the a g and York Attorney General is
• 30:42
  Speaker 1: brought against the Barkley's dark Pool, which is still pending,
• 30:45
  Speaker 1: exposed a lot of what actually goes on inside and
• 30:48
  Speaker 1: the lack of disclosion, the lack of transparency that the
• 30:52
  Speaker 1: clients of the dark pools don't have no idea, They
• 30:54
  Speaker 1: have no idea who's getting teared and who gets the
• 30:56
  Speaker 1: order first. These are the problems inside the market structure
• 30:59
  Speaker 1: when you talk about the term rigged, that do exist,
• 31:02
  Speaker 1: that do advantage one class of investor over another, that
• 31:05
  Speaker 1: need to be taken out of the market. If we're
• 31:07
  Speaker 1: playing on a level playing field, we've got absolutely no
• 31:10
  Speaker 1: problem with any high frequency trading low I don't care
• 31:13
  Speaker 1: who you are, low frequency guy. I want to interact
• 31:15
  Speaker 1: with every piece of liquidity, but I want to do
• 31:17
  Speaker 1: it on a fair and level playing field. So let's
• 31:19
  Speaker 1: talk about the new exchange i e X, which solves
• 31:24
  Speaker 1: some of these problems. Absolutely. We're a trading We were
• 31:27
  Speaker 1: one of the first trading partners. You know, we think
• 31:29
  Speaker 1: i X. They nailed it with their model. They got
• 31:31
  Speaker 1: rid of rebates. Okay, there's no there's a flat fee
• 31:34
  Speaker 1: on the I X exchange. You pay what whether you
• 31:36
  Speaker 1: make the liquidity or take a liquidity one feet. They
• 31:39
  Speaker 1: got rid of the speed advantage by putting in something
• 31:42
  Speaker 1: you know, Brad will tell you more than I need
• 31:43
  Speaker 1: to buffer. And essentially it's a mile of spooled uh.
• 31:47
  Speaker 1: Fiber optics, nobody has any advantage of of speed. The
• 31:52
  Speaker 1: order comes in and then it gets buffered for a
• 31:54
  Speaker 1: millisecond and now everybody's arriving at the same time. That's right.
• 31:57
  Speaker 1: And they took away the gaming that goes on in
• 32:00
  Speaker 1: other systems. And they'll tell you about who types of
• 32:03
  Speaker 1: clients they have. But a lot of h f T
• 32:05
  Speaker 1: guys don't want to go there because it's not profitable.
• 32:08
  Speaker 1: But for us, as institutional traders, we love systems like that.
• 32:11
  Speaker 1: We'll get our average trade size is much bigger on
• 32:13
  Speaker 1: I X than is on any other venue. That that
• 32:16
  Speaker 1: is a very very good system. You get clean liquidity,
• 32:19
  Speaker 1: you're crossing things up nice. That's what you're supposed to have.
• 32:22
  Speaker 1: So the market here's a great example. The market is
• 32:24
  Speaker 1: now starting to solve its own problems, wonderful without the
• 32:27
  Speaker 1: regulators mucking it up more than they've done already. So
• 32:31
  Speaker 1: before we um uh and the radio portion of our interview,
• 32:35
  Speaker 1: if people want to read some of your white papers,
• 32:37
  Speaker 1: where where can they find out more about this? Sure?
• 32:39
  Speaker 1: We run a bog actually femist trading dot com. We
• 32:42
  Speaker 1: have a blog that we'll put out maybe three or
• 32:44
  Speaker 1: four posts a week that we normally every topical issues
• 32:46
  Speaker 1: on market structure. Obviously our book Broken Markets, white papers
• 32:51
  Speaker 1: are on the website as well image trading and and
• 32:53
  Speaker 1: you know we don't charge for these. We don't put this.
• 32:55
  Speaker 1: This is not a business model for us. Well, this
• 32:57
  Speaker 1: is this is a passion. This is what we do.
• 32:59
  Speaker 1: We invent, stickate things, and then we trade based on
• 33:01
  Speaker 1: what we learned. Okay, welcome back to the podcast. If
• 33:05
  Speaker 1: you're listening to this, it means you already heard the
• 33:08
  Speaker 1: radio portion of our show, and now I get to
• 33:11
  Speaker 1: stop worrying about the time segments and actually just relax
• 33:14
  Speaker 1: and enjoy chatting with my guests. I know Joe for
• 33:18
  Speaker 1: we know each other for a good couple of years.
• 33:20
  Speaker 1: I'm trying to figure out where I met you and
• 33:22
  Speaker 1: Sal could have been at a conference one of the
• 33:24
  Speaker 1: could have been certainly spoke at your conference years back,
• 33:27
  Speaker 1: which was great. And we end up we've done a
• 33:29
  Speaker 1: couple of shows together. We always you know, it's a
• 33:31
  Speaker 1: small universe that you end up bumping into each other. Um,
• 33:35
  Speaker 1: I recall it was before the flash crash, it was
• 33:40
  Speaker 1: when h f T really first started rearing its head.
• 33:44
  Speaker 1: I want to say it was before the financial crisis.
• 33:47
  Speaker 1: I want to say, oh seven could have been when
• 33:49
  Speaker 1: did you first notice things were getting a little, you know,
• 33:53
  Speaker 1: funky when you were trading? We we noticed it's certainly
• 33:56
  Speaker 1: like an oh five, oh six. Our first white paper
• 33:58
  Speaker 1: was the end of oh eight, so that's when we
• 33:59
  Speaker 1: publish something called Toxic Equity Trading, which kind of sat
• 34:02
  Speaker 1: on the shelf for a while. Everybody missed it because
• 34:03
  Speaker 1: we're in the mid financial crisis, and yeah, no one
• 34:06
  Speaker 1: really cared about market structure. It really popped up in
• 34:08
  Speaker 1: July of oh nine when the Goldman Sachs programmer Sergey Lichnikov,
• 34:12
  Speaker 1: and all of a sudden people started googling what's this
• 34:14
  Speaker 1: high frequency trading? And they popped up our white paper,
• 34:17
  Speaker 1: and then our phones lit up. There was a phenomenal um.
• 34:21
  Speaker 1: There was a phenomenal blog post. And I'm trying to
• 34:24
  Speaker 1: remember who first round it. I wouldn't be surprised if
• 34:26
  Speaker 1: it was Zero Hedge about who is this guy that
• 34:30
  Speaker 1: Goldman Sachs says that has escaped with the keys of
• 34:34
  Speaker 1: the castle and if unchecked, he could bring the market.
• 34:39
  Speaker 1: It was that the FBI. So where the hell did
• 34:41
  Speaker 1: these guys get that from? They had to have someone
• 34:44
  Speaker 1: from Goldman whispering in there, and and and Sergey is
• 34:46
  Speaker 1: still being prosecuted. He's still going through criminal eventually. And
• 34:51
  Speaker 1: you read the story, he essentially took open source stuff
• 34:55
  Speaker 1: that he had that basically was just a thing of convenience.
• 34:58
  Speaker 1: And uh and by the way, a lot of this
• 35:00
  Speaker 1: is actually in Flashboys. But the prosecution for that sham
• 35:05
  Speaker 1: on Guldman Sacks for for what they did. Don't cross
• 35:08
  Speaker 1: the squid apparently not or the Matt Taibi has is
• 35:12
  Speaker 1: still around Nobody's uh no, but nobody's He's the guy
• 35:15
  Speaker 1: who coined the phrase a jamming. It's blood funnel into
• 35:19
  Speaker 1: the throat of America of the vampire squid. If you
• 35:23
  Speaker 1: remember that very very famous article. It stayed with us.
• 35:26
  Speaker 1: So we we blew through a lot of stuff due
• 35:28
  Speaker 1: to time constraints earlier. Let me let me ask you
• 35:31
  Speaker 1: a few more questions that that we missed. So we
• 35:34
  Speaker 1: talked about improved trading costs and spreads and liquidly. The
• 35:38
  Speaker 1: one thing that we really didn't get to um that
• 35:41
  Speaker 1: I wanted was the difference between h f T s
• 35:45
  Speaker 1: and specialists or market makers. For that that fact, what
• 35:49
  Speaker 1: is the legal obligation what is the differences between what
• 35:53
  Speaker 1: they do and what they used to be required to do? Well,
• 35:57
  Speaker 1: that's to say, what exactly what is their obligation to
• 35:59
  Speaker 1: buy and sell a certain amount of shares? There is none,
• 36:02
  Speaker 1: And actually there's a couple of h f T s.
• 36:04
  Speaker 1: Now the bigger market makers are arguing for more obligations.
• 36:08
  Speaker 1: They want the guys who really understand that the h
• 36:10
  Speaker 1: f T market makers, you really know what they're doing,
• 36:12
  Speaker 1: who have really figured this out and are not necessarily
• 36:14
  Speaker 1: gaming the system, want more obligations. Give me some names.
• 36:18
  Speaker 1: I can't get into all the specifics, but there was
• 36:20
  Speaker 1: a what else do you put in that category? Well,
• 36:24
  Speaker 1: I don't know if I would put them in those
• 36:25
  Speaker 1: in the positive, I haven't seen those two guys asking
• 36:27
  Speaker 1: from more obligations. I did see a letter coming and
• 36:30
  Speaker 1: the tick size pilot program, which has been proposed by
• 36:33
  Speaker 1: the SEC. Virtue actually wrote a piece in their letter
• 36:36
  Speaker 1: which I thought was really impressive, asking them to put
• 36:39
  Speaker 1: more obligations on electronic market makers that, okay, let's step
• 36:43
  Speaker 1: up to the plate. How about the rest of those guys?
• 36:45
  Speaker 1: Do they want obligations? Now? Does this give a big
• 36:47
  Speaker 1: company like Virtue and uh An advantage. Is it a
• 36:50
  Speaker 1: competitive advantage or are they saying, hey, let's not kill
• 36:53
  Speaker 1: the golden goose here. I think they're they're pretty tight
• 36:56
  Speaker 1: on their market making. They pretty much. I mean they look,
• 36:58
  Speaker 1: they just published the next on and in there is
• 37:00
  Speaker 1: you know, a second time around for them going trying
• 37:02
  Speaker 1: to get that I p O out. But they've exposed
• 37:04
  Speaker 1: pretty much everything they do. They're not afraid to talk
• 37:06
  Speaker 1: about it. I would love to have some of these,
• 37:08
  Speaker 1: more of these one name h f T s that
• 37:10
  Speaker 1: you never heard of, that have a web page of
• 37:12
  Speaker 1: a half a page. Let them talk about their business model.
• 37:15
  Speaker 1: Are they making markets or they just you know, a
• 37:17
  Speaker 1: bunch of guys in a few different pods who are
• 37:19
  Speaker 1: looking at what what we call front running, which is
• 37:22
  Speaker 1: not really what they're doing. But what they're doing is
• 37:24
  Speaker 1: because they have no customers. By the way, all h
• 37:26
  Speaker 1: f t s are prop traders with no customers. They're
• 37:28
  Speaker 1: not what I describe as front running. You're actually right
• 37:31
  Speaker 1: because I'm mischaracterizing it. What they're doing is they're buying
• 37:36
  Speaker 1: a data service from the exchange which allows them to
• 37:39
  Speaker 1: packet sniff. It allows them to see orders not after
• 37:44
  Speaker 1: they hit the exchange. After they are traded. They like
• 37:47
  Speaker 1: it lets them see customer orders, not their customers, someone
• 37:52
  Speaker 1: else's customers, those orders before they're executed, so they get
• 37:56
  Speaker 1: to run ahead of them. If we all go the
• 38:00
  Speaker 1: front running, it's running ahead. But we were actually what
• 38:03
  Speaker 1: they're doing. And here's what they'll I'll put my h
• 38:05
  Speaker 1: f T ahead and they'll say that no, no one
• 38:08
  Speaker 1: can see an order before anyone else. It gets released
• 38:11
  Speaker 1: from the exchange server at the exact same time, and
• 38:14
  Speaker 1: anybody who spends the amount of money, the millions necessary
• 38:18
  Speaker 1: to process it can see that order. But guess what not.
• 38:21
  Speaker 1: You know, most people aren't doing what they do, So
• 38:23
  Speaker 1: we think what they're doing is not front running because
• 38:26
  Speaker 1: it's a customer but it's front running of demand and
• 38:28
  Speaker 1: front running of supply. They're building the book. They're looking
• 38:31
  Speaker 1: for what they call book pressure, and when they see
• 38:33
  Speaker 1: a stocks about to move based on their speed advantage
• 38:36
  Speaker 1: off and going right, so they're taking that offer before you.
• 38:39
  Speaker 1: They're canceling that bid before they get hit so they
• 38:41
  Speaker 1: don't get run over. Because essentially they're just trading getting
• 38:44
  Speaker 1: out of positions throughout the day. Their front running demand
• 38:47
  Speaker 1: and front running supply. Technically, nothing legal about that. Now,
• 38:51
  Speaker 1: as a broker, if I had a client order for
• 38:52
  Speaker 1: ten thousand shares and I decided to buy ahead of that,
• 38:54
  Speaker 1: I go to jail, as I should because that's front running.
• 38:57
  Speaker 1: That's that's legal front But Mike takeaway has always been,
• 39:01
  Speaker 1: you know, it's a zero sum game. And if these
• 39:04
  Speaker 1: guys are are capturing a penny on a hundred thousand shares,
• 39:08
  Speaker 1: that means the quote unquote natural buyer is not getting
• 39:12
  Speaker 1: that penny, and you multiply it by all of the transactions,
• 39:16
  Speaker 1: and that means tens of billions of dollars of profit
• 39:19
  Speaker 1: each year that should be in Grandma's IRA or your
• 39:24
  Speaker 1: four oh one k simply aren't there. It's going to
• 39:28
  Speaker 1: the h f T farms. Yes, it's going to proprietary
• 39:31
  Speaker 1: traders who are basically extracting that for their own and
• 39:34
  Speaker 1: not providing a social value. That's the key question. Are
• 39:37
  Speaker 1: they providing They're not going back into the ecosystem of
• 39:41
  Speaker 1: the trading world. Think about the old days when you
• 39:43
  Speaker 1: had an investment bank that had a trading department, a
• 39:45
  Speaker 1: research department, I p o s all sorts of different areas,
• 39:49
  Speaker 1: and in the trading department actually was a loss leader.
• 39:51
  Speaker 1: At times they would lose money to facilitate the other
• 39:54
  Speaker 1: parts of the business. But there you had the real
• 39:56
  Speaker 1: purpose of a stock market was to help companies go
• 39:59
  Speaker 1: pub right, bring them out, put them on road shows.
• 40:02
  Speaker 1: That's kind of falling aside because the economics aren't there
• 40:04
  Speaker 1: any right, the economics of the research department. Now you
• 40:08
  Speaker 1: talked about earlier how great decimalization is. I've read a
• 40:12
  Speaker 1: number of people complaining that when we went from fractions
• 40:14
  Speaker 1: to decimalizations, you you took a lot of the profit
• 40:18
  Speaker 1: out of trading, and that profit was what subsidized research.
• 40:22
  Speaker 1: Is that true? Yeah, And actually there's something called a
• 40:24
  Speaker 1: tick size pilot which has just been proposed. We wrote
• 40:27
  Speaker 1: a comment letter, the industry wrote tons of comment letters
• 40:29
  Speaker 1: on it. But the theory there is decimalization was great,
• 40:32
  Speaker 1: but you never put in a minimum spread. In other ways,
• 40:35
  Speaker 1: you collapse the spreads down to a penny. Wouldn't it
• 40:37
  Speaker 1: make sense for stocks that or even dying, for say
• 40:41
  Speaker 1: a small cap that doesn't trade. We're trying to attract
• 40:43
  Speaker 1: real liquidity, and real liquidity providers are not going to
• 40:46
  Speaker 1: hang around when they're gonna get picked off by somebody
• 40:48
  Speaker 1: who has a penny to come in play in the game.
• 40:51
  Speaker 1: Where now, if it was a nickel and you wanted
• 40:53
  Speaker 1: to get in this game and pick somebody off, it's
• 40:55
  Speaker 1: gonna cost you more and your risk is gonna go higher.
• 40:57
  Speaker 1: It's a really good theory. We don't know if it
• 40:59
  Speaker 1: will work, which is why it's called the pilot program.
• 41:01
  Speaker 1: The SEC wants to put out, but the industry is
• 41:03
  Speaker 1: going nuts already because they think it's gonna translate them
• 41:06
  Speaker 1: to what they call a trade at rule, which would
• 41:08
  Speaker 1: mean that you can't trade in the dark until you
• 41:09
  Speaker 1: trade on lid venues first. So they haven't a fit
• 41:12
  Speaker 1: because it would destroy their business model. But that's not
• 41:14
  Speaker 1: what the pilot program is calling for it. So, so
• 41:16
  Speaker 1: if we went to a nickel spread with size on
• 41:19
  Speaker 1: on bid and ask what would that do the trading costs?
• 41:22
  Speaker 1: What would that do to to a company like Vanguard
• 41:26
  Speaker 1: or any of the big mutual funds. How would then
• 41:29
  Speaker 1: impact they're they're trading right? And this would be only
• 41:32
  Speaker 1: on small to mid cap. So we proposed the privot
• 41:35
  Speaker 1: program says five billion market cap and less. We said
• 41:37
  Speaker 1: that's too high, go to like two billion in less
• 41:40
  Speaker 1: and and and that's still a couple of thousand stocks
• 41:42
  Speaker 1: under two billion, none of which really trade. You know,
• 41:46
  Speaker 1: they trade a few hundred thousand shiars a day. Their orphans.
• 41:49
  Speaker 1: No one trades them, right, nobody follows them. There's no
• 41:51
  Speaker 1: Wall Street coverage on them. And you know, last week
• 41:54
  Speaker 1: we were talking about the small cap um premium and
• 41:58
  Speaker 1: why small cap stocks have a tendency to outperform big
• 42:01
  Speaker 1: gap stocks over time, especially if you control for junk,
• 42:05
  Speaker 1: and that was one of the factors is their orphan stocks.
• 42:08
  Speaker 1: There's not a lot of liquidly, there's almost no coverage
• 42:12
  Speaker 1: there certainly isn't big firm coverage. You're not gonna get
• 42:15
  Speaker 1: Goldman and more Maryland Morgan covering, you know, and even
• 42:19
  Speaker 1: scrap the small firms. The regional brokers. Remember some of
• 42:22
  Speaker 1: the names like Robinson, Humphrey McDonald and all of these
• 42:26
  Speaker 1: names that would be the been eating up by other
• 42:27
  Speaker 1: brokers have went out of business. They don't have the
• 42:29
  Speaker 1: economics to support that trading anymore. Those market makers are gone,
• 42:32
  Speaker 1: they've been replaced by algorithms and so on. So how
• 42:35
  Speaker 1: do you bring them back? And and the theory and
• 42:37
  Speaker 1: Jeff Solomon over account and who's the president of account.
• 42:39
  Speaker 1: He's big on this. That is to how do I
• 42:42
  Speaker 1: get these market makers back? And you have to put
• 42:44
  Speaker 1: an economic incentive. You have to add otherwise no one's
• 42:47
  Speaker 1: gonna do it. And the economic incentive would be a
• 42:49
  Speaker 1: nicola a dime spread. And that's how. But you also
• 42:52
  Speaker 1: have to have an obligation come in there and put
• 42:54
  Speaker 1: some real size in there, not just a hundred chair
• 42:56
  Speaker 1: that that's been one of the complaints. You see this
• 42:57
  Speaker 1: penny spread and you go to buy something and you
• 42:59
  Speaker 1: get forty seven shares, And what's the point I need?
• 43:03
  Speaker 1: The penny spread is really the liquidity is illusory, the
• 43:07
  Speaker 1: spread is illusory. A lot of things that look like
• 43:09
  Speaker 1: one thing really aren't. Although I'm starting to get a sense,
• 43:13
  Speaker 1: a hint from you that your position has softened over
• 43:17
  Speaker 1: the past few years, because two or two years ago,
• 43:20
  Speaker 1: it was like we're all going to heck and this
• 43:22
  Speaker 1: is a disaster in the market's gonna collapse under its
• 43:25
  Speaker 1: own weight. To Hey, there have been some incremental improvements
• 43:28
  Speaker 1: and some market based improvements like I E X that
• 43:31
  Speaker 1: are actually bringing back some positive things to the market structure.
• 43:37
  Speaker 1: I would agree with that, and and and I think
• 43:39
  Speaker 1: it's because of the efforts of a bunch of folks,
• 43:41
  Speaker 1: and you know, we certainly were one of the first
• 43:43
  Speaker 1: out of the water. But if this market structure debate
• 43:45
  Speaker 1: didn't get pushed forward, we wouldn't be talking about improvements
• 43:48
  Speaker 1: right now. We wouldn't be talking about market market based solutions.
• 43:52
  Speaker 1: We'd be talking about the same problem. So systemic risks
• 43:55
  Speaker 1: that you guys have written a lot about, they'd still
• 43:57
  Speaker 1: be there, right and then they are still there, But
• 43:59
  Speaker 1: we're moving long in the right through. We're getting exchanges now,
• 44:02
  Speaker 1: like Jeff Sprecker of the New York Stock Exchange coming
• 44:04
  Speaker 1: in saying, hey, this make or take a model is ridiculous.
• 44:06
  Speaker 1: We gotta get rid of it. A couple of years ago,
• 44:09
  Speaker 1: you know, Duncanita Howard would never would have said that.
• 44:12
  Speaker 1: So things are different, and in the market structure debate,
• 44:14
  Speaker 1: it's a sophisticated one. It's moving forward, and this is
• 44:17
  Speaker 1: what we always wanted. So on a scale of one
• 44:20
  Speaker 1: to ten, if it was a disaster in two thousand ten,
• 44:23
  Speaker 1: at zero and ten is the optimal market structure, where
• 44:27
  Speaker 1: are we today? Four or not even not even halfway there? Wow,
• 44:33
  Speaker 1: that's uh, that's a really fascinating number. What what other
• 44:37
  Speaker 1: areas of the markets were you cop stock market wise?
• 44:41
  Speaker 1: I mean the biggest we have issues with, like I
• 44:44
  Speaker 1: mentioned before, fragmentation, dark pools. The non exchange off exchange
• 44:49
  Speaker 1: percentage of volume is close to which means that almost
• 44:53
  Speaker 1: four out of every ten shares is not traded on
• 44:55
  Speaker 1: an exchange. So now when we look at really soft volume,
• 44:59
  Speaker 1: which we've seen since you know, MARCHO nine lows how
• 45:03
  Speaker 1: much of that is just mom and pop walking away?
• 45:06
  Speaker 1: How much of it is dark pools? Why has volume
• 45:10
  Speaker 1: been so low? And what does that mean? Volume is
• 45:12
  Speaker 1: low right now because volatility is low. But if ilum
• 45:15
  Speaker 1: has been fairly suppressed for five years, has uh it
• 45:18
  Speaker 1: well off the peak of it. We wereround ten billion
• 45:20
  Speaker 1: shares across all exchanges back when the financial crisis was
• 45:23
  Speaker 1: going on. Now we're closely to six billions. So it's
• 45:26
  Speaker 1: a big drop. Yeah, because we got really lot of
• 45:28
  Speaker 1: the noisy. You know, if it volatility is not there,
• 45:31
  Speaker 1: you can't profit from latency arbitrarge situations. You can't pick
• 45:35
  Speaker 1: off someone as easily. Where is some of that volume going?
• 45:38
  Speaker 1: It's going to other markets. The currency market has exploded
• 45:41
  Speaker 1: with the electronic activity because it's so it's much more volatile,
• 45:45
  Speaker 1: and it's very liquid, and you know these trillions of
• 45:48
  Speaker 1: dollars literally, and it's it's not centralized. The they don't
• 45:52
  Speaker 1: even have at least in the equity world, we have
• 45:53
  Speaker 1: a linkage that's SIP the security. They haven't only got
• 45:56
  Speaker 1: a linkage in the in the foreign exchange world. So
• 45:58
  Speaker 1: it's a lot easier for you to develop your own
• 46:00
  Speaker 1: quote and to see something better than somebody else. The
• 46:03
  Speaker 1: banks have their own problems there as well. There's an article,
• 46:06
  Speaker 1: yes they'm on Bloomberg about the Last Look and things
• 46:09
  Speaker 1: like that, that there's a lot of issues in the
• 46:10
  Speaker 1: currency world, which we in the equity world. Actually we're
• 46:13
  Speaker 1: a lot more advanced when it comes to market structure
• 46:16
  Speaker 1: than something in the currency. People have talked about the
• 46:18
  Speaker 1: currency markets and and four x as the broadest, deepest
• 46:22
  Speaker 1: market with the most sophisticated systems, and you never can
• 46:26
  Speaker 1: you see a flash crash and concert absolutely, I absolutely
• 46:30
  Speaker 1: think you can it. Is it inevitable? Is it possible?
• 46:33
  Speaker 1: Is it likely? I think it's probably likely because with
• 46:35
  Speaker 1: the with the global event, you know, if if the
• 46:38
  Speaker 1: Swedish bang on to Swiss, Swiss Bank decides to change
• 46:40
  Speaker 1: the way they're going to set things which ago and
• 46:44
  Speaker 1: you did see a rapid moving currencies because you know,
• 46:46
  Speaker 1: is it really institutional volume, is it real bona FID
• 46:49
  Speaker 1: hedgers coming in there trading that, No, it's noise. It's
• 46:52
  Speaker 1: guys who are using I call it noise. But it's
• 46:55
  Speaker 1: basically a multi asset model. So you're trading stocks, equity,
• 46:58
  Speaker 1: you're trading stocks, opts, and futures, currencies, bonds. You're putting
• 47:01
  Speaker 1: it all together into this little magic sausage factory yours,
• 47:06
  Speaker 1: and you're developing a strategy. So if one all of
• 47:08
  Speaker 1: a sudden, there's an event in one area, you're gonna
• 47:10
  Speaker 1: move out. So yeah, it could happen in any one
• 47:13
  Speaker 1: of those markets. So zero to ten is a four,
• 47:16
  Speaker 1: So that's a big improvement, but that still means we're
• 47:19
  Speaker 1: sticks away from ten and and there's a lot of
• 47:21
  Speaker 1: potential problem. So you had mentioned um currencies, you had
• 47:25
  Speaker 1: mentioned treasuries. What about commodity markets. Commodity markets a little
• 47:29
  Speaker 1: different because they operate more in a vertical silo, so
• 47:31
  Speaker 1: you don't have the multi exchange, multi venue model, and
• 47:35
  Speaker 1: you have your trading oil, you're trading natures, or you're
• 47:39
  Speaker 1: you're not. Everything isn't as it's but they use a
• 47:42
  Speaker 1: huge leverage though they do and they have, but they're
• 47:45
  Speaker 1: they're a lot more control that they seem to have
• 47:47
  Speaker 1: their their grips on it better. I don't know, I'm
• 47:48
  Speaker 1: not certainly not an expert. You know, people used to
• 47:51
  Speaker 1: talk about commodity markets like it was the wild West
• 47:53
  Speaker 1: and all the lock limit down and all this crazy
• 47:55
  Speaker 1: stuff happens, and you're saying, the structure is better than
• 47:59
  Speaker 1: what we see else. Ironically, the the the flash crash
• 48:02
  Speaker 1: of two thousand and ten that we spoke about earlier
• 48:04
  Speaker 1: was stopped because of a piece of software at the CME,
• 48:07
  Speaker 1: the Chicago Mercantile Exchange called stop logic, which said that
• 48:11
  Speaker 1: if it got too volatile, halted for five seconds. I
• 48:14
  Speaker 1: believe it was five seconds. And that's really what the
• 48:16
  Speaker 1: bottom of the flash five second quote hall. And that
• 48:21
  Speaker 1: tells you that every asset is linked, because when the
• 48:23
  Speaker 1: mini stopped trading, everybody said, hold on a second, what's
• 48:26
  Speaker 1: going on, and that guys like us who are trading stocks,
• 48:28
  Speaker 1: but guys who have multi asset strategies who were all
• 48:31
  Speaker 1: electronically linked, then realized, hey, there really isn't something going
• 48:34
  Speaker 1: on here For people who don't know E Minis or
• 48:36
  Speaker 1: the SMP futures huge leverage with that you're called minis,
• 48:41
  Speaker 1: but you're putting up a million dollars and trading like
• 48:44
  Speaker 1: I don't remember what it is, but it's tens of
• 48:45
  Speaker 1: millions of dollars of stock. It doesn't take a lot
• 48:48
  Speaker 1: of money to swing a boatload of stock in those
• 48:51
  Speaker 1: and it's supposedly the most liquid instrument when it comes
• 48:53
  Speaker 1: to commodities. Yet that was also the one blamed for
• 48:56
  Speaker 1: the initiation of the flash crash because they couldn't handle
• 48:59
  Speaker 1: seventy five housing contracts, which makes you kind of scratch
• 49:01
  Speaker 1: your head. Why could the most liquid security in the
• 49:03
  Speaker 1: world not handled. Sure, it's a big order, but it
• 49:05
  Speaker 1: doesn't the reason that that side put out doesn't hold
• 49:08
  Speaker 1: water at all. Right, So, first, the first rumor we
• 49:11
  Speaker 1: heard was it was a fat thumb, which is trade
• 49:14
  Speaker 1: or talk for somebody accidentally throwing an extra zero on
• 49:17
  Speaker 1: an order, or or you know, just leaning on a keyboard.
• 49:20
  Speaker 1: And you know, if you ever leading on a keyboard
• 49:22
  Speaker 1: and here, just picture that on a trading desk and
• 49:25
  Speaker 1: what that means when you're shooting you know, millions of
• 49:28
  Speaker 1: orders all at once. It it's hey, fat thumb, that's
• 49:30
  Speaker 1: really a problem. I'll tell you one of the problem
• 49:33
  Speaker 1: that they have right now, they don't have the surveillance
• 49:36
  Speaker 1: they SEC in particular, does not have a surveillance system
• 49:39
  Speaker 1: to keep up with today's modern markets, today's micro second trading,
• 49:44
  Speaker 1: you know, and a million of a second. These guys
• 49:46
  Speaker 1: are doing things that we can't. There's a world underneath it, right.
• 49:49
  Speaker 1: The SEC doesn't have a system tomorrow. They actually had
• 49:52
  Speaker 1: to sub out to an h f T guy to
• 49:55
  Speaker 1: build a system called Midas that COSTOM two and a
• 49:57
  Speaker 1: half million a year, which is barely a bunch of
• 49:59
  Speaker 1: direct fee being aggregated. How can nanex do this? And
• 50:03
  Speaker 1: if you haven't seen the beautiful artwork that how do
• 50:07
  Speaker 1: I pronounce his last name, Eric hunt Setter's work on
• 50:11
  Speaker 1: nanax dot net? Is that right? Uh? He creates these
• 50:15
  Speaker 1: beautiful mosaic showing all these quotes and trades and their
• 50:21
  Speaker 1: artwork their fantastic all they are visual representation of actual trades.
• 50:26
  Speaker 1: How can he do it? But the SEC can't. It's incredible.
• 50:29
  Speaker 1: He could have built and I've spoken to Erica and
• 50:32
  Speaker 1: we speak to him often but he could have built
• 50:33
  Speaker 1: Midas for a lot cheaper than they spent on it. Okay,
• 50:36
  Speaker 1: he runs it. He basically takes in the feeds and
• 50:38
  Speaker 1: he analyzes this stuff. But the problem with the secs
• 50:41
  Speaker 1: and and the problem with our regulatory system is we've
• 50:43
  Speaker 1: got futures on one side, which is the CFCC, We've
• 50:47
  Speaker 1: got the SEC we're doing equities and options. They're not
• 50:49
  Speaker 1: aggregating everything, and in some counts over their treasuries. Over here,
• 50:53
  Speaker 1: it's really very much fragment. And if if you're if
• 50:56
  Speaker 1: you're spoofing in the currency market to affect something in
• 50:59
  Speaker 1: the bond market, you're never gonna be caught. Is that
• 51:01
  Speaker 1: going on today? I don't know, because we don't have
• 51:04
  Speaker 1: the surveillance systems to watch it, but theoretically that I
• 51:06
  Speaker 1: would think so absolutely. So let me ask you a
• 51:08
  Speaker 1: hypothetical question. One of the guys. So, whenever we do
• 51:11
  Speaker 1: these these conversations, my office is always so, who are
• 51:14
  Speaker 1: we speaking with this week? And I always tell them so,
• 51:17
  Speaker 1: and I get some fascinating questions from from some of
• 51:20
  Speaker 1: the staff members. And my head of research said, Hey,
• 51:23
  Speaker 1: do me a favor. Ask Joe, what would happen if
• 51:26
  Speaker 1: tonight every h f T firm was shut down, what
• 51:30
  Speaker 1: would happen to markets going forward? Much rejoicing, No, I'm
• 51:33
  Speaker 1: just I'm just no. If they shut down, sure, you're
• 51:38
  Speaker 1: gonna widen spreads, right naturally, If if the bigils in
• 51:41
  Speaker 1: that gap, who will replaces them? It's a good question.
• 51:44
  Speaker 1: Do market forces that overnight? It's not gonna happen, right,
• 51:47
  Speaker 1: But eventually, Let's take for instance, that tick size pilot
• 51:50
  Speaker 1: we were talking about. If the h f T s
• 51:52
  Speaker 1: don't want to play in the stocks because of a
• 51:54
  Speaker 1: nickel spread, there will be someone coming along. The vacuum
• 51:58
  Speaker 1: will be there's money to be made, there's it to
• 52:00
  Speaker 1: be made. Real traditional market makers will come back, Real
• 52:02
  Speaker 1: liquidity will come back. Maybe the spread is a little
• 52:05
  Speaker 1: bit wider, but we would argue that to spread is
• 52:07
  Speaker 1: really today's market. Like you was saying before, if I
• 52:11
  Speaker 1: want to buy five thousand shares, how do I get
• 52:13
  Speaker 1: five And if I can do it with a nickel spread,
• 52:15
  Speaker 1: that's actually a better thing, right the hundred fifty to forty.
• 52:19
  Speaker 1: By the time you feel thousand shares your fifteen cents away,
• 52:23
  Speaker 1: that's right. And we've heard all sorts of stories about
• 52:25
  Speaker 1: about those sort of sweeps and that penny spread is
• 52:28
  Speaker 1: nonsense now it is, it isn't. And that's where you
• 52:30
  Speaker 1: get picked off by the way that people will see
• 52:32
  Speaker 1: you coming. And that's where brad over they move out
• 52:34
  Speaker 1: of the way. They will, they'll disappear if you're coming
• 52:37
  Speaker 1: through a slower router, and the next thing you know,
• 52:39
  Speaker 1: they'll take the stock in front of you, and you
• 52:40
  Speaker 1: have now paying a nickel higher and you've got two
• 52:43
  Speaker 1: eighty seven shares, Like, what the heck are you doing?
• 52:45
  Speaker 1: That's we have to be when you're trading now, especially
• 52:46
  Speaker 1: with larger pieces, you better be sophisticated. You better know
• 52:49
  Speaker 1: how the routes work. You better know what's going into
• 52:51
  Speaker 1: every route, what type of order is going out. We
• 52:54
  Speaker 1: didn't even get into these crazy order types. But you
• 52:56
  Speaker 1: need to know the plumbing right or or like if
• 52:59
  Speaker 1: you ran a race car, if you're a race car drive,
• 53:01
  Speaker 1: you want to know what's in that engine. You better
• 53:03
  Speaker 1: know the inside of this engine. If you're trading size
• 53:05
  Speaker 1: right now, you will get picked off. And then unfortunately,
• 53:08
  Speaker 1: at the end of the day, you may think you
• 53:10
  Speaker 1: got what they call a v WAPP or volume weighted
• 53:13
  Speaker 1: average price, that that's gonna be across all these different
• 53:17
  Speaker 1: bids and offers where you actually paid you match the
• 53:20
  Speaker 1: daily v So everybody. There's a lot of managers that
• 53:22
  Speaker 1: will try to benchmark the v WAP and they'll say,
• 53:25
  Speaker 1: if I got as good as the VWAP, I did
• 53:26
  Speaker 1: a good job today. And we would argue that you're
• 53:28
  Speaker 1: not over paying through the trades correct, correct, because you're
• 53:31
  Speaker 1: doing an average job, because that's the average price. And
• 53:34
  Speaker 1: we would argue that if you're not sophisticated with your routes,
• 53:37
  Speaker 1: you're actually causing that VWAP to be higher than where
• 53:40
  Speaker 1: it should if you're a buyer, or a lower if
• 53:42
  Speaker 1: you're a seller, because you're not really paying attention to
• 53:44
  Speaker 1: the intricacies of why did that hundred shairs go up
• 53:47
  Speaker 1: on the bat's inverted exchange, Why did it go up
• 53:49
  Speaker 1: in a dark pool? Why is that route going here
• 53:51
  Speaker 1: constantly in the same low rebate venue or high rebate venue.
• 53:55
  Speaker 1: These are the questions that we ask all day long
• 53:58
  Speaker 1: why our trading is different than others out there. But
• 54:00
  Speaker 1: once you learn the inside of it, then you'll be
• 54:02
  Speaker 1: armed a little bit better. It's still gonna be tough.
• 54:04
  Speaker 1: It's not easy, So you've been doing this for twenty
• 54:08
  Speaker 1: plus years. I remember when I began around that same
• 54:11
  Speaker 1: time as a trader and as if I'm a if
• 54:14
  Speaker 1: I'm a seller, and suddenly Goldman shows up on the
• 54:16
  Speaker 1: top of you know, it was mostly NASDAX stocks on
• 54:19
  Speaker 1: the top of the box as the bidder for size.
• 54:22
  Speaker 1: I would get out of the way. But I wasn't
• 54:24
  Speaker 1: a market maker. I was just executing orders um either
• 54:27
  Speaker 1: for proprietary trades or on behalf of clients. This is
• 54:32
  Speaker 1: really very, very different than those days. That's almost simple
• 54:36
  Speaker 1: and quaint compared to the complications you're described today. It's
• 54:40
  Speaker 1: it's you know, that was like the axe. They used
• 54:42
  Speaker 1: to call it, right, that's right, and the ax came
• 54:44
  Speaker 1: in everybody, and you knew in different stocks it was
• 54:46
  Speaker 1: different different how you know, there were certain there was
• 54:49
  Speaker 1: certain stocks that when bear Sterns showed up, hey, everybody
• 54:52
  Speaker 1: out of the pool. They were starting to suck up
• 54:54
  Speaker 1: a million shares or certain hedge funds, let's just call it.
• 54:57
  Speaker 1: That everyone knew was quote unquote March smart money. They
• 55:00
  Speaker 1: started ripping through his stock, but that was you know,
• 55:02
  Speaker 1: his intelligence. Sure there was issues back then of of
• 55:05
  Speaker 1: transparency as well. But the market now is so much different,
• 55:08
  Speaker 1: and when you think about it. Scott Patterson, the Wall
• 55:10
  Speaker 1: Street Journal reporter, wrote a book called Dark Pools, which
• 55:13
  Speaker 1: I think is tremendous, by the way, and I love now.
• 55:16
  Speaker 1: He also wrote The Quants Fantastic, which is one of
• 55:19
  Speaker 1: my favorite books describing what's taking place over the past
• 55:22
  Speaker 1: ten years. But dark Pools is almost like The Quants
• 55:25
  Speaker 1: Part two. It's very sophisticated, it's very fascinating. And he
• 55:30
  Speaker 1: goes through the the kind of the the lineage of
• 55:32
  Speaker 1: what HFC, where they came from, and he goes back
• 55:35
  Speaker 1: to this firm called Island. It was J C. And
• 55:37
  Speaker 1: and when we were at instant that that was one
• 55:39
  Speaker 1: of our competitors. They were this small kind of firm,
• 55:41
  Speaker 1: but a lot of the guys who were at Island
• 55:43
  Speaker 1: kind of morphed out and they went to these h
• 55:44
  Speaker 1: F T firms along the way. And it's almost the
• 55:47
  Speaker 1: Island came out first and came up with this i'll
• 55:49
  Speaker 1: pay you to add liquidity theory. It was their original
• 55:52
  Speaker 1: thing that said I'll pay you to add liquidity, and
• 55:54
  Speaker 1: now it's in every major stock exchange around the world.
• 55:56
  Speaker 1: That was their competitive advantage. That's how they attracted all
• 55:59
  Speaker 1: this volu The other thing about the book Dark Pools
• 56:03
  Speaker 1: was I think I may be confusing this. I think
• 56:06
  Speaker 1: that's where I first learned that Renaissance Technologies one of
• 56:10
  Speaker 1: the most successful hedge funds of all time a year
• 56:14
  Speaker 1: for thirty years. So successful they said to their outside clients, Hey, here,
• 56:19
  Speaker 1: thanks for your money, but we're just gonna invest our
• 56:21
  Speaker 1: own money. That's how you know it's not a nonsense return.
• 56:26
  Speaker 1: We'll we'll, we'll take it from here. Um that they
• 56:29
  Speaker 1: were one of the earliest high frequency traders and had
• 56:32
  Speaker 1: before anyone in Wall Street even had a clue what
• 56:34
  Speaker 1: they were doing. That needs to talk it. These guys
• 56:36
  Speaker 1: had come up with a series of just ingenious ways,
• 56:41
  Speaker 1: long long before everybody else had figured this out. And
• 56:43
  Speaker 1: that's when it was easy pickings for them, right, it
• 56:45
  Speaker 1: was easy to shoot, have a latency, our situation going on,
• 56:48
  Speaker 1: and no one even knew what the heck it was.
• 56:49
  Speaker 1: And now I mean to the lots of competition much harder.
• 56:53
  Speaker 1: It's changed, and so we increase their cost so so
• 56:56
  Speaker 1: they're not as profitable, No one's Jim Simmons retired, they're
• 57:00
  Speaker 1: not as profitable, and I keep although they're still wildly successful,
• 57:04
  Speaker 1: and I continue to read that h f T firms
• 57:07
  Speaker 1: are just becoming less and less profitable, less competition and
• 57:12
  Speaker 1: and a handful of big guys are now dominating the volumes.
• 57:17
  Speaker 1: And whether that's Virtue or Get Go or a handful
• 57:21
  Speaker 1: of other companies um which are also which you don't
• 57:24
  Speaker 1: go into details of names and in broken markets, but
• 57:28
  Speaker 1: Flashboys does so. So is this just naturally on the
• 57:33
  Speaker 1: wane or what's going on? It's the term they call
• 57:36
  Speaker 1: the race to zero. This is by far the race
• 57:39
  Speaker 1: they're trying to zero out that that latency has gotten
• 57:41
  Speaker 1: so squeezed. But here's the problem for an h f T.
• 57:44
  Speaker 1: If I'm an h f T and you're an h
• 57:46
  Speaker 1: f T and you decide to build a new microwave network,
• 57:48
  Speaker 1: that's gonna get you one micro second fast or some
• 57:52
  Speaker 1: data and the thousandths of a second million, a million, millions,
• 57:55
  Speaker 1: a million, and whatever it may be. I'm just throwing
• 57:58
  Speaker 1: numbers out there. But you're gonna be faster because you're
• 57:59
  Speaker 1: gonn to spend ten million dollars, say, building a microwave
• 58:03
  Speaker 1: between here in Chicago over the is gone microwave. It's
• 58:08
  Speaker 1: now over the lasers, whatever else to exact. But if
• 58:11
  Speaker 1: you do it, I have no choice but to do
• 58:13
  Speaker 1: it if I want to remain competitive to you, which
• 58:15
  Speaker 1: means now it's gonna cause me ten million, which means
• 58:18
  Speaker 1: that's gonna be sucked right out of my profits. That's
• 58:20
  Speaker 1: why you see in the margin start to collapse. So eventually,
• 58:22
  Speaker 1: I think what will happen is the smaller ones are
• 58:24
  Speaker 1: going to drift off. They will not be able to compete.
• 58:26
  Speaker 1: The bigger ones will get bigger, which does become an
• 58:29
  Speaker 1: issue of how much power they have. And but that's
• 58:31
  Speaker 1: where you're going to have to have some regulations coming
• 58:33
  Speaker 1: and say, okay, let's get some obligations on these guys
• 58:35
  Speaker 1: as well. They're not going away, They're so h f
• 58:38
  Speaker 1: T is here to stay. We're not. We're not going
• 58:40
  Speaker 1: to see them disappear. But it's morphing. In other words,
• 58:43
  Speaker 1: it's becoming something different. I guess they're trying to legitimatize themselves, right.
• 58:47
  Speaker 1: It's it's like, well, is that is that gonna happen?
• 58:49
  Speaker 1: Are they going to become obligated legitimized players or they
• 58:53
  Speaker 1: still just snipers picking off you know, millipennies will be different.
• 58:57
  Speaker 1: There are different ones. There's you know, h F T
• 58:59
  Speaker 1: is different and it's really hard to bucket. And we've
• 59:01
  Speaker 1: learned we were not the smartest when we first started
• 59:04
  Speaker 1: doing this, and we've learned a lot a lot over
• 59:06
  Speaker 1: the years, and we've learned that you can't just bucket
• 59:09
  Speaker 1: HFC into one bucket. They are different types of players, right,
• 59:12
  Speaker 1: and they do different things. But the smaller players who
• 59:15
  Speaker 1: are there to pick off and just kind of kind
• 59:17
  Speaker 1: of sniff out a little of what we call venue arbitrage,
• 59:20
  Speaker 1: trying to pick you off because one venue slower it
• 59:21
  Speaker 1: in the other that business is going away. They they're
• 59:24
  Speaker 1: squeezing that out, that that that latency are that used
• 59:26
  Speaker 1: to see when you trade bats versus nasadac or a
• 59:29
  Speaker 1: dark pool, and the dark pools are now being more
• 59:31
  Speaker 1: you know, investigated more like two attorney in general, that's changing.
• 59:34
  Speaker 1: But market making, if you call it market making, you know,
• 59:37
  Speaker 1: we call something different like you know, specialists and so on.
• 59:39
  Speaker 1: But if they're market making a stock versus an e
• 59:41
  Speaker 1: t F or an e t F versus the future,
• 59:44
  Speaker 1: and they would still want to do that and they
• 59:45
  Speaker 1: think they're profitable. Congratulations, good luck, but let's play by
• 59:50
  Speaker 1: the same rules. That's amazing. I can remember as a
• 59:53
  Speaker 1: trader being able to visually see different prices, or throwing
• 59:58
  Speaker 1: out a quote an eighth below the bid, suddenly seeing
• 1:00:02
  Speaker 1: I'm filled, and immediately selling it to somebody else an
• 1:00:05
  Speaker 1: eighth higher. The markets were at least on an eighth level,
• 1:00:09
  Speaker 1: so inefficient. And I'm talking the nineties, we're not talking
• 1:00:12
  Speaker 1: post two thousand, um. But you could literally do that
• 1:00:16
  Speaker 1: if you were quick on the keyboard and you had
• 1:00:18
  Speaker 1: a couple of little macro set up. But you didn't
• 1:00:21
  Speaker 1: even know it. If you call that high frequency trading,
• 1:00:25
  Speaker 1: it's it's a human manual. Uh, just a quickly picking
• 1:00:30
  Speaker 1: off an eighth on a thousand shares. Not exactly high Fenci.
• 1:00:34
  Speaker 1: By the way, whenever you whenever you did that, it
• 1:00:36
  Speaker 1: was it was just a rare. It was on a slow,
• 1:00:39
  Speaker 1: boring day and you had nothing to do, and let's
• 1:00:41
  Speaker 1: throw a few quotes out and see what happens. Suddenly
• 1:00:44
  Speaker 1: you find yourself filled and you're you know, at worst
• 1:00:47
  Speaker 1: you're out for a break even or an eighth loss.
• 1:00:49
  Speaker 1: But it was just one of those things that and
• 1:00:51
  Speaker 1: you always wondered, why can't you do this automatically. Why
• 1:00:54
  Speaker 1: wasn't there technology for it? Never in a million years
• 1:00:57
  Speaker 1: imagining it would be like it, it's got and it's
• 1:01:00
  Speaker 1: gotten today. Yeah, and there is a have and have
• 1:01:03
  Speaker 1: not in the world of trading now. The halves are
• 1:01:06
  Speaker 1: the ones who can pay enough money to buy that
• 1:01:09
  Speaker 1: co location facility, to rent the co location facility, to
• 1:01:12
  Speaker 1: purchase the data feeds, to set up a microwave network,
• 1:01:15
  Speaker 1: to do all the things they do right, So you
• 1:01:17
  Speaker 1: have created a tiered process. And in the in the
• 1:01:20
  Speaker 1: trading world, there's no doubt about it, there are those
• 1:01:22
  Speaker 1: that do and those that don't. So you know, you're
• 1:01:24
  Speaker 1: really not competing on the same level playing for it
• 1:01:26
  Speaker 1: when it comes to technology. But look, I'm not going
• 1:01:28
  Speaker 1: to argue against certain things, but i am going to
• 1:01:30
  Speaker 1: argue when there's a dark pool out there and he's
• 1:01:32
  Speaker 1: advantaging one client because that client is you know, an
• 1:01:36
  Speaker 1: h F T and he's gonna say, I'm gonna give
• 1:01:37
  Speaker 1: you a special look or something like that. Here we
• 1:01:40
  Speaker 1: have a lot of issues. Or you know, couple aren't
• 1:01:42
  Speaker 1: exchanges doing something similar by selling that data they are
• 1:01:46
  Speaker 1: and data feeds what they called the proprietary data feeds
• 1:01:48
  Speaker 1: we think should absolutely be looked at by the SEC
• 1:01:51
  Speaker 1: should be why they have you. Here's what the exchange
• 1:01:55
  Speaker 1: will say, Hey, Barry, you want to buy a data feed,
• 1:01:57
  Speaker 1: I love to sell you one, buddy, ten thousand a month.
• 1:02:00
  Speaker 1: Here you go purchase and anyway anybody can buy. They're
• 1:02:02
  Speaker 1: going to turn around. But realistically a month doesn't mean
• 1:02:06
  Speaker 1: that if I'm not buying a hundred chairs I'm gonna need.
• 1:02:08
  Speaker 1: It doesn't help you. It doesn't help you. And then
• 1:02:10
  Speaker 1: you also got to build the entire infrastructures to make
• 1:02:12
  Speaker 1: that data. The data feeds just a fuel that runs
• 1:02:14
  Speaker 1: the engine. You gotta still build the engine. Okay, But
• 1:02:17
  Speaker 1: what they're giving in these data feeds is not just
• 1:02:19
  Speaker 1: there's a lot of information and a lot of content.
• 1:02:21
  Speaker 1: In fact, a couple of years ago we actually wrote
• 1:02:23
  Speaker 1: a white paper where we talked two of the major
• 1:02:25
  Speaker 1: exchanges giving out information on what it was supposedly a
• 1:02:28
  Speaker 1: hidden order flow, so an institution could put in fifty
• 1:02:31
  Speaker 1: shares hidden I don't want anybody seeing it. But they
• 1:02:33
  Speaker 1: were putting tags on this flow, which basically allowed others
• 1:02:37
  Speaker 1: to re engineer it. People who bought the data feeds
• 1:02:39
  Speaker 1: and figured out that there was a buyer there. So
• 1:02:41
  Speaker 1: let me ask you a question. Knowing the exchanges for
• 1:02:44
  Speaker 1: profit are willing to do that, why would anybody trust
• 1:02:47
  Speaker 1: anything they say? Aren't these just shameless salespeople who are
• 1:02:52
  Speaker 1: basically going to say, I will sell this client down
• 1:02:55
  Speaker 1: the road to that client because I can. Is that
• 1:02:57
  Speaker 1: what actually took place? It their penalties where they're fine,
• 1:03:03
  Speaker 1: the SEC didn't even look into. But the exchanges after
• 1:03:05
  Speaker 1: they call grief from the institutional community, changed it voluntarily,
• 1:03:09
  Speaker 1: just like the direct Edge exchange a couple of years
• 1:03:11
  Speaker 1: back with doing flash orders where they were showing orders
• 1:03:14
  Speaker 1: to a certain subset of clients for half a second,
• 1:03:17
  Speaker 1: which is an eternity, and they were half a second,
• 1:03:20
  Speaker 1: would you like to buy us? No? Okay, you go
• 1:03:21
  Speaker 1: out in front and front of yourself. It was ridiculous.
• 1:03:24
  Speaker 1: But but but but here's what they'll in their defense.
• 1:03:26
  Speaker 1: They're gonna say, well, wait a second, show everything we
• 1:03:28
  Speaker 1: do with public everything that we do has to be
• 1:03:30
  Speaker 1: filed with the SEC after the fact three months later
• 1:03:33
  Speaker 1: in forty pages of six point legal ease. But buddy,
• 1:03:36
  Speaker 1: it's approved by the SEC. Why would they ever allow
• 1:03:40
  Speaker 1: certain order types to be approved? Who is that the SEC?
• 1:03:44
  Speaker 1: Looking at the exchange documents saying, yeah, that looks like
• 1:03:46
  Speaker 1: it's fair to everyone. It's insane. So here's why we
• 1:03:48
  Speaker 1: call it a broken market. Because you've got regulators who
• 1:03:51
  Speaker 1: are allowing this, exchanges who are for profit h f
• 1:03:53
  Speaker 1: t s who take advantage of it, and in between
• 1:03:55
  Speaker 1: is the retail and institutional guy going what the hell
• 1:03:58
  Speaker 1: is going on? That? That's unbelieva. I'm gonna end this
• 1:04:01
  Speaker 1: segment with um a quote from my colleague Josh Brown,
• 1:04:06
  Speaker 1: who said, and I love this quote, the best way
• 1:04:08
  Speaker 1: to defeat high frequency trading is with low frequency trading.
• 1:04:13
  Speaker 1: Meaning if if you're not in there, if you're not
• 1:04:15
  Speaker 1: in there as a retail investor, if you're not in
• 1:04:18
  Speaker 1: there trying to compete with these guys, you're not gonna
• 1:04:20
  Speaker 1: lose them. That that's that's exactly right. Well, well, this
• 1:04:24
  Speaker 1: has been really a ton of fun. Thank you so much. Joe, Say,
• 1:04:27
  Speaker 1: how do your partner salve for us? We've been speaking
• 1:04:30
  Speaker 1: with Joe. I was gonna say, Joe Arnock, we've been
• 1:04:33
  Speaker 1: speaking with Joe so Lousy, author of Broken Markets and
• 1:04:38
  Speaker 1: partner with Sal Arnuck of Famous Trading. If you enjoy
• 1:04:42
  Speaker 1: this conversation, be sure to look up or down an
• 1:04:45
  Speaker 1: inch or two on iTunes or on bloomberg View dot
• 1:04:49
  Speaker 1: com or on Bloomberg dot com to see the rest
• 1:04:52
  Speaker 1: of our podcasts. I'm Barry Ridults. You've been listening to
• 1:04:55
  Speaker 1: Masters in Business on Bloomberg Radio. You're listening to Master's
• 1:05:00
  Speaker 1: in Business with Barry Redholts on Bloomberg Radio.