So there's an entire industry and industry in which I guess I grew up in
Wasn't making every facet of the trading cycle faster and faster and faster
But the ironic thing is I I've never traded a day in my life
It's a kind of funny story
But I actually met Brad and worked for Brad at RBC before we formed IX
I had worked in the telecom sector for years
Had originally wanted to work on Wall Street. It's in the book, but I could not get a job on Wall Street
So I took a job and I learned technology on the telecom side and then it was around 2004
trading and technology started banging into each other and by that
I mean people started to care how fast they traded and I happened to be in the right place at the right time
You make your look but you got to be lucky
I was at a company called
Radiance and I got a call one day from a black box trader and not knowing what the hell a black box trader was
And had said look, you know infrastructure if I move my strategy from Kansas to New Jersey
Can you co-locate me meaning put me in a data center near the exchanges and I'm like eh
Of course
we can do that and
It was kind of funny story and that he was complaining over the phone how it takes him 43
Milliseconds to send a trade from Kansas and to receive acknowledgement of the trade and I had no idea. What a millisecond was
But I I told the guy I'm like, yeah, that sounds terrible
And when we moved them we lowered it to 3.9 milliseconds which sounds fisher-price slow now like 15 years later
But at a time this guy was thrilled he was so happy with the move
He was introduced to me by a prime broker at a Bose bracket and I went back to the prime broker at the post Brackett
said
do you have any more of these black box traders and I guess black box traders became high-frequency traders and I started building out a
lot of environments for all these guys to move to New Jersey
Connect to the exchanges then the exchanges themselves got into the business of selling space and selling, you know
Technology and even selling circuits to connect their own clients to their competitors, which is bananas
but that's where it morphed to and I wanted to move to the business side and
was meeting with a lot of brokers and then one day a broker called me and said
Would you talk to the Royal Bank of Canada and went in there?
I met what about 17 people which is how brokers interview apparently and just started working a few weeks later and
We were working on the trading floor. I was working with Brad when we came up with the Thor smart order router
It was like famous for arriving at all venues near-simultaneous
To get the best fill rate that took off
RBC did remarkably well
But then a lot of clients said to us we can only use your technology
when we trade with RBC
If you think of something bigger will support you and that really was it so we kind of looked at it and said well
The center of the ecosystem are the stock exchanges
so why don't we launch a stock exchange is not says that sounds none of us had ever even worked at a stock exchange and
Then we set out to build one and there was Brad myself John told our CEO
Oh and Rob Park our CTO were the four first people who came up with this idea
one thing I want to talk about in this interview is
mortgage structure which is an overarching
If you want to go David Foster Wallace, it's the water that's around us
Yeah in investing that no one really pays attention to and I think it's such an important piece of the investment
component that
Most portfolio managers don't understand market structure and liquidity and it's a huge gap in knowledge. So
Can you take us back in time to like the 90s and start maybe there when?
You know regulations started coming in and the market got fragmented and gave us a history there
Yeah, happy to and and before I do that I will say this it was
Remarkable to me when the book first came out on flash boys in 2014
The buy-side traders had become, you know, well enough versed in market structure
But because the book shone a light on
equity market structure
a lot of the portfolio managers asked us to come in and present to them and it was only then that
I think they realized that the work of the trader itself. The buy-side trader was far more detective work than they had imagined
I think people had thought with the electronification
Of everything and you just plunk it in an algo set it and forget it and everything's fine
And I think it was then that those PM's that showed an interest in it really respected
How many venues exists and how their traders source liquidity?
So I mean I guess it would go back to like the 90s
The first thing was like 80s 80s was alternative trading system. It just allowed more competitions
So you have today you've stock exchanges and you have 80s is another word for 80s
--is that most people know them ads are called dark pools, but an 80s is basically a baby exchange
It's a less regulated exchange and really up until the 90s
You had the Nasdaq and the New York Stock Exchange and you had the regional stock exchanges
but they had very little volume and then late 90s you started with like the advent of like
Archipelago and inet and those were 100% electronic exchanges
no humans and vote as was Nasdaq in fairness, which was already a few decades old but
the electronification and the fragmentation of the market, you know, let itself the competition and then in the early
2000s there was decimalisation where you could trade in Penny white increments and that fright, you know
And then also what you did see a lot of his exchanges started to buy the incumbent exchanges started to buy these smaller guys
Why because they had better technology. So Nasdaq now runs on old Island inet technology
New York Stock Exchange bought archipelago didn't really adopt to the new technology
I think they've been rolling out their new pillar platform for the last few years
But in essence they bought those platforms
Because they didn't want to compete with them anymore and they wanted to avail of their technology but with all of that
I mean, I think there was a great book called dark pools was written by Scott Patterson
And it's all about market structure and the chronology. I'm not sure if you've read it, and I haven't read it
You should read it
Yeah, because they do a much better job of answering this question
but it does the entire chronology of the creation of I met and
ARCA and just even the messaging like everything now is all trading is done in like
Fixed protocol just the invention of fixed protocol
the dissemination of market data, but it lends itself to
colocation meaning
Colocation came about in the early 2000s where the biggest proponent of latency of delay a fancy way. They say propagation delay
It just means the further away from the signal you are the longer
It takes you to get the signal you're in, California
Versus New Jersey or New York versus New Jersey which is kind of funny because you have tons of exchanges like Chicago Boston
New York, Philadelphia
I
exchanged are in New Jersey and all of them are in four buildings in New Jersey and that's morphed because
People want to be in the same building as the exchange
So from back when I was telling you before three point nine milliseconds mattered back in 2004 2005
Now if you co-locate meaning you put your strategy in the same building as the exchange so you're as close as possible
To the exchange that latency is measured in
Nanoseconds which are billions of a second
which is kind of again comedic because
When people first move to the building they want at the cable to connect to the matching engine of the exchange now
It's gotten to the point where people are complaining that
Client a is cable is shorter than me so they can get to the matching engine quicker than me
Which again it's eleven point nine inches, I think technically but roughly a foot of cable equates to one nanosecond
So what New York Stock Exchange got a lot of credit for is
They measured the furthest cabinet away from their matching engine and gave everybody the same length of cable
which people found interesting but the one a lot of people haven't heard of I thought was really interesting is then the people
Closest to the matching engine started to ask the New York Stock Exchange to move them further away
Because a straighter cable had less light refraction and was must have been
Trillions of a second faster, but I'm so got that reading
Yes, so it's gotten that ridiculous and it continues to get more and more
so so every little increment of speed like if you run a strategy that sole determinant of success is based on speed if
You fire
in response to a signal at the exact same time as someone else and
You get into the matching engine a billionth of a second before them?
Well in their second year first hour vice versa you come in second and their first
That that equals success so many strategies not all strategies, but many are predicated on being the fastest of the fastest
So there's an entire industry and industry in which I guess I grew up in
was in making every facet of the trading cycle faster and faster and faster it the ironic thing is I
I've never traded a day in my life
I've never treated a day in my life, but I spend a lot of time talking with traders
Telling them how they should navigate a market. I'm not suggesting
We tell them how to train or the funniest part is you're probably the most qualified trader
Knowing all the technology. It's use a just use a watered-down Irish accent and a few f-bombs. Yeah. All right from here, which I'm dropping
I'm allowed on camera. Yeah
You