Speaker 1: Welcome to Odd Lots. I'm Tracy Alloway, Executive editor of
Speaker 1: Bloomberg Markets, and I'm sorry. I think I'm sorry. Maybe
Speaker 1: I'm happy. I'm happy to tell you that Joe isn't
Speaker 1: here with me today because he's having his first baby
Speaker 1: and he's on paternity leave. So we wish him the
Speaker 1: best of luck with that, and we look forward to
Speaker 1: many Odd Lots podcasts about the market for baby milk,
Speaker 1: formula or diapers. I don't know, it's probably not markets
Speaker 1: in those uh. In the meantime, though, I am joined
Speaker 1: by a new co host today. It's Pim Fox. He
Speaker 1: has his own radio show on Bloomberg Radio called Taking Stock.
Speaker 1: Say Hi Pim, Hello, Hi Tracy, Thanks so much for
Speaker 1: being here today. You are actually the perfect co host
Speaker 1: for the subject matter because we are going to be
Speaker 1: talking about big, big changes in the stock market. Right. See.
Speaker 1: I thought you were going to tell me I was
Speaker 1: perfect because I was old. Because we know we talk
Speaker 1: about stock markets. Of course, stock markets used to work
Speaker 1: a lot differently, even just ten fifteen years ago, never
Speaker 1: mind fifty years ago. And you have to remember that.
Speaker 1: You know, it's an institution, so a lot of people
Speaker 1: have that institutional memory. That's right, him, I was trying
Speaker 1: to avoid calling you old you. You went ahead and
Speaker 1: went there. We're going to be talking about a specific
Speaker 1: type of trading today. We were talking about floor trading.
Speaker 1: We've seen this big debate about computerized high frequency trading,
Speaker 1: the changing nature of the stock market. Him. I know
Speaker 1: you've been talking about this a lot. Yeah, well, of
Speaker 1: course it's a very popular topic, you know, h FT,
Speaker 1: high frequency trading, whether they add liquidity, whether they're really
Speaker 1: in it. But you know, one of the things I
Speaker 1: think is useful just to keep in mind is kind
Speaker 1: of what purpose, what role does a floor trader or
Speaker 1: just let's say trader actually play. They are in the
Speaker 1: middle of a transaction, and we know that they've been
Speaker 1: sort of oh they're the bookieyman. You know, they're the
Speaker 1: terrible things in the world. Middleman, let's get rid of
Speaker 1: them and cost less we get but middlemen. I believe
Speaker 1: they serve a purpose and they have historically served the purpose.
Speaker 1: And to what We're gonna learn a lot about it today. Yeah,
Speaker 1: And on that note, we are going to roll a
Speaker 1: little clip for our listeners right now and they can
Speaker 1: learn more about what a floor trader actually does. Starting
Speaker 1: with a quick rundown on the men who transact your
Speaker 1: everyday business on the floor. These member floor brokers, for instance,
Speaker 1: who are usually partners in the member firms trading for
Speaker 1: you at the post where the stock you want to
Speaker 1: buy or sell is a sign. The specialist whom you
Speaker 1: can pick out because he frequently refers to this book,
Speaker 1: and the broker's clerk whose telephone links the floor through
Speaker 1: the order room to the man you know best, your
Speaker 1: own broker, because you and he are both professionals. Your
Speaker 1: member broker can help you make the best use of
Speaker 1: the market in carrying out your investment decisions. Suppose you
Speaker 1: had an order of moderate size. It could be handled
Speaker 1: all at once or in a flow in, flow out,
Speaker 1: a series of transaction. Him, what do you think of that?
Speaker 1: I think I don't know whether it accurately captured the energy.
Speaker 1: But well, you know, being on on a floor, you
Speaker 1: gotta understand it's crowded. There are a lot of people,
Speaker 1: there's a lot of noise, or at least they used
Speaker 1: to be. I mean, the floor of the n y
Speaker 1: SC has gotten small and small and smaller. You know,
Speaker 1: they've got an options pit. But even on Chicago. They've
Speaker 1: gotten away from a lot of the traditional images of
Speaker 1: people shouting back and forth. Yeah, this is the open
Speaker 1: outcry system where people use sort of all this industry
Speaker 1: jargon and very animated sort of trading, which is really
Speaker 1: dying out now. It's kind of sad. It's for the
Speaker 1: history books, you know, or for movies. All right, Well,
Speaker 1: here with us today to talk about the history of
Speaker 1: floor trading as well as its future. We have Keith
Speaker 1: Bliss from Catone and Co. Inc. He is an actual
Speaker 1: for a trader and he joins us today in studio.
Speaker 1: Thank you, Tracy could to be with you. So maybe
Speaker 1: just to begin, we've touched on it a little, but
Speaker 1: could you give us an idea of what a floor
Speaker 1: trader actually does? Well? Sure, I think it's worthwhile to
Speaker 1: explain that there's actually a few different quote unquote floor
Speaker 1: traders down on the floor of the New York Stock Exchange.
Speaker 1: For example, you have the designated market maker, and their
Speaker 1: sole purpose is to manage the inventory and keep a
Speaker 1: continuous flow of trading going. So they must there it's
Speaker 1: a it's a defined term where they must have orderly markets,
Speaker 1: continuous orderly markets. And when you said inventory. You mean
Speaker 1: inventory of stock, inventory of stock. That's correct. So remember
Speaker 1: stock prices are really geared towards You can have analysts
Speaker 1: that say that they think a stock needs to be
Speaker 1: priced at this level based upon the dynamics of the company,
Speaker 1: but really the price of stock, tick by tick, second
Speaker 1: by second minute by men, is really determined by supplying demand,
Speaker 1: and so you need an inventory manager like that, just
Speaker 1: like any other product. So think about flea market or
Speaker 1: farmers market. The second group that that you see down
Speaker 1: on the floor, which is what I am, is an
Speaker 1: actual floor broke. So to define the terms, you have
Speaker 1: designated market maker. So there they are, they are exactly
Speaker 1: what they're called. And then you have the floor broker.
Speaker 1: The floor broker's main role is to represent a client
Speaker 1: order into what's known as the trading crowd, to execute
Speaker 1: that order either buy or sell orders, and then report
Speaker 1: back to them what that executed price is. So those
Speaker 1: are really the two main groups that you see down
Speaker 1: on the floor. Another third group, because of changes that
Speaker 1: have occurred over the years on the floor, are sales traders.
Speaker 1: There's now an institutional sales trading community that you see
Speaker 1: down on the floor, and if you look at old
Speaker 1: pictures from the sixties and seventies, you would see these
Speaker 1: really decrepit broker booths, you know, like they've been built
Speaker 1: back in the middle of the eighteen hundreds, even though
Speaker 1: the building was only built in nineteen o three. And
Speaker 1: today we have much have very modern broker booth spaces
Speaker 1: where my firm was one of the first to inhabit,
Speaker 1: where we actually have seats and we get sit down
Speaker 1: and we can do other other things inside of our
Speaker 1: business floor. And they're the people that really interact with
Speaker 1: the institutional community, whether it's large mutual funds, pension funds
Speaker 1: and downs hedge funds and the like, who received the
Speaker 1: orders to be executed inside of that market. How did
Speaker 1: you actually get into the business. Came of age in
Speaker 1: the middle of eighties, and of course Wall Street was
Speaker 1: going and blowing and going to school at a at
Speaker 1: a college that is halfway between New York and Philadelphia.
Speaker 1: You had to go into financial solve all of us.
Speaker 1: All of us decided we were going to go be
Speaker 1: the new masters of the universe in the eighties and nineties.
Speaker 1: But I found my way into City Bank, into the
Speaker 1: commercial lending, went through their commercial credit training program, and
Speaker 1: was was a bank or was a lender? Did that
Speaker 1: for a while and then eventually ended up selling order
Speaker 1: management software to buy side firms, which was my first
Speaker 1: taste of what true Wall Street trading was all about.
Speaker 1: From there, the technology inside of the industry connecting the
Speaker 1: buy side to the cell side for order order flow
Speaker 1: coming into the cell side and then executions going back
Speaker 1: out was really burgeoning, where both sides of that transaction,
Speaker 1: We're trying to figure out how to do this in
Speaker 1: an electronic uh fashion, so that you could eliminate errors,
Speaker 1: you could be quicker to market, you could be quicker
Speaker 1: to your transaction. So I was hired into a firm
Speaker 1: to actually run their institutional electronic trading because I had
Speaker 1: lots of relationships on the buy side and also knew
Speaker 1: what technology they were doing on the desk. So that
Speaker 1: was that was a great That was a great job.
Speaker 1: That was in thousand, when you know the market was
Speaker 1: just ripping with fourteen and fifteen I p o s
Speaker 1: a day. I worked for a very large NASTAC market
Speaker 1: maker at that time. Eventually I left there with a
Speaker 1: group and started a UM started an institutional desk at
Speaker 1: you all maybe remember the old La Branching company. That
Speaker 1: was where how I ended up on the floor. So
Speaker 1: what was it actually like on the floor at that time,
Speaker 1: because things were already changing a little bit, right they were,
Speaker 1: it was still when I got to La Branch in
Speaker 1: two thousand to the New York's Doctor Exchange was still
Speaker 1: like private, mutually owned type of institution where you still
Speaker 1: had seats. So there are one thousand, three hundred and
Speaker 1: sixty six seats. You had a bias seat. You had
Speaker 1: to actually have a seat in order to be allowed
Speaker 1: to trade. That's correct and interesting to note. Like everything
Speaker 1: inside of a trader's world, those seats traded like shares
Speaker 1: of stock, and you could walk onto the floor and
Speaker 1: actually see a bit and offer board for the seats
Speaker 1: like a taxi medallion. Yeah, essentially the same thing. So
Speaker 1: it and and phim is in as you know and tracy,
Speaker 1: as you know, in a trader's world, if you can
Speaker 1: trade it, we will trade it um. So that's kind
Speaker 1: of that's kind of what we did. So at the height,
Speaker 1: I think it was around two thousand two. At the height,
Speaker 1: seats were actually trading for three million dollars a seat.
Speaker 1: So when a gentleman named John Thing came over from
Speaker 1: Goldman Sachs to become once Dick Grassa's compensation story came out.
Speaker 1: Anybody can google that and see what I'm talking about there.
Speaker 1: They replaced him with John Thane, and John Thing was
Speaker 1: one of the big opponents against the New York Stock
Speaker 1: Exchanged at that time, so really interesting hire to bring
Speaker 1: him in. I think the thinking was that he could
Speaker 1: start to blend the two sides of the business because
Speaker 1: the New York was still very much an open outcry
Speaker 1: auction market with human based trading had about market share
Speaker 1: at that point in time. At any event, Um brought
Speaker 1: him in and he was always the membership looked at
Speaker 1: him with a John to die as soon as he
Speaker 1: walked on the floor, because they always knew that that
Speaker 1: his intent, his goal, and his ambition was basically to
Speaker 1: turn the New York Stock Exchange into an electronic communication
Speaker 1: network and a utility, basically get rid of them. Yeah,
Speaker 1: that's correct. And and John Thane or orchestrated actually a
Speaker 1: reverse merger um, which is where a private company takes
Speaker 1: over a public company but then becomes a public company.
Speaker 1: And he did that with Archipelago, and that's how the
Speaker 1: New York became a public entity with shares of stock
Speaker 1: that were traded, and at that point there were no
Speaker 1: more private seat holders. All the seat holders were taken
Speaker 1: out with shares of stock. I think each seat was
Speaker 1: given somewhere in the neighborhood of eighties seven thousand shares
Speaker 1: of stock per seit and and from that point forward,
Speaker 1: then there was also a big move by the c ND,
Speaker 1: by the A T S which stands for which is
Speaker 1: alternative trading systems dark pools. You'll hear that term thrown
Speaker 1: around to actually change the market structure, to make the
Speaker 1: playing field more level, and actually to um get rid
Speaker 1: of some of the market sure that the New York owned.
Speaker 1: So that's where the market structure changes, basically take a
Speaker 1: bite out of their business. Well, that's right. So that's
Speaker 1: when the real changes on the floor started to happen.
Speaker 1: In automation had to take over because they were making
Speaker 1: less and less money. So I think a lot of
Speaker 1: our listeners probably have a characterization of floor traders and
Speaker 1: the sort of open outcry pits as these really macho,
Speaker 1: gung ho places. Is it actually like that or was
Speaker 1: there's a lot of testosterone on the floor. Yes, that
Speaker 1: that is accurate. There's over the course of history and
Speaker 1: even today, there are very few females, although there are,
Speaker 1: there are the brave few that will that will stand
Speaker 1: in there and I and it, and you're right, it's
Speaker 1: not it's not elbow to elbow, shoulder to shoulder, fist
Speaker 1: to fist at times open outcry auction trading that still
Speaker 1: occurs sometimes, particularly in in periods of market distress, where
Speaker 1: you do need to hold an auction to actually discover
Speaker 1: the price, the right price for a buyer and seller
Speaker 1: to come together. Um, yes, everybody has a perception that
Speaker 1: also the perception is a lot of paper flying around
Speaker 1: and there's garbage everywhere. I will say, there there is
Speaker 1: some garbage around, but now it's pretty docile place at
Speaker 1: this point in time. And and and if you had
Speaker 1: the opportunity like I did to walk on the floor
Speaker 1: in the in the late eighties and throughout the nineties,
Speaker 1: I was always struck by the number of people were there.
Speaker 1: And and at the height there were five thousand people
Speaker 1: working in the five trading floors and two thousand hard
Speaker 1: to image for those who have been there, and you
Speaker 1: actually see how small the space is. But it was
Speaker 1: controlled chaos. Everybody knew their role, the runners, the trade reporters,
Speaker 1: the brokers, the specialists, the clerks in the booth, they
Speaker 1: all had their role. They it was all very to
Speaker 1: find um and anybody from the outside walking on there,
Speaker 1: I thought it was just mayhem. Is there a sort
Speaker 1: of crazy anecdote that's shareable for our listeners? Consider this
Speaker 1: prime time? Sure, it's it's certainly family friendly and I
Speaker 1: think everybody will will get amused by it. But um,
Speaker 1: one of the stories that I always tell when I
Speaker 1: bring visitors down to the floor of the exchange, I
Speaker 1: was not there, but you hear the old timers talk
Speaker 1: about it. It's quite humor. So like any community of
Speaker 1: a bunch of men walking around, be at a fraternity
Speaker 1: house and Elks lodge trading floor, there's lots of practical
Speaker 1: jokes that take place. Um. And one of one of
Speaker 1: the best stories that they talked about, one of the
Speaker 1: most favorite days of brokers and traders from that era,
Speaker 1: was the day that Ronald Reagan came down and visited
Speaker 1: the floor. And if you knew anything about Ronald Reagan,
Speaker 1: whenever he stepped out in public and probably in private too,
Speaker 1: he was always spitshined, creased, never a hair out of place.
Speaker 1: You know, he all he under diod the effect of
Speaker 1: being a dignified president, and he wanted to show that
Speaker 1: all the time. So sure enough, when he came down
Speaker 1: to the floor, his his navy blue suit was perfect.
Speaker 1: His shoes were polished like mirrors. But one of the
Speaker 1: tricks that they one of the practical jokes on the
Speaker 1: floor that they do, is they powder somebody's shoes. So
Speaker 1: if somebody goes out and gets yeah, if somebody goes
Speaker 1: out and gets the shoe shine somebody, that will distract
Speaker 1: the person. They'll sneak up behind him and they'll throw
Speaker 1: baby powder on their shoes. Well, if you've ever tried
Speaker 1: to clean baby patter off of freshly shined shoes, you
Speaker 1: know that's a disaster. You have to go get them reshined.
Speaker 1: So Ronald Reagan's coming to the floor, A bunch of
Speaker 1: the brokers get together and say we're going to powder
Speaker 1: reagan shoes. Oh my god. Well, Dick Grasso had caught
Speaker 1: wind of this little scheme and decided that he was
Speaker 1: going to intervene and tell them, no, no, no, you're
Speaker 1: not You're not powdering the shoes. Of the most powerful
Speaker 1: man in the world and the floor brokers, who you know,
Speaker 1: had a love hate relationship with Dick Rasso. He would
Speaker 1: watch out for them, but they really didn't like him
Speaker 1: coming down with his heavy hand and telling them what
Speaker 1: not to do. Decided that they were going to go
Speaker 1: around them. So they actually went to the Secret Service
Speaker 1: agents that were Reagan and they planned this in the
Speaker 1: Secret Service. You would have to have them on side, right,
Speaker 1: Oh yeah, absolutely, because I mean to get close to
Speaker 1: the president. And as a side note, what they said
Speaker 1: was when Reagan came onto the floor of the Secret Service,
Speaker 1: agent steppeds like as Reagan wanted to get into the
Speaker 1: crowd he was that he was that type of human being.
Speaker 1: Um So, at any event they were in cahoots with
Speaker 1: the Secret Service, the Secret Service City, yep, would be great.
Speaker 1: Reagan would love it, you know, he wants to experience
Speaker 1: things like that. He wanted to be pranked. Um So
Speaker 1: they had made that, but of course they were somewhat
Speaker 1: fearful of Grasso. So Grasso made sure that he was
Speaker 1: with Reagan every step of the way on the floor
Speaker 1: to ensure that the floor brokers didn't do it. So
Speaker 1: I think Reagan was confused while Grasso was looking at
Speaker 1: his shoes the entire time. Well, I think what it
Speaker 1: was is Grasso was like it was like a satellite
Speaker 1: beacon scanning the floor, you know, way for the enemy,
Speaker 1: lurking about to compowder Reagan shoes. So what so what
Speaker 1: do they do that? In powder Reagan shoes while Grass
Speaker 1: was talking to Regan, powdered Grasso shoes, which I'm sure
Speaker 1: got a few of them in trouble later. But apparently
Speaker 1: Ronald Reagan found that great fun and really enjoyed his
Speaker 1: day as a result. That's great. Well, I was going
Speaker 1: to ask, we do have this big debate still going
Speaker 1: on in the industry about, you know, computerized training versus
Speaker 1: the human high touch element. What is actually the benefit
Speaker 1: of having an actual person such as yourself work through
Speaker 1: these trades In any transaction that happens in life, whether
Speaker 1: you're buying a gallon of milk, a dozen eggs, or
Speaker 1: a block of stock, it's it comes down to the
Speaker 1: notion of price theory and price discovery. What is the
Speaker 1: right price to buy that item and what is the
Speaker 1: right price to sell that item? And that really is
Speaker 1: either an electronic or manual auction that takes place the
Speaker 1: benefit of having human at times in the middle of
Speaker 1: that transaction. And let me say this, for very liquid
Speaker 1: stocks that are moving a lot all the time, you
Speaker 1: can discover price very quickly using electronic means to get there.
Speaker 1: Larger blocks require a little bit more thought and a
Speaker 1: little bit more ingenuity to discover the right price. So,
Speaker 1: for example, if I want to buy five million shares
Speaker 1: of City Group, and I can go electronically and buy
Speaker 1: that five million shares, are blocks of that in increments
Speaker 1: um from fifty dollars all the way up to fifty
Speaker 1: and ten cents? Or if I can walk into a
Speaker 1: crowd and negotiate on a manual means and buy that
Speaker 1: block of stock forty cents, what should I do for
Speaker 1: my custom and it's buy the stock forts So that's
Speaker 1: that's part of the reason that we have a hybrid
Speaker 1: model in the New York. Most of the order flowing
Speaker 1: transaction is done electronically with algorithms running in the background.
Speaker 1: But there are situations a lot of situations, particularly around
Speaker 1: the open of the market, to close the market, or
Speaker 1: in times of market distress. Um we're a human talking
Speaker 1: to another human to be able to negotiate the true
Speaker 1: price for that transaction provides a greater amount of benefit
Speaker 1: as opposed to somebody sitting in Beijing. Uh, In somebody
Speaker 1: sitting in New York staring on a computer terminal and
Speaker 1: trying to get to that price. I can execute and
Speaker 1: get that transaction done quicker, cleaner, dampen the volatility, and
Speaker 1: hopefully make both sides of the transaction happy as a result. Keith,
Speaker 1: I wonder if you could describe for us or tell us,
Speaker 1: are there any bits of wisdom that you would offer
Speaker 1: for the amateur investor, not the person who's getting paid
Speaker 1: to manage their own money, someone who's has to manage
Speaker 1: their own money or is managing their own money. Uh,
Speaker 1: you must hear a lot of potential great investments and
Speaker 1: things you've learned a lot about following those kinds of things.
Speaker 1: Tell us about it. Well, there's a couple of things
Speaker 1: from the from the trading standpoint, I absolutely would Uh.
Speaker 1: Have your goals clearly defined about why you're playing in this.
Speaker 1: If you're planning to try and skim a few pennies
Speaker 1: every time you walk into a trade, that's one way
Speaker 1: to do it. If you think you're sixty years old
Speaker 1: and you're going to suddenly increase your retirement nest egg
Speaker 1: by day trading, You're flat wrong. You will be working
Speaker 1: until you probably die by doing something like that. UM
Speaker 1: people need to remember that the markets are regulated environment
Speaker 1: where you're able to put money at risk in a legal,
Speaker 1: regulated way across the world. So the reason I term
Speaker 1: it that way is it's not unlike a casino, And
Speaker 1: anybody knows anything about casinos knows that the house always
Speaker 1: wins in casinos. So do not get UM allured by
Speaker 1: come on schemes or people who are going to say
Speaker 1: this next penny stock is going to be the next Facebook.
Speaker 1: It's not UM. And the second thing that I that
Speaker 1: always advised people, and this is the most challenging, is
Speaker 1: take all emotion out of your trading, which means it's
Speaker 1: very hard to sell when skies are blue. It's very
Speaker 1: hard to buy when the world is coming apart at
Speaker 1: the seams. But you've got to learn to do that.
Speaker 1: Warm Buffett does that, and all we need to do
Speaker 1: is look at his success. I have a one more
Speaker 1: question for you before we wrap it up. But when
Speaker 1: you look at the big changes that have taken over
Speaker 1: the stock market, over the past twenty years. You know,
Speaker 1: there used to be five thousand people on the floor.
Speaker 1: Now there's probably a little less than a thousand. Yeah. Um,
Speaker 1: you know in ten years time, what's it going to
Speaker 1: look like? You know, A lot of that is going
Speaker 1: to depend upon how market structure changes over the years,
Speaker 1: and the microstructure inside of each of the exchanges has
Speaker 1: to adapt to the changes in market structure. So I'll
Speaker 1: take you back a little bit. So in two thousand five,
Speaker 1: two thousand six, there was a new regulation that was
Speaker 1: imposed upon on um equity trading here in the United
Speaker 1: States called Regulation NMS, regulation National Market System. That was
Speaker 1: really the big bang for the explosion in exchanges, and
Speaker 1: a t S is alternative trading systems here in the
Speaker 1: United States. So if you take back into the nineties,
Speaker 1: there were really three major exchanges here in the United States.
Speaker 1: There was the New York Stock Exchanged, the NASTACK market
Speaker 1: in the American Stock Exchange uh nearly a VOUM was
Speaker 1: dominated by the New York, the MX and the NASDACK.
Speaker 1: Since regulation n MS, there are now twelve equity exchanges
Speaker 1: in the country and roughly forty authorized a T S
Speaker 1: S or dark pools. So what that is created is
Speaker 1: a very fragmented marketplace. And and another piece of the
Speaker 1: rule of regaan Ms, which is really led to the
Speaker 1: the destruction and the market show the New York Stock Exchanges.
Speaker 1: We are now bound to go to the market that
Speaker 1: has the best best execution outcome for our clients, meaning
Speaker 1: the best price and volume. So if I'm moving at
Speaker 1: large block of stock, that doesn't mean getting a million
Speaker 1: shares done in the same place. What that means is
Speaker 1: probably getting lots of one hundred to five hundred done
Speaker 1: in about twenty different locations. Have to essentially have to
Speaker 1: the analogy that I always give to everybody. As I said,
Speaker 1: this has created a problem, and I actually think I've
Speaker 1: never been able to prove it empirically, but I actually
Speaker 1: think it's increased the cost of training because imagine a
Speaker 1: world where you wanted to go buy a dozen eggs,
Speaker 1: but grocery stores only sold one egg at a time,
Speaker 1: so you had to drive around to twelve places to
Speaker 1: negotiate the price for each eck. You may ultimately get
Speaker 1: that dozen eggs at a cheaper absolute price than if
Speaker 1: you bought it all at once, but by the time
Speaker 1: you added up the time in the gasoline that you
Speaker 1: used to get through your training, your costs actually went up.
Speaker 1: So that's where we are now, and I think people
Speaker 1: have really started to come to that realization that it
Speaker 1: was good in theory creating more competition, which should drive
Speaker 1: down prices and do better for the retail investor. But
Speaker 1: what I think it is done, it's actually created an
Speaker 1: environment where it's become more costly. So there's actually a
Speaker 1: move to think about going back to a more centralized
Speaker 1: type of trading scheme was known as a club or
Speaker 1: centralized limit order book, and those changes may come to pass.
Speaker 1: I'm not sure it's going to happen. The other thing
Speaker 1: that they talk about is is we went to in
Speaker 1: two thousand one, we went from trading in fractions down
Speaker 1: to pennies, and that really led to a big pim
Speaker 1: is shaking his head, Yeah, I agree with them. H Well,
Speaker 1: I was just gonna say that it really prevented a
Speaker 1: whole group of people from making a living and it
Speaker 1: removed that buffer. Yeah, because they said, if you can't
Speaker 1: make a living doing this, why I did? Why would
Speaker 1: I do it? That was the unintended consequence of I
Speaker 1: think what they were trying to do is drive that
Speaker 1: spreads down to a penny. There for making it more
Speaker 1: transparent on the trade and also ostensibly making it cheaper
Speaker 1: for retail investors to get on a trade they could
Speaker 1: they could then participate with the institution. But what it's
Speaker 1: done is you're right, it's actually driven people away from
Speaker 1: the business. There's no spread. Again, similar to a flea
Speaker 1: market or a farmer's market. When you go buy a
Speaker 1: bushel of peas from a from a farmer, you're buying
Speaker 1: in at ten dollars a bushel, while his price is
Speaker 1: really nine dollars a bushel, and he's earning that spread
Speaker 1: in between the same with stock trading, when he gets
Speaker 1: down to a penny, there's very little spread. When it
Speaker 1: was a sixteen, that's six and a quarter cents, so
Speaker 1: you had to built in you had a built in
Speaker 1: margin every time you traded. So what it also did
Speaker 1: is it drove liquidity away from various price points inside
Speaker 1: of a market. So if anybody's traded stocks, or if
Speaker 1: you have it, you know that there are different price points.
Speaker 1: People are willing to buy and sell stock at different
Speaker 1: price points, away from what's called the inside market or
Speaker 1: the national best bidder offer. What we do here, Well,
Speaker 1: that liquidity just evaporated when you went to a penny
Speaker 1: wide spread and you couldn't get large blocks of stock done.
Speaker 1: Increase the cost for institutional investors created a lot of aggravation,
Speaker 1: increased um. And this is the other side of the equation,
Speaker 1: not just trading costs, but also clearing costs, which is
Speaker 1: a very large component and expense inside of our business US.
Speaker 1: And so anyway, I think the institutions are getting back
Speaker 1: to saying, hey, let's rethink this a little bit. Maybe
Speaker 1: we should go to maybe nickel spread increments and maybe
Speaker 1: bringing liquidity back to a more centralized market place. I'm
Speaker 1: hopeful that's what we'll see in the next ten years.
Speaker 1: I'm not convinced the regulators think that's a good idea,
Speaker 1: but news out eleven as they say, all right, Keith Bliss,
Speaker 1: thank you so much, my pleasure. The auction market created
Speaker 1: by public orders, responsive to your needs, man by experts.
Speaker 1: It is central, flexible liquid. Each day, this market handles
Speaker 1: more than one five million dollars in buy and sell order.
Speaker 1: All right, PIM would we learn well, I learned that
Speaker 1: it was pretty exciting to be on the floor of
Speaker 1: the New York Stock Exchange, but that it's also tough
Speaker 1: and that you should probably get your elbows sharpened if
Speaker 1: you want to do well. Yeah. I really like that
Speaker 1: anecdote about Reagan Um. The other thing I like was
Speaker 1: the idea that regulations aren't always uh, regulations don't always
Speaker 1: have the intended effect. The site the law of unintended
Speaker 1: consequences right exactly, So this idea that regulators wanted to
Speaker 1: encourage competition, but then they end up actually making it
Speaker 1: more expensive or tougher for investors to you know, trade
Speaker 1: in stocks. That was pretty interesting. Also the recognition that
Speaker 1: technology marches on and there's very little that human beings
Speaker 1: can do in order to thwart its advance. Don't stand
Speaker 1: in the way of technology. That's get on that train.
Speaker 1: All right, Well, thanks again for joining me. It's a pleasure.
Speaker 1: I'm Pim Fox. I am the co host of Taking
Speaker 1: Stock on Bloomberg Radio two pm Wall Street time to
Speaker 1: four thirty pm, just after the close, and you can
Speaker 1: follow me on Twitter at Pim Fox. And I'm Tracy Alloway,
Speaker 1: executive editor of Bloomberg Markets. I'm on Twitter at Tracy Alloway.
Speaker 1: And our guest Keith Bliss is also on Twitter, is
Speaker 1: at kb Gunner one. Thanks so much for listening.