Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, leasing, and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com put Knowledge to Work. Hello and welcome
Speaker 1: to another edition of the podcast. I'm Tracy Alloway, executive
Speaker 1: editor at Bloomberg Markets, and I'm Joe Wisenthal, Managing editor
Speaker 1: Bloomberg Markets. Joe, this is a special special episode of
Speaker 1: the podcast. Uh, it's special because we're not on it right. Yeah,
Speaker 1: it's extra special because we've edited ourselves out. Now we
Speaker 1: are going to be playing an interview today that Bloomberg
Speaker 1: View columnist Matt Levine, and a friend of this podcast,
Speaker 1: as you know, has done with Brad katsu Yama. He
Speaker 1: is the co founder and CEO of an exchange that
Speaker 1: I think we've all heard of. It's called I e X. Uh.
Speaker 1: You might remember it from such movies as Michael Lewis's movies,
Speaker 1: such books as Michael Lewis's Flashboys. Right, this was the
Speaker 1: exchange because there's been all this anxiety about high frequency
Speaker 1: trading exactly. So Flashboys is about the evils of high
Speaker 1: frequency trading and how they're messing up markets. Um. There
Speaker 1: were some examples in there that some people took issue with,
Speaker 1: but basically, high frequency trading is the villain of flashboys.
Speaker 1: Certainly a lot of politicians and regulators seemed to be
Speaker 1: on board with that view. And then we had I
Speaker 1: e X that sprang forth from this guy called Brad
Speaker 1: katsu Yama, and I X was basically the antithesis of
Speaker 1: high frequency trading. They kind of install speed bumps to
Speaker 1: prevent people from doing that, and they're supposed to be
Speaker 1: a different way of trading, a better way of trading.
Speaker 1: And I mean, the book is worth reading. I don't
Speaker 1: know if you've read it, um, but what's definitely worth
Speaker 1: listening to is this interview. Great, well, this is an interview.
Speaker 1: It's associated with the November six edition of Bloomberg Market magazine,
Speaker 1: and uh, I hope everyone enjoys it. There's sort of
Speaker 1: an origin story for you were traded at RBC almost
Speaker 1: ten years ago. You noticed that there was that, you know,
Speaker 1: you try to buy a hundred thousand shares, you can
Speaker 1: only get them. You're wondering what was up. I thought
Speaker 1: it was a software problem. Eventually figured out that it
Speaker 1: was a sort of issue with the structure, with the
Speaker 1: deep structure of the stock exchanges. So you built the
Speaker 1: thing at RBC that would help your clients avoid that
Speaker 1: and get the full hundred thousand shares. Then you're like, l,
Speaker 1: we can do this more broadly, and so you built
Speaker 1: the trading venue called i X that did the same
Speaker 1: thing that you You coiled wire in a shoe box
Speaker 1: so that when people sent you an order for a
Speaker 1: hundred thousand shares and you had twenty five thousand, you'd
Speaker 1: give them the twenty five and before you told anyone
Speaker 1: else about this, you would run to the other exchanges
Speaker 1: and get the other seventy thousand that were displayed and
Speaker 1: give people the full size of their order. And that
Speaker 1: was kind of like the origin story of i X
Speaker 1: that's told in Flashboys. It's sort of a plot of Flashboys.
Speaker 1: I've seen you tell it on stage, and now that
Speaker 1: you've become a stock exchange, it occurs to me that
Speaker 1: story is not quite true anymore. Right, Like the thing
Speaker 1: that is the sort of basis of the origin story
Speaker 1: is this router that skips the speed bumper, that that
Speaker 1: allows people to get all the shares before the high
Speaker 1: prequoncent trators learn about it and can raise ahead of them,
Speaker 1: and as part of the sec process you had to
Speaker 1: take that out. So I want to hear like just
Speaker 1: kind of what what your thought presses on that was
Speaker 1: liked you miss it was ever a moment and you said,
Speaker 1: we'd rather not be in exchange than do this. Part
Speaker 1: of the story was that we realized that when we
Speaker 1: were trying to buy or sell stock across the broader
Speaker 1: market that executions, that the venues that we got to
Speaker 1: first would lead to fading of liquidity or trading ahead
Speaker 1: at other venues. And so we originally started i X
Speaker 1: under the premise that we would be this router for
Speaker 1: clients that wanted to trade through. Any broker could send
Speaker 1: a rottable order to to i X and we could
Speaker 1: get that order out to the market. And that was
Speaker 1: the original premise that we started with UM and thank goodness,
Speaker 1: kind of it evolves because we're we're only we're routing
Speaker 1: I think forty to fifty million shares a day, we're
Speaker 1: matching ten million shares of that on our own market,
Speaker 1: which means that if that was our only premise, we
Speaker 1: would be doing a very small amount of volume on
Speaker 1: I X and sending a lot of volume elsewhere. And
Speaker 1: I think the way that UM the concept evolved was
Speaker 1: to say or ask the question, well, why does why
Speaker 1: can someone get a signal from one place and get
Speaker 1: to the next UM. And it really came down to
Speaker 1: co location and this idea that UM people could pay
Speaker 1: to put their servers as close as possible to the exchanges,
Speaker 1: UM get fast information and now with microwave connectivity, etcetera,
Speaker 1: can beam orders to other markets faster than people that
Speaker 1: are traveling through cable or people that don't have the
Speaker 1: same level of sophistication or have paid for the same
Speaker 1: level of access and UM. So when we thought about it,
Speaker 1: you know, RBC as a broker could only solve a
Speaker 1: very narrow part of the problem, and the problem was
Speaker 1: broader because not only for orders that were routed, what
Speaker 1: about orders that are resting on the exchange, or what
Speaker 1: about orders that are pegged on exchanges? How are those
Speaker 1: orders treated when there is this huge kind of disparity
Speaker 1: between who knows what when, And that evolved into things
Speaker 1: such as you know, discretionary PEG and midpoint PEG and
Speaker 1: basically the evolvement of the speed bumps so UM, I
Speaker 1: think if we had stayed as focused only on the router,
Speaker 1: I don't know if I X would have made it
Speaker 1: because because the router became secondary to our operation as
Speaker 1: as a market and so you don't missed the former
Speaker 1: structure of the router. The benefit and I guess the
Speaker 1: slight change now is the fact that the router trades
Speaker 1: a little bit less on I X because the router
Speaker 1: doesn't know there are certain orders that are displayed and
Speaker 1: their certain orders that are not displayed and then not displayed.
Speaker 1: Non displayed orders aren't being broadcast to the router because
Speaker 1: that would create an unfair advantage, even though that advantage
Speaker 1: exists for certain exchanges. Today hopefully that gets addressed. But
Speaker 1: you know, from our standpoint, so it trades slightly less
Speaker 1: on A X. So I guess that's that's a small change,
Speaker 1: But the customer experience doesn't change. So I think that's
Speaker 1: that for us was most important. So can I ask
Speaker 1: you like the customer experience? So I said, the origin story,
Speaker 1: the story that you tell on stage is this thing
Speaker 1: about the kind of the routing. Um, the customers on
Speaker 1: I X, the people that you talked to who are
Speaker 1: like you know, owners who are the sort of ultimate customers.
Speaker 1: What is important to them? Like is it is it
Speaker 1: kind of this fill rate on routable orders? Like what
Speaker 1: are they kind of what do they think that is
Speaker 1: your vantage versus other exchanges? I think most important to
Speaker 1: them is they feel like we've represent their interests. I
Speaker 1: think they've they've What does that mean? It means that
Speaker 1: the market has evolved in a way where they were
Speaker 1: kind of in a position to be the last to know,
Speaker 1: I mean clients, since clients can't be members of exchanges,
Speaker 1: meaning that a broker is a member. The client has
Speaker 1: to route in order through a broker member to get
Speaker 1: the exchange they're they're kind of, you know, just by
Speaker 1: that relationship on the outside looking in. And as a
Speaker 1: result a lot of these things that evolved over the
Speaker 1: last decade um, we earned a lot of credibility when
Speaker 1: we were at RBC going out there and meeting with
Speaker 1: these customers saying here's what's really happening, here's here's an
Speaker 1: explanation for this experience you're having when you can't buy
Speaker 1: or sell what you see. That level of trust parlays
Speaker 1: into us as an exchange, saying here are the things
Speaker 1: that you should be focused on. Here are the things
Speaker 1: that we think are important. Here the ways that we're different. Um,
Speaker 1: So I think it starts first and foremost with that.
Speaker 1: So for a customer, would you say that they use
Speaker 1: I X for kind of more the the specific structural
Speaker 1: like we have d Paget partically answer this crumbling quote,
Speaker 1: or would you say that it's more a kind of
Speaker 1: general sense of These are the guys who explain stuff
Speaker 1: to us. These are the guys we trust, These are
Speaker 1: the guys who have kind of more transparency on fees
Speaker 1: or whatever. Like is it about you or is it
Speaker 1: about Deepeg? I think I think it depends. Um. You know,
Speaker 1: we work a lot with by side clients who are
Speaker 1: just as sophisticated as we are, who do a huge
Speaker 1: amount of analysis, and they actually teach us a lot
Speaker 1: about the market and so so they are very specifically
Speaker 1: using us for a particular reason. Um. Some others that
Speaker 1: let's say, haven't dove that deep into market structure turned
Speaker 1: around and said, you know what, you did the right
Speaker 1: thing for us at OURBC. You did the right thing
Speaker 1: for us as as an a t S. We trust you,
Speaker 1: we believe you, and and you have a sophisticated following.
Speaker 1: It depends. I don't think everyone's as sophisticated as um,
Speaker 1: you know, as as some of the by side shops,
Speaker 1: nor can they because they don't have the resources. But
Speaker 1: I think in general, um, you know, we have a
Speaker 1: we have a good group of of of supporters. Um.
Speaker 1: Some based on data, some based don trust. But we
Speaker 1: like the fact that we have very sophisticated supporters. I
Speaker 1: gonna tell you a little bit more about kind of
Speaker 1: like the origin story flashblay stuff, just because like you
Speaker 1: are the hero of Michael Lewis book, which is an
Speaker 1: unusual situation for for anyone in finance to find themselves
Speaker 1: on one question that I kind of asked, is Michael
Speaker 1: Lewis for for a generation on Wall Street created this
Speaker 1: um or like popularized this notion that equity traders are dopes,
Speaker 1: right like equities in Dallas became a famous insult after
Speaker 1: a Liars Poker. Um, did you ever talk about that
Speaker 1: with him? I don't think so. No. I knew that
Speaker 1: I had read that. Well. It's funny. When I first
Speaker 1: started the business, the first book I was told to
Speaker 1: read was Liars Poker, and I was I was starting
Speaker 1: on the equities trading desk, and I remember specific equities
Speaker 1: and tells. I was like, wow, okay, well you know
Speaker 1: I saw that as an opportunity. Um, but no, I don't.
Speaker 1: I don't recall us ever talking about that. Was it
Speaker 1: strange too? I mean, he is not just that, but
Speaker 1: like he's kind of created the mindset, He's created the
Speaker 1: way that a lot of Wall Street thing about Wall
Speaker 1: Street for a generation. And you were kind of telling
Speaker 1: him how Wall Street works. Was that like a strange
Speaker 1: experience to be like, no, no, Michael, you have it
Speaker 1: all wrong. Well, the the Moneyball was was a huge
Speaker 1: kind of influential book for me. I mean, starting at
Speaker 1: the role Bank of Canada back in two thousand and two,
Speaker 1: you know, we needed to find ways to to be
Speaker 1: different with you know, without the same resources as the
Speaker 1: biggest banks out there. And so I read Moneyball and
Speaker 1: that I felt like that had a pretty big influence
Speaker 1: on on the way we thought. You know. The discussion
Speaker 1: with Michael started with really helping him write a story
Speaker 1: about somebody else he he um had stumbled on the
Speaker 1: story of Sergey Alannakov, who got who got thrown in
Speaker 1: prison for taking computer code, and I went to a
Speaker 1: couple of people characters in the big short who I know,
Speaker 1: And so really the first the first few months was
Speaker 1: really just giving him background and saying he'd ask a question,
Speaker 1: what is this, and I you know, we tried our
Speaker 1: best to kind of answer it, and that evolved into
Speaker 1: him getting to understand and know our story a little
Speaker 1: bit more so in many ways, it's it's you know,
Speaker 1: we were telling him the same things that we had
Speaker 1: been talking to the by side about for a long time,
Speaker 1: and there was a decision point where we had decide
Speaker 1: whether we were going to talk about us or not.
Speaker 1: Giving him back around and writ a story about somebody
Speaker 1: else is very different than give talking to him about
Speaker 1: you and in your life and your decisions. And at
Speaker 1: the time it's it's there was a bit of a conflict.
Speaker 1: The personal side of me was a little bit more reserved,
Speaker 1: and I had to like really kind of talk it
Speaker 1: through with my wife and say, is this something that
Speaker 1: you know, we really want to do. But as the
Speaker 1: CEO of i X, which was you know, brand new,
Speaker 1: we hadn't launched, it was there's all and and really
Speaker 1: it's a it's a very complicated subject and and he's
Speaker 1: someone that can tell that in a different type of
Speaker 1: way as the CEO of I X. It was a
Speaker 1: no brainer when you sort of first started talking about
Speaker 1: I X specifically, did you think, Wow, this is a
Speaker 1: Michael Lewis story or did you think we just you know,
Speaker 1: we run some were on the stock venue like we
Speaker 1: had been told for a while that this is a
Speaker 1: Michael Lewis story. Did I Did I necessary believe that
Speaker 1: I I could be the main character one? Probably not.
Speaker 1: And it's funny because one of the things he told
Speaker 1: me kind of in the middle of his research, He's like,
Speaker 1: you're fairly bored person. It's kind of it's hard to
Speaker 1: you basically said, it's hard to make you jump off
Speaker 1: the page. So and I suggested that I asked you,
Speaker 1: could you be where you are today without Flashboys? And
Speaker 1: I kind of I wanted to the answer it sounds
Speaker 1: I mean, you seem do you think you're very lucky
Speaker 1: that that had happened. I kind of want to want
Speaker 1: to ask the opposite question, which is like, you know,
Speaker 1: there you were, you had by side clients, you had
Speaker 1: kind of a business going, and I mean, you tell me,
Speaker 1: but it seems like it would have worked without Flash Boys.
Speaker 1: At least in some commercial way. Has kind of going
Speaker 1: so big and so pop culture has that put pressures
Speaker 1: on you that make it harder as it spread you
Speaker 1: too thin or made things too controversial. Like has there
Speaker 1: been a downside of the book? There have been upsides
Speaker 1: and downsides, and but I do think the upsides far
Speaker 1: out way the downsides. You know. The upsides were the
Speaker 1: story had much greater reach than Ronan and I could
Speaker 1: have ever gotten going door to door. Um, So I
Speaker 1: think that on that front that was that was important.
Speaker 1: And it's important not not to be an a T
Speaker 1: S or like a mid sized A T S. You
Speaker 1: didn't need that, but to really kind of be in
Speaker 1: exchange and kind of try to take this to the
Speaker 1: next level. I think I think that was critically important.
Speaker 1: You know. The downside was that it upset a lot
Speaker 1: of people, and and we made the decision early on
Speaker 1: we wanted brokers to be our our members and and
Speaker 1: our customers, which was hard because the by side was
Speaker 1: our was our strongest relationships were sticking the broker in
Speaker 1: between and Flashboys upset a lot of people. So we
Speaker 1: had to try to say, listen, what we're not going
Speaker 1: to back away from what we said, But we do
Speaker 1: think there's a there's a way forward here for us
Speaker 1: all to kind of work together. And you know, it
Speaker 1: worked in some cases. In some cases, I'm sure you
Speaker 1: know some people are still upset. But if I were
Speaker 1: away the pros and cons, I'd say it's it's absolutely helped.
Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, using and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com put knowledge to work. So you're now
Speaker 1: in exchange, you have been for like a month. What
Speaker 1: does it look like for you to win? Like what's
Speaker 1: the end game? And I guess like what I mean
Speaker 1: by that is like there's one model that is like
Speaker 1: there are different types of participants in the market. Some
Speaker 1: of them think that your model favors them, is good
Speaker 1: for them, and so they come to you. Others think
Speaker 1: that bats are nice here and as das model is
Speaker 1: better for them to go to them. There's a there's
Speaker 1: just sort of like a market segmentation. There's room for
Speaker 1: a bunch of different approaches and a bunch of different
Speaker 1: exchanges that kind of cater slightly to different investor types.
Speaker 1: And the other way to think about it is you
Speaker 1: need to kill everyone that you have the right model,
Speaker 1: everyone else has the wrong model. So like what's the
Speaker 1: right way to look at it? And like what what
Speaker 1: success looked like to you? So it it's hard for
Speaker 1: us to try to say a specific market share goal
Speaker 1: is what we want to do because a lot of
Speaker 1: the decisions that we make, I mean, we trade less volume.
Speaker 1: So deep peg is about preventing trades from happening. UM
Speaker 1: the speed bump deterred some type of some types of activities.
Speaker 1: Not paying rebates as an exchange is a huge differentiator,
Speaker 1: and we think it's benefit to I X and it's
Speaker 1: a benefit to to kind of the investors and brokers
Speaker 1: that we're trying to cater to UM. But not paying
Speaker 1: someone for an order to send you an order when
Speaker 1: a bunch of other exchanges are doing that, there's there's
Speaker 1: a disincentive there. I think if you're paying rebates would
Speaker 1: be a lot more of the volume. So we try
Speaker 1: not to set market share targets. UM. We try to
Speaker 1: focus mostly on is the data kind of showing our
Speaker 1: third parties, you know, are the brokers happy with their execution,
Speaker 1: and it's really kind of an education process. You know.
Speaker 1: The rebate is such a huge short term incentive. You
Speaker 1: have to have a very strong sales pitch to get
Speaker 1: someone to change their behavior to come to a market
Speaker 1: that won't pay you to come to come there. So
Speaker 1: I think for us, it's it's a longer sales cycle.
Speaker 1: You know, in many ways, if I were, if I
Speaker 1: were to really drop the hammer and say we have
Speaker 1: to get to X present by this time, people internally
Speaker 1: at I X would probably start making different decisions. And
Speaker 1: I think that that's something that we don't want to do.
Speaker 1: It's we don't have a revenue target, we don't have
Speaker 1: a market share target. We care mostly about the experience
Speaker 1: on on our market. It's interesting because you're you're sort
Speaker 1: of um, you're not choosing one or the other of
Speaker 1: what I said. On the one hand, like it sounds
Speaker 1: like you don't have any near term goal to be
Speaker 1: of the market, right do You are happy to have
Speaker 1: a ecosystem of different competitors, but then there encounter as
Speaker 1: a win when your competitors kind of moved towards your approach.
Speaker 1: You do think that you're doing at least some things
Speaker 1: the right way, and there's only one right way, and
Speaker 1: you're moving the whole market to your way. Well, it
Speaker 1: depends on whose perspective you view the right way. So
Speaker 1: they the exchanges clearly have set their trading models up
Speaker 1: to sell latency and to basically provide certain advantages for
Speaker 1: people that want to pay for them. Caters do a
Speaker 1: certain class of the market, and we're trying to do
Speaker 1: something almost the exact opposite, where we're created universal speed
Speaker 1: bump and there's one way in and one way out.
Speaker 1: Do we think we're serving the most critical player in
Speaker 1: the market. We do, because at the end of the day,
Speaker 1: the stock market was built to serve long term investors
Speaker 1: and help them invest in companies. Um. But does that
Speaker 1: mean that everyone should have to serve that one constituent.
Speaker 1: That's no, because that that's what makes for competitions. Can
Speaker 1: we talk about some of the other speed bumps? Sure?
Speaker 1: The one I think is maybe most maybe the most interesting,
Speaker 1: is the Chicago one, because you know, again I go
Speaker 1: back to the origin story of I X more than
Speaker 1: like the kind of exact present structure, which is this
Speaker 1: notion that you want to get all the volume that's
Speaker 1: listed in the market you send, you find a way
Speaker 1: to send out an order such that you get every
Speaker 1: piece of displayed liquidity. The Chicago speed bump Chicago saks change.
Speaker 1: What they've done is created a speed bump that applies
Speaker 1: only to incoming liquidity taking orders, which means effect that
Speaker 1: market makers on Chicago have a last look. They can
Speaker 1: put up an order, and when a new order comes
Speaker 1: in to take their liquidity, they get a few microseconds
Speaker 1: or whatever to decide whether or not they want to
Speaker 1: pull their order. So it's sort of the opposite of
Speaker 1: the story that is told in flash plays. What do
Speaker 1: you think about that? So, so it's what they're trying
Speaker 1: to do is actually very similar to what Nasdac I
Speaker 1: think proposed a few years ago. Um and I think
Speaker 1: when Nazac proposed it, it was a five millisecond um
Speaker 1: speed bump as opposed to three or fifty, which is
Speaker 1: an eternity of it, right. So, so I think it'll
Speaker 1: be interesting to see how the SEC handles it, because
Speaker 1: it's it's a it's an asymmetrical application of latency, so
Speaker 1: which which means that it slowing down certain parties and
Speaker 1: not others. I think I think we'll create a bit
Speaker 1: of a challenge. I think that one thing that happens
Speaker 1: is that people customers come to exchanges and say, hey,
Speaker 1: this would be a good idea. And I think like
Speaker 1: a year or two ago, you'd read news articles about
Speaker 1: that dialogue and there would be a certain level of
Speaker 1: suspicion because the customers coming to the exchanges would generally
Speaker 1: be high frequency traders, and everyone would say there's a
Speaker 1: new order type on an exchange. That probably means that
Speaker 1: it's a high frequency trader coming to game the exchange
Speaker 1: or to pick off other people. One do you think
Speaker 1: that's true? And too as your as your kind of
Speaker 1: view on that change, as you've run an A T
Speaker 1: S and then an exchange and had customers come to
Speaker 1: you and talk to you about new order types, and yeah,
Speaker 1: I think it's true that customers are trying to get
Speaker 1: markets to do things that would help them. I think
Speaker 1: that's natural. There's a certain level of influence that customers
Speaker 1: are going to have in the bigger the customer, the
Speaker 1: greater the influence. I think that that's perfect. You know
Speaker 1: that that's that It probably exists in most business cultures. Um,
Speaker 1: you know what the exchange does with that information, I
Speaker 1: think is something that's completely different. You know, we of
Speaker 1: the order types or change that we discuss, we don't
Speaker 1: implement um because we'll find edge cases, or we'll find
Speaker 1: things where okay, well that's not gonna work, well that
Speaker 1: that will never get approved, or you know, this has
Speaker 1: some unintended consequence that we didn't think about. So part
Speaker 1: of you know, the reason you know we have such
Speaker 1: a good group is it's very diverse. There's people from
Speaker 1: New York and NAZDAC, from high Speed Traders. We just
Speaker 1: added our chief strategy officers as guy Eric Stockland, who
Speaker 1: came from get Go or k CG. Now, in his perspective,
Speaker 1: he's teaching us things every day. He's got an incredible perspective,
Speaker 1: but you know he's looking at the world through a
Speaker 1: lens that helps us understand, okay, well if we did this,
Speaker 1: then here's here's the result of that. So most of
Speaker 1: the things that we talk about internally never see the
Speaker 1: light of day. And I think because we want to
Speaker 1: ensure that each thing we we roll out has has
Speaker 1: a pretty universal utility UM and and in and in
Speaker 1: many cases, if if anyone is upset with this particular
Speaker 1: order uh, type or change. It's it's kind of a
Speaker 1: very narrow section of of of part participant. It's it's
Speaker 1: really trying to look to change things for for with
Speaker 1: the greatest possible utility. But do I think customers are
Speaker 1: trying to influence outcomes? Of course, I absolutely. I think
Speaker 1: to think otherwise would you have more simpathy for your
Speaker 1: competitors there after, I don't think people set out, having
Speaker 1: talked to people that worked at some of these firms,
Speaker 1: they set out to really end up where they are.
Speaker 1: I think you put one foot in front of the
Speaker 1: other and some and and you know, this kind of
Speaker 1: wake up call comes and you pop up and you
Speaker 1: say where am I? You know what? How how do
Speaker 1: we get here? And I think I don't So I
Speaker 1: don't think it was it was this massive chess match
Speaker 1: where they saw every move coming and played it the
Speaker 1: way it is. I think it was part of it
Speaker 1: was a reaction, you know. I think I think bats
Speaker 1: had a tremendous influence on New York and Nazadac and
Speaker 1: I think that you know, competitively, they started to kind
Speaker 1: of chase different types of revenue streams and um now
Speaker 1: ended up where they ended up, and and so I think,
Speaker 1: do I have sympathy for them? I don't, But but
Speaker 1: do do I think it was it was part of
Speaker 1: this massive plan that's unfolded for the last decade exactly
Speaker 1: how they thought. Probably not how are you going to
Speaker 1: avoid ending up in ten years somewhere very different from
Speaker 1: where you want to be? Like, what's what's your check
Speaker 1: on that? Oh? I think I mean a big check
Speaker 1: on that? Is is really how you know, how I
Speaker 1: X was formed in who we've been supported by, and
Speaker 1: I think our number one asset is the relationships and
Speaker 1: trust we have with the by side. I think if
Speaker 1: we lose that, we lose a lot of credibility and
Speaker 1: it becomes harder to do what we want to do.
Speaker 1: Were driven and motivated in a different way. It took
Speaker 1: us nine and a half months to raise the money
Speaker 1: we needed to um and that was Those were like
Speaker 1: pretty tough moments, but you know, deep kind of in
Speaker 1: our hearts, we knew that we had to be owned
Speaker 1: by the by side to to give us number one.
Speaker 1: We wanted to be neutral. We wanted the by side
Speaker 1: to own us, and we wanted the Cell side to
Speaker 1: be our members, and we wanted to try to align
Speaker 1: them in a way that was unique. You know, I
Speaker 1: do think that our relationship with the by side is
Speaker 1: just something that we're not willing to sacrifice for some money.
Speaker 1: I think it would be a very bad short term
Speaker 1: as day. So I don't get back to something you
Speaker 1: said about the diversity of your team coming from exchanges
Speaker 1: and higher concentrators. Is there do you notice like philosophical
Speaker 1: differences do people say, you know, do you say this
Speaker 1: is wrong? And people say, no, that's we do that
Speaker 1: all the time. That's fine because there there are there
Speaker 1: different perspectives that that surprise you. Yeah, there are certainly
Speaker 1: different perspectives, you know, And and so that's that's been
Speaker 1: kind of what's been great. And I think you know,
Speaker 1: even you know, John Ramsey came from the SEC and
Speaker 1: and so there's all sorts of different perspectives. We tend
Speaker 1: to be very collaborative in terms of like big decisions,
Speaker 1: and yeah, it's and we don't always agree on everything.
Speaker 1: Is there an example of like a fight that like
Speaker 1: you and your kind of guys from like the RBC
Speaker 1: world just philosophically think one thing. And the guys who
Speaker 1: come to you from exchanges are high for concentrators, or
Speaker 1: whatever like no, no, no, you're you have it all wrong.
Speaker 1: You're you're not not like a factial question, but like,
Speaker 1: you know, a sort of philosophy question. What's right question?
Speaker 1: I'll give you one interesting one. So as the as
Speaker 1: the the application process escalated, and you know, we were
Speaker 1: doing our best to answer, you know, and address the
Speaker 1: questions through the comment period and then the exchanges and
Speaker 1: others took it kind of to the media with pretty
Speaker 1: sensational language and started to kind of shape the conversation
Speaker 1: and you know, the un American and these types of
Speaker 1: things came out, and so we we felt like we
Speaker 1: needed to respond in an equally strong way and and
Speaker 1: I think that created a bit of of uh, you
Speaker 1: know internally to say, why don't we just keep going
Speaker 1: the process that we're going, you know, we'll win on
Speaker 1: merit and other people are like, no, no, we have
Speaker 1: to amp this up because we're we're losing. We're we're
Speaker 1: playing one game and they're playing another game. And I
Speaker 1: think so things like that that would say that like
Speaker 1: you started that game with flash, well yeah, so so yes,
Speaker 1: I guess if you wanted to roll, if you wanted
Speaker 1: to roll and talk about um. But but again we
Speaker 1: so we have debates internally a lot. You know, I
Speaker 1: had written like six op eds over that application process.
Speaker 1: None of them ever got published. I've I've written one,
Speaker 1: one's got I've written many, but one has gotten I've
Speaker 1: got one through my team and and and you know,
Speaker 1: I'm thankful to the team. You know, I was, I
Speaker 1: was trained as a trader. Something happens and I and
Speaker 1: I react, and I'm I'm learning to be patient, and
Speaker 1: I'm thankful for to to the team for not you know,
Speaker 1: because once you get in this this habit of responding
Speaker 1: to everything, you almost have to keep that up. Whereas
Speaker 1: if you if you're smarter and more strategic about how
Speaker 1: you respond and how you engage, it actually lets us
Speaker 1: focus on the most important thing, which is running the company.
Speaker 1: So so yeah, so there are you know the best
Speaker 1: part about I X as were aligned at the at
Speaker 1: the highest levels, and that helps us sort out, you know,
Speaker 1: any disagreements we have at at you know, any levels
Speaker 1: lower than that. But in general, it's been you know,
Speaker 1: I've learned, I've learned more from the people inside the
Speaker 1: walls at I X and I have kind of ever,
Speaker 1: I've learned more since you know we started, I X,
Speaker 1: I've learned more about marcut structure and then I think
Speaker 1: I did before, mostly because I'm getting all these different
Speaker 1: perspectives your stock exchange. You're also like a famous guy.
Speaker 1: You're like Michael Lewis here, you're sort of a voice
Speaker 1: on some issues around like the fairness of Wall Street
Speaker 1: and like these big questions. My first questions like what's
Speaker 1: the next from a business perspective, and you tell me.
Speaker 1: But one obvious thing is listings, like what's coming on there.
Speaker 1: So one of the benefits of Flashboys was that it
Speaker 1: got the market structure story to public and trading companies
Speaker 1: who had no idea that their stock wasn't trading of
Speaker 1: its volume on New York um or wasn't trading you know,
Speaker 1: or or that you know that there other other markets
Speaker 1: could even trade their stock. And I think that um so,
Speaker 1: that was a big benefit to us. And so we
Speaker 1: got a lot of inbound interest about saying, you know,
Speaker 1: there's really been no choice for us, and this seems
Speaker 1: like something different, and our shareholders are talking about it
Speaker 1: and and can we learn more? So so listening is
Speaker 1: something that we're definitely interesting it in. But um it's
Speaker 1: we're still in the process of kind of working through,
Speaker 1: you know, how how how can we be different? So
Speaker 1: that's a business yet to be formed, but one that
Speaker 1: has some interest. You know, We've looked at other asset classes,
Speaker 1: We've talked about other geographies and and the number one
Speaker 1: thing for us is to not get distracted. We still
Speaker 1: feel like there's so much work to do in US
Speaker 1: equities that, um, I think spreading ourselves too thin would
Speaker 1: be a mistake right now. So although although we do
Speaker 1: get a lot of inbound interest from varying parties and
Speaker 1: traders and customers and other and other assets and regions,
Speaker 1: you know, we're universally, we're seventy four people, and so
Speaker 1: we're universally focused on on US equities. But I do
Speaker 1: think that if we start to gain traction looking elsewhere,
Speaker 1: you know, we always have our ears and eyes open um.
Speaker 1: So I guess we'll we'll kind of see down the line.
Speaker 1: But yeah, the focus is definitely US equities. There's a
Speaker 1: discussion about you are helping long term investors kind of
Speaker 1: invest in a in a very specific market micros actually
Speaker 1: a way there's another big discussion and kind of US
Speaker 1: equity markets around people saying shareholders have two short term
Speaker 1: or perspective, or companies have two short term or perspective. Um,
Speaker 1: it seems to me that there's like at least the
Speaker 1: sort of like verbal overlap there right where where companies
Speaker 1: come to you and they say you're the long you're
Speaker 1: the stock exchange for long term investors. We want long
Speaker 1: term investors. We want people who don't care so much
Speaker 1: about quarterly numbers. Do you think about that overlapping in
Speaker 1: terms of like listing standards, in terms of anything, or
Speaker 1: is that just kind of like further afield from your
Speaker 1: subject expertise. I think I mean it is a bit
Speaker 1: further afield for us. I mean we so like the
Speaker 1: long term stock exchange. That idea, it's an interesting idea,
Speaker 1: and and I like Eric and what they're doing. It's
Speaker 1: always it seems like a natural fit for you again
Speaker 1: in like a sort of verbal sense. Yeah, and so
Speaker 1: philosophically were aligned. Um, but yeah, to dramatically change the
Speaker 1: listing standards that is, I think you kind of summarize it.
Speaker 1: Will It's not it's not our core expertise is to
Speaker 1: you know, arm up with lawyers and try to change,
Speaker 1: you know, Dorothy and cross the teas a different way.
Speaker 1: So I think what they're trying to do is is
Speaker 1: extremely interesting to us. We do see it as as
Speaker 1: a problem, but not one that I X necessarily solving
Speaker 1: those types of like regulatory rule based, um, you know standards.
Speaker 1: I don't think that it's high on our on our list,
Speaker 1: although I think there are equal merits to what they're
Speaker 1: trying to accomplish because it is you know, short termism.
Speaker 1: Is is definitely a you know, a problem in the market,
Speaker 1: and I think them setting out to try to solve that,
Speaker 1: you know, we we give them a lot of credit
Speaker 1: and I think we have a good relationship with them, so, um,
Speaker 1: it's good. We were encouraged by the fact that people
Speaker 1: are trying to take on different parts of where they
Speaker 1: think the market can improve. So maybe sort of like
Speaker 1: thinking about it, probably like it seems like you have
Speaker 1: like one big idea and you're kind of working with
Speaker 1: full focus to like implement and sell that one big idea,
Speaker 1: and you're not kind of looking to kind of branch
Speaker 1: out into other big ideas at this point. Not not yet, yeah,
Speaker 1: not yet, we we we it keeps in second or
Speaker 1: third inning, and I really think that's like the case,
Speaker 1: there's so much work to be done that and and
Speaker 1: and we're relatively small to try to to try to
Speaker 1: spread out um spread ourselves really thin. I mean, so
Speaker 1: you know, Ronan In, Rob Park and John Shwal and
Speaker 1: Sophia we all have core expertise. We're all super focused
Speaker 1: on the business, and to start to like spread that
Speaker 1: expertise around, I think it becomes really really tough. So
Speaker 1: we we we've built a team to kind of take
Speaker 1: this challenge on. And I think as if the business
Speaker 1: starts to mature and we start to kind of settle
Speaker 1: on a path, you know, could we invest and look
Speaker 1: look at other areas. Absolutely, But it's you know, as
Speaker 1: you as you say, we're seven days in, Uh, we
Speaker 1: got a lot of work to do. Were talking a
Speaker 1: little about the SEC process, sure, like what kind of
Speaker 1: surprised you about that? So I think the most surprised
Speaker 1: I was was how vocal the exchanges were against us,
Speaker 1: and and kind of how how the level got turned up.
Speaker 1: You know, I think the by side came out of
Speaker 1: the gates with supportive comment letters, and I think that
Speaker 1: forced this process from kind of happening behind the scenes
Speaker 1: to happening in the public comment process. I mean Bat's
Speaker 1: I think Bat's bats and directed for the last four
Speaker 1: exchange approvals. And I could be wrong in this, but
Speaker 1: I think they had three comment letters between the four exchanges,
Speaker 1: so there was never really any you know, debate, public
Speaker 1: debate about about those. And I think people would say
Speaker 1: those were structurally pretty similar. Yeah, they were all they
Speaker 1: were all. They're all fairly similar. I think that if if, certainly,
Speaker 1: if if we had known what we know now at
Speaker 1: the time those proposals, we might have had a few
Speaker 1: things to say about it. It It was hard, it's it's
Speaker 1: hard to say what they look like at the time
Speaker 1: they got to prove. But I think that, um, the
Speaker 1: by side coming out and supporting NYA X forced kind
Speaker 1: of our opposition to become public. And I thought I
Speaker 1: was a bit surprised with with the exchanges. Um you know,
Speaker 1: it was tough. Was that there were so many letters,
Speaker 1: there were so many comments in general, rated so much
Speaker 1: interest that that the SEC had to sort through all
Speaker 1: of that to make the best decision they could make.
Speaker 1: And so I think that the timing of it, you know,
Speaker 1: I kind of in a way understood why I had
Speaker 1: to take so long, because there were so many comments,
Speaker 1: but you know, we're just thankful that we got through
Speaker 1: it and got approved. In terms of the SEC, it's
Speaker 1: off where there are things that you're kind of like
Speaker 1: disappointed by or like surprised to the upside in terms
Speaker 1: of how they dealt with the application and how they
Speaker 1: dealt with a lot of like sort of incommensurable pressure
Speaker 1: on both sides. Right and me, you have like all
Speaker 1: these like op eds saying i X or the exchange
Speaker 1: of the people, and then you have all these exchanges
Speaker 1: saying i X well ruined market structure. Yeah, it's it
Speaker 1: seems to me it would be difficult for the SEC
Speaker 1: to deal with that. Like what was your kind of
Speaker 1: impression of how they dealt with it? Yeah, they So
Speaker 1: the people that were directly on I X is kind
Speaker 1: of application were extremely thorough and and and you know,
Speaker 1: ask a million questions and we we did our best
Speaker 1: to work with them, and it was a you know,
Speaker 1: it was a fairly rigorous and thorough process. So kind
Speaker 1: of gives me. It's like one of those things where
Speaker 1: you know, some people are are upset when they get
Speaker 1: padded down at security lines at airports, and I don't mind,
Speaker 1: I don't mind, because I'm like, at least they're you know,
Speaker 1: they're they're in there, you know, kind of you know,
Speaker 1: trying to trying to vet things out. So it was
Speaker 1: it was I think you know, they did a thorough job.
Speaker 1: I think that you know, the pressures in your right
Speaker 1: it was coming from both sides. I think that that
Speaker 1: showed what was at stake, and I think that that
Speaker 1: caused probably even more deliberations internally to make sure that
Speaker 1: they were making the right decision for the right reasons. So,
Speaker 1: you know, at the end of the day, I think
Speaker 1: it's it's you know, we're we are. We're just thankful
Speaker 1: that that that process is kind of behind us and
Speaker 1: we got the approval and now we just have a
Speaker 1: chance to compete. Like what's your what what would you
Speaker 1: tell someone who works on the All Street has like
Speaker 1: they're a big idea and like once the change the
Speaker 1: world with like one thing that hasn't been tied about,
Speaker 1: Like what's like, what's your advice for the next year.
Speaker 1: I think it was it was it was a very
Speaker 1: hard decision to leave RBC, and because there's a certain
Speaker 1: level of comfort of of working at a large firm
Speaker 1: and of being as a part of the system. And
Speaker 1: I think, um, I do think society in general is
Speaker 1: shifting to a more transparent society, and I think that
Speaker 1: what that does it casts a brighter light on on
Speaker 1: how people make money. We don't have any issue with
Speaker 1: how with people making money. I think that's just part
Speaker 1: of capitalism and and you know, we're capitalists at heartwork
Speaker 1: for profidility. But I think how people make money is
Speaker 1: going to be a greater focus going forward. And I
Speaker 1: do think so if people are are are thinking about
Speaker 1: doing something different with their life, just think about the
Speaker 1: incentives that you know that that that are there for
Speaker 1: you to do what you do. And if you don't
Speaker 1: believe in that incentive structure, then finding it a different
Speaker 1: thing to do with your life isn't as risky now
Speaker 1: as it as it was in the past. I don't believe. So.
Speaker 1: I think the world's more receptive to people trying to
Speaker 1: trying to do things differently. That was, like I said,
Speaker 1: a special edition of Odd Lots because we weren't in it,
Speaker 1: but it was great. Nonetheless, there's been another edition of
Speaker 1: the Odd Lots podcast. I'm Joe Wisenthal. You can follow
Speaker 1: me on Twitter at the Stalwart and I'm Tracy Alloway.
Speaker 1: I'm on Twitter at Tracy Alloway. Thanks for listening. Put
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