Where is a millisecond worth a million dollars? The New York Stock Exchange. 
United States
explicit content


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00:02:01sorry to wake you up to do this all right so what do you think the stock market is that's my son Walker he's 11 roughly the same age that I was with my father sat me down for the talk
00:02:14call the number to actually explain how sex work I think he thought a person just naturally figure that out money was different money was something that needed explaining
00:02:26stock market
00:02:29is of no way I look at it it it's cool when I'm bored I can just open up the stock market app and it tells me how much a business is growing and making money and another thing you can do with the stock market is you can invest money in it so if the stock market grows then your money will grow with it very true facts about how do you open up the stock market app it's cool if you don't have a phone
00:02:58turn iPad on the iPad Pro they can I just typed fart on it and fart talks came up so I have that on my front page now for talks if our dogs bark how do you spell it s a r t o x i smell recent story it's not an actual company it's a complicated it's a complicated stock
00:03:42back to the talk we're at the desk in my office I pulled up the Charles Schwab stock trading page now my father just handed me a little black Ledger he said it was for me to record my stock market Holdings he bought me 10 shares of a restaurant company called Chart House because they own Burger King and I knew what Burger King was
00:04:03tell me a company that you like or company whose products you really like just accompany any company like would you like apple do you like apple favorite if you own a piece of Apple you you know you might like to own it for a while but if it goes up you might want to sell it right
00:04:25awaiting you go to sell it you kind of need a place where everybody who would want to buy shares in apple or any other company can meet up with anybody who wants to sell the shares in apple or any other company right place used to be the New York Stock Exchange stock exchanges where buyers and sellers come together to trade shares all the way to 4 that the send telegram or even by mail say I want to do this and it be someone there for them and and that that's called a stockbroker it's really good question cuz you don't want to who wants to have to fly all the way to New York if you want to sell or buy your shares or buy shares but now
00:05:21they know people
00:05:23at the exchange prices computers computers all the orders are going into computers computer well that's interesting what do you mean I mean unless you can have
00:05:44getting stopped without paying anything
00:05:47it's funny that is mine instantly went there might had to when I was his age I look inside the little black Ledger study to my 10 shares of Chart House worth roughly two hundred bucks this unimaginably huge sum and I noticed a line-item twenty bucks broker's commission what's a broker's commission I asked my dad explained a guy charge twenty bucks just to pick up the phone and tell someone to buy the stock what's this guy's name I asked I still remember this feeling of outrage this year unfairness of it all twenty bucks for a phone call my dad told me to stockbrokers name then I asked where the stockbroker live and my father told me that to the guy lived in a great big house a few blocks away from us
00:06:35February look cross my dad's face why do you want to know where he lives he asked cuz imma go a his house I said because that's just what you did too grown up to behave badly you had their house which is to say that when I first learned how the people inside the stock market got themselves paid I was genuinely pissed off
00:06:57I Michael Lewis and this is against the rules a show about the attack on the authority of the referee in American life and what that's doing to our idea of fairness and we're now at the end of our season the final episode
00:07:13in which we try to answer the question why on Earth would anyone ever want to be a referee
00:07:23you want to get the fun of that you care that's good outside of Dublin in the village of donkey
00:07:39thank you for coming to get this, Damon Ryan it's been his career in the 1970s and 80s is a civil servant his job was to encourage foreigners to invest in Ireland which back then seemed to hopeless task in 1990 the Irish government had moved him and his family to the United States to Greenwich Connecticut they were transported to what was and is Ground Zero from America's money culture are Bond Traders and investment bankers and hedge-fund managers
00:08:13did you all enjoy living in the states who is it
00:08:19what made it difficult
00:08:32yeah I guess their places in the states where you could have found snooty or people but not many they are
00:08:46when the Royals moved from Ireland they had no errors about anything except maybe the fact that they had no heirs Ireland was still a poor country the Ryan's work fancy and didn't really care to be they weren't trying to look down on other people or look up to them and were suspicious of anyone who did either in other words they were Irish Jersey soccer his brothers and sisters they were four years year old son Ronan to Greenwich high school and then on the Fairfield University where Ronan developed a secret love for a kind of person is parents never fully understood the American money person
00:09:35take me back to the first encounter you ever have with the US Stock Market
00:09:44years ago my junior year in college they gave us two hours of the New York Stock Exchange floor this was in 1995 that's running it was literally thousands of people pushing and shoving and at the end of the day when I'm leaving the office at 5 these guys had walked out an hour before those flashy car they are wearing their jackets in the bars they were kind of like the cool kids post-college so I just I just thought it was interesting actually more than interesting really wanted to be one of them one of those people on the lucky side of America had no connections and no money and no real reason to think Wall Street was waiting for him and really he wasn't much like the Wall Street Traders they were big and he was slight they projected confidence and he projected doubt
00:10:28Gary insisted that Wall Street was where he was going
00:10:32to self that is he didn't dare whisper any of this to his parents or his friends it would have sounded phony he knew his parents would say go to Wall Street why have you started farting Chanel Number 5
00:10:45is running approach college graduation his interest in being a stock market Trader became an obsession he wrote dozens of letters to every Wall Street firm even the small ones he received only one reply a form letter so I graduated in June my parents had already moved back to Ireland I was living with my friend's mother on the floor of her apartment looking for a job and it wasn't going swimmingly well and then I got a call one day from a guy from MCI to MCI was a phone company he went to work for the phone company and not for the Glamorous part of it and start off of something called a national Account Support consultant and they shipped me off to Atlanta for a couple of weeks and started training me on fiber optic cables and the difference between glass and copper and network switches and voice and data and I was doing pagers on people's belts I was doing voice and I was working with travel agents you know I would go up to some offices in the Bronx where they literally had phone booths for peep
00:11:45who wanted to call home to Columbia or El Salvador and couldn't afford to a few years later wrote it moved from the phone company to another company call radians radians was in sort of the same business is MCI it help people to move their data around only radians was helping people who worked with Wall Street Traders traders who wanted to speed up their trades and various stock markets in the early 2000s all the stock market's the New York Stock Exchange and NASDAQ and the others head up and moved out of New York City to New Jersey where floor space was cheaper it also gotten rid of all the human beings who work on their trading florist the guys running it once found so cool
00:12:26the stock market's we're now simply stacks of computers inside New Jersey data centers the old New York Stock Exchange basically became nothing more than a stay set for CNBC
00:12:38one day at radians Road and got a strange call from a Trader in Kansas City the guy want to run in to figure out why is stock market orders we're taking so long to reach the stock exchanges in New Jersey
00:12:51and it's taking him 43 milliseconds round trip for these trades to to be acknowledged and I remember my inner monologue at the time as I don't even know what the hell the millisecond is but I said said that sounds terrible I think I can help you
00:13:06a millisecond is one thousandth of a second it takes roughly four hundred milliseconds to Blink your eye if you do it fast Rhoden knew that the guys biggest problem was that he was in Kansas city data travels at the speed of light but it's still travels the further you are from the stock exchange is no longer it takes for your trays to get to them so Road and move the guys trading machines into a building in New Jersey near the stock exchanges and drop his training time from 43 milliseconds to 3.9 milliseconds or roughly 100 of the time it takes you to Blink your eye if you do it fast and this guy came up to visit his computers I guess so A few weeks later on he was thrilled and you know cording to what he told me I was going to ask him I'm like what what's the value of a millisecond I'm very pleased that you was my client or happy I just have to deal with a war and his explanation was in the first I believe he said the first four or five days of trading at a New Jersey same strategy that I was running in Kansas I made more additional profit
00:14:06bent to pay for your services for 18 months anyway words soon got out of cross Wall Street if you wanted to make your trades go faster you called run and run and run and was soon helping all these high frequency Traders as they were called and had no idea how they were making their money but they would use these mysterious terms like sniffing out the whale order and we can see Footprints of large order is entering the market and we can you know basically if we see there's demand of a stock because a big pension firm or mutual fund is trying to buy it we can buy it ahead of them and sell it back to them for more
00:14:44running was running these super straight fiber optic lines across New Jersey he was scoping out the data centers that has the exchanges to find the shortest paths from the Traders computers to the stock exchange computers the stock exchanges didn't really understand what was going on at least at first but then high frequency Traders started to offer the stock exchanges huge sums of money for what seemed like absurdly small things like a shorter cable between the traitors computer is in the stock exchanges computers and they all insisted on having their computers inside the same buildings in New Jersey colocation they called it
00:15:23the stock exchanges became a peculiar kind of landlord
00:15:28just the amount that they charge these co-located clients to connect them you you pay to get into the building and then to get from your spot in the building to the exchanges meet me point is bananas like they will charge as much as $40,000 a month for a cable $40,000 a month for a cable that you could buy retail for two hundred bucks Road and had no clear idea why these big shots were throwing so much money around inside these New Jersey data centers but then neither did the data centers the American part of him just sort of went along for the ride whatever these people were doing must be cool and great just another wonderful aspect of American capitalism
00:16:10the Irish part of him began to wonder if that was true
00:16:22my most rewarding job ever was washing cars for a living when I was 12 years old and discovering the people would actually pay me money for things I did are you looking for a rewarding job Lincoln's got 20 million jobs like software engineer project manager associate veterinarian robotics engineer HR manager and Associate attorney they're all kind of open jobs on LinkedIn you can search for and people ready to help you make the change you're looking for people giving great career advice everyday people helping people learn new skill people making introductions and people hiring so you can find a job that makes the most of your interest and experiences
00:17:08find a job meant for you at linkedin.com jobs
00:17:18what is IEX group group is a i x is a stock exchange all people have things that set them apart with set Brad katsuyama part was his refusal to be set apart ever since he was a little kid in the Toronto suburbs people have been telling him that he was special and he been refusing to take them too seriously when he was 7 his mom told him you've been identified as gifted and offered a spot at a special school Brad said he'd rather stay in the normal school with his friends
00:17:57when he was 15 you ran a 40-yard dash in 4 and 1/2 seconds and the track coach told him he could be a star he said he'd rather stay on the football team with his friends
00:18:08at Seventeen you could have gone to any University in the world he chose to go to Wilfrid Laurier west of Toronto to stay with his friends
00:18:19brother thought much about what he would do for a living for the Royal Bank of Canada found him and hired him and naturally told him he was going to be a star
00:18:29Reddit never set foot in the United States the right after 9/11 rbccm to Wall Street to run their stock trading he was 23 years old
00:18:39and so when the 2008 financial crisis happened Brad katsuyama was making $2000000 a year running US Stock Market trading for the Royal Bank of Canada but by then at least to him something was feeling very wrong
00:18:54the trouble started with the computer he used to trade in the stock market
00:18:59up until early 2008 the screens on his trading desk at always given him real-time pictures of the market if you wanted to buy say Hewlett-Packard stock it check his computer screen to see how much of it was offered if they said 10,000 shares were offered for sale at a certain price Brad could hit a button and buy all 10000 shares at that price then one day he couldn't imagine the computer says okay well you can buy 10,000 about 8,000 and so it was bothersome but you kind of tend to rewire your brain to realize that train is computerized the fast Movie Market things are happening maybe someone else wanted to buy Hewlett-Packard at the same time I wanted to buy it but the issue is that by 2008 the prom that worse instead of buying 80% of what I saw I get 60% by 2009 instead of getting 60 again 40% of what I saw so I was missing entire chunks of stock Millions
00:19:59are the stock of Accenture disappearing
00:20:04Brad isn't buying and selling stock just for himself or for the Royal Bank of Canada mainly he's acting on behalf of big American and Canadian Pension funds and mutual funds and the ordinary people whose money they managed his losses are also their losses and can't figure out why they're mounting his first thought was it was a computer problem maybe the buttons on his keyboard didn't work or something the Royal Bank of Canada is Geek Squad turned up in his desk and told him the computer buttons work fine it was Brad who was the problem they said he wasn't pressing the button fast enough I can't do 5 or 7 or 10 whatever nothing would happen then I press the button and then I'd miss shares of stock with your hair so it's very clear that it wasn't someone else wanted to buy Hewlett-Packard because I wanted to buy it and something between me pressing the button in my trade actually executing something was happening but I can never get
00:20:59a real answer as to what was happening
00:21:03red figured out that whatever was happening had to do with the way information it started to travel by 2009 the stock exchanges were in some weird relationship with his new traitors these so-called high frequency Traders with Brad haddin completely worked out was exactly what enabled these guys to know what he was doing before he even did it
00:21:24but then he heard about this person who helped make high-speed Traders go faster and Irish guy named Ronin Ryan like people here all the exchanges are in New Jersey if you don't live in New Jersey I happen to know where Mahwah is I know where Secaucus is you live in New York rather than New York in the clue where these places war and these are things that were fairly rudimentary to me not because I'm smarter than anybody in this is the industry that I grew up with
00:21:52Ronin explain to Brad what happened when he pushed the button to trade that instantaneous was not instantaneous the signal Brad sent to buy 10,000 shares of Hewlett-Packard needed to travel from his desk at One Liberty Plaza in lower Manhattan out to the data centers scattered across the Jersey suburbs to the new stock markets full of server racks trading stocks one press of the button what I thought was an instantaneous action was actually a series of action that happened over the course of many milliseconds high-speed Traders were able to buy technology and data from the exchanges to pick up a signal at One exchange and race me while my order is in flight to the other exchanges to do one of two things one they wanted to cancel any sell orders they had out there cuz here comes a big buyer I don't want to sell anymore cuz I know there's a buyer coming but to actually buy stock ahead of me to sell back to me at a higher price
00:22:52it's called front-running it's not really about being an investor yourself to finding out with real investors are about to buy
00:23:00and buying it before they do so you can sell it to them for a higher price you're only buying because you know I want to buy and you're buying not to own shares in a company that you think is going to help you know you don't develop you know an investment return cuz you understand their business Paul know you're buying it just it flip it back to me cuz you know I want to buy it
00:23:22so Brad figures all this out with a lot of help from running after which Brad takes a long look at this guy this oddly weary Irishman Road and still long to be a big-shot Wall Street Stock Market Trader and Brad decided to make him one inside of a year Runner was earning more than a million bucks
00:23:44Bradfield this team of people inside the Royal Bank of Canada the team consists mostly of immigrants who are running tests on the American Stock Market to see how to unrig it to see if they can make it impossible for their own stock market orders to be front run so they try this instead of sending one signal to the four New Jersey centers they sent four different signals so they all arrive at the four different centers at precisely the same moment each signal was in order to buy however many Hewlett-Packard or whatever shares were for sale in just that data center
00:24:24and just like that the whole problem vanished at least for RBC Brad was once again able to buy all the shares for sale on his trading screen without being scalped without electronic FrontRunner in the middle of his trade but the problem still bother Brad because it was so obviously outrageously unfair the US government at granted licenses to these stock exchanges on the condition that they referee the stock market winners and losers are no longer determined solely based on who understands the company better and fundamentals it's now based on how long my cable is do I use microwave vs. fiber optic cable
00:25:04we talked about this sort of thing before in this podcast it happened with co-pay consultants in the ratings agencies in our kind of sores and probably all kinds of other referees the ref got bought in this case the rest of the stock exchanges they were now providing a slow picture of the stock market to ordinary investors while selling a faster picture of that same Market to a select group of high-speed traders that that is like finding out the Umpire make s'more from selling things to one of the teams that they do from umpiring the game one thing a lot of people don't realize is that right now New York Stock Exchange NASDAQ they make more money selling high-speed data and Technology than they do for matching buyers and sellers
00:25:49back in 2015 I wrote a book called Flash Boys about Brad and Ronan and the problem of high-frequency trading because I was as outraged as I'd been as a kid when my father tried to explain to me that some stock broker head charge twenty bucks to make a phone call and I wanted egg his house and I assume that any right-thinking person would share my outrage
00:26:19this is what's weird
00:26:21the computers are in one place anymore they're they're all in New Jersey at right outside of New York City but there in like
00:26:29four five different places in New Jersey
00:26:37it's color ticker and say Bible say we want to buy one share we want to buy buy 10 shares
00:26:48and it's going to help me get into college to pay my college
00:26:56your click it you can do it. What you do is you go play some place order and $509.55 to go down there likes water
00:27:18they're not allowed to buy in the night
00:27:20it's closed at night so people can have breaks
00:27:31now I hit him with it right between the eyes the brutal Facts of Life
00:27:39explain it when he bought his first Apple shares these other computers get to see what he's doing before anyone else like it when people out there who get to live in the future milliseconds ahead of us
00:27:52this is the funny thing about the Star Trek I'm trying to explain to you is that you think about you understand why I stopped is this you understand why people would want to buy them and sell them
00:28:03but it's harder to understand why anybody needs to sit in the middle between the people who would buy and sell and be given different information from everybody else better information so they can make money off the people who want to buy and sell
00:28:18the reason all this happens it happens so fast that nobody sees it that these signals move at the speed of light
00:28:26which is the second fastest thing
00:28:35bathroom me for a second I mean is it true your thoughts move faster than light did I just prove that they don't I honestly don't know or if it matters but then I realized he didn't pick up on what I was trying to tell him let's see what we got it for we got it for up a hundred and fifty
00:28:56$10.45 and 45.4 cents that's what we paid for the stock
00:29:07someone's computer in the one of the exchanges in New Jersey was looking at it and saying that Apple was below that and I can buy it cheaper and sell it to the kid in Berkeley California and steal a few Pennies from you
00:29:29that's correct so we didn't break the law technically I clicked the button by the never never trade stocks while drinking
00:29:44even an eleven-year-old senses that with all this money flying around there must be laws involved here and there are he's required by law to send his order to a stock exchange through a stock broker and that stock broker gets paid by the exchanges for those orders so the stockbroker is it on the game to the game is to maximize the kill of the high-speed Traders so that they can afford to pay the stock exchanges and the stock exchanges can intern pit stock brokers
00:30:15everyone in the middle takes a bite out of the prey the prey Is Us
00:30:22it's all legal because the people who make the laws screwed up and they're only now beginning to admit it
00:30:31the parent company that owns the New York Stock Exchange is among the few most profitable companies in the United States which is astonishing if you think about it because their business is simply the exchange of financial instruments rather than the creation of anything real
00:30:46that's Robert Jackson who in 2017 was named one of the five Commissioners at the Securities and Exchange Commission it's supposed to oversee the stock exchanges think of it as the referees referee I totally understand why a car manufacturer might be or why and Incredibly Innovative internet company might be but the idea that the place you go to make investments is the most profitable business in America is tells me that something's wrong can you think of any other nalogi to the situation where you got it the companies that are responsible for both providing this public good this public service or the public information and Ann are also competing with it in the private sector I can't and that just shows how backward our system for stock markets are I can think of lots of examples in the American Economy Inn in our history where we had a publicly provided good and a privately provided good and sometimes that we can compete with each other example that so there's public
00:31:46stations available on the subway and then there's probably available substitutes but this is a little like letting Uber run the subway and being surprised that the subway sucks or like having Barnes & Noble run the library that's right and then it's acting surprised when you get to the library and you realized it doesn't have that many books
00:32:05let's talk just a little bit about what it says about fairness in the American economy that this has been allowed to happen do you worry about that subject at all here's what I worry about that if we stop somebody on the street and said hey here's what happens when you buy and sell a share of stock it's not that it goes to Some central place where people figure out what the price should be and then give you the the best price possible not to know this order bounces around data centers in northern New Jersey and that is routed to one of 12 exchanges where the guy who you gave the order to his pay best to send it there and then you're given a price that's probably reflective of the second class quality of data if we told that to somebody I think they'd be outraged
00:32:49but one day I mean what they really be that outraged I don't want know how this makes you feel some guy has got a penny or two maybe just a fraction of a penny less by Penny or two of your money
00:33:06because the stock exchange told him I workers coming to buy Apple stock
00:33:13you can go see if you can get a cheaper and sell it to him
00:33:18you can stand in the middle of his trade you can get between him and the person is actually trying to sell the stock and make money
00:33:25you feel okay about that
00:33:27I don't really care cuz the original order replaced we got weed that's was our choice to place it and and if we were willing to do that it really shouldn't have mattered
00:33:44it was true he really didn't care it was just a few pennies and it wasn't even really his money he didn't even care when I told him that you added it up across the entire Market the theft from all the little kids and grownups it came too many billions of dollars a year he didn't care that the cost of spread across millions of victims while the benefits are concentrated in the hands of the rich few I obviously found the situation outrageous my son did not
00:34:13play the lottery you're happy when you're if you win it and just stick with that into it and they know if that they're going to lose but if they win their like how Ellis go home let's go across my mind and not for the first time that about the best joke like my play on me is for my son to end up a wall Street Trader he already seemed to have a useful character trait the sense that the game is not about right and wrong but about winning and losing a certain shall we say lack of interest in the moral question
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00:36:34hi I'm back. I'm a senior studying social studies with a focus on Brazil and I'm from Sacramento and I'll be returning to Bank of America in a sales role math and computer science and I'll be returning to Goldman trading rule
00:36:52where is Harvard in a seminar mainly Juniors and seniors anyway they're all older than 11 years old and supposedly interested in fairness since that's what the class is about my name is Michael sandel and I teach political philosophy at Harvard University he teaches a course called Justice is one of the most sought-after courses at Harvard this seminar called Casino capitalism is its first Cousin Vinny
00:37:24is this Penny it's a chance for 13 hand-pick students to discuss the fairness of a lot of real world situations especially real world situations on Wall Street many of the students have already worked on Wall Street and plan to return
00:37:42well why don't we begin I'm delighted that Michael Lewis and Brad katsuyama could join us for the discussion of black boys so we go around you want to sew on Michael Lewis on the author Flash Boys and a bunch of other books and working on this podcast was going to call against the rules I remember classes like this the semi preparedness the homework have done the thoughts affect the warrior that today I'm going to be found out although today that's not the problem I'm not homework so is Brad Brad katsuyama Co one of the co-founders of IX I was at work in finance fortunately or unfortunately originally came from just outside of Toronto live in Darien Connecticut now
00:38:34after bread figured out how the stock market got rigged he set out to fix it he quit his $2000000 your job is the head of Stock Market trading at the Royal Bank of Canada he took no pay and lots of abuse from Wall Street as he set out to create a fair Stock Exchange the investors exchange he called it IX what's interesting is that never in my life have I been a controversial person or looking to fight
00:39:03against the system I guess in a way that was the first time I think I was motivated to fight against the system did everyone come away from reading the book believing that Wall Street is rigged yesterday
00:39:20Albert a few hands go up and those of you who do who do not think it's red Cade
00:39:28Marius sure is not sure how you don't think it's rigged even having red black boys like I didn't understand it as well as I could have but in my mind it seems to be like a trade gets executed someone catches on the trade and just gets to make a better price because they got to dump it out real quickly and then my mind why is that a problem a moral problem I mean when LeBron James goes to dunk a basketball and Jaylen Brown stops in and then passes it to Tatum on the other side and he dunks it no one says anything it kind of sounds like to me this is the same thing you got to love him just for giving it a whirl but most everyone else seems to disagree with him
00:40:11the Dutch student Marius is the only one who expresses anything like outrage but they were still like Runners around and phone calls everyone will say yes there was also if you was of Arbitrage and there was people like taking David out of the market but it was clear as clear of everyone that was illegal action and it was kind of still found a poem about tolerated but I feel I can just spoke it sounds like the same things happening only on an insta institutionalize scale without high frequency Traders but yet still it's not illegal or it's not really frowned upon or not properly regulated I feel like there's like a moral Decay from back then to appear even though the whole problem has increased
00:41:02it's a great point cuz I think people are willing to do things behind a computer screen they might not be willing to do in person and I think because you don't have that interface with the person that let's say you're taking advantage of it kind of lets you tell yourself a lot of lies about what you do when you're not getting that direct feedback morally the story bread till all this is black and white as it gets the students see that they argue some about who deserves the most blame for the situation who's the biggest villain the high-speed Traders the people like running Ryan who wants help the high-speed Traders or maybe it's the SEC Brad says none of the above it's like sitting in a casino with a broken slot machine. The person that put your hand out and said broken or do you drain it of all you know you know money it's it's another capitalist but the exchanges I think I broke the system on purpose to make money by selling people
00:42:02the ability to take advantage of that system
00:42:09the fact that they're villains on Wall Street well that turns out to be not all that interesting at Harvard the students know too much to be upset they have long since adapted to this world they don't want to talk about Corruption of the rafts or the elaborate system of bribes and kickbacks or what it all says about Modern Life they want to talk about the person who strikes them is the freak of the story Brad katsuyama a student named Keller kind of puts his finger on it I think it's extremely impressive that you guys were able to figure out the problem and then March right against did you guys are able to say no to the broken slot machine it would have been very easy to make a lot of money understanding the market this way but he says pronoun he referring to you just chose not to and so I was wondering you know what like why and now because I know and even with my positions about Finance I think it would have been extremely difficult for me to walk away from a broken slot machine that was paying out so happily
00:43:09my client has he talked a lot about this
00:43:12of course we had because he begs the question why you why would any big-time Wall Street Trader rebelled against his industry why would anyone quit a multimillion-dollar job to become a Referee and you come away from this experience thinking that maybe you care more about fairness than a lot of people
00:43:32I think this is a complicated subject
00:43:35and we're fighting a system who are trying to confuse people into thinking the world works one way and we're trying to explain it in a different way in to figure out who's right or wrong you have to put in the work to actually understand the details to come to the conclusion that the market is not fair
00:43:55and so I don't think it's necessarily I care more about fairness than others I think I put in the work to understand what's fair or not
00:44:04Brad katsuyama is great at explaining things the one thing he can't seem to explain is himself
00:44:11good people don't like to explain to you why they're good people so that these questionnaire will that he will not get promise you he will never answer this question to your satisfaction right to see that self-righteous is actually a great guy and the people who follow him follow him because they sense that he he's thinking more about their well-being minutes and it's a it's a rare quality associated with being a Canadian the simple answer is he just a Canadian and if he was an American this no chance he would have but you know what even as I said it I realized I was wrong or any way that I let my mind come to rest before it should but you know it's it was peculiar about your situation and character was it's odd to find someone get as deep into Wall Street as you got before experiencing extreme moral revulsion
00:45:11what is the combination of the power of the feeling you had it how far into it you were when you had it the kind of person who's going to be you got a long way into it before they offended your sensibilities and then they offended where you know I don't use this as a place to try to take the moral High Ground cuz I did tolerate a lot of stuff I saw a lot of stuff that I just did not think was good and I just I just like look at it that's really screwed up and I moved on so where was it about this particular situation that led him to turn his back on money and risk it all to make the world fair Brad's decision was hard for the Harvard students to understand
00:45:57running Ryan's would have been utterly incomprehensible connections to every NBA arena from here it's crazy to meet you at the NBA replay Center is where this podcast began
00:46:33it's also just down the road from where Runnings career collided with Wall Street
00:46:38the whole area looks as if it's waiting for someone to replace the rock on top of it that they wish they'd never removed but a lot happens here let's see what I can we just pull in here
00:46:52it takes us five minutes to drive from the replay Center to the first Wall Street data center we're running work for radiance it could be a self storage facility
00:47:01except for one thing
00:47:04there's a tower on top festooned with satellite dishes one of the most important capital I look alone you just wouldn't picture the epitome of Kevin has been here it's a very curious situation and if CNBC was being honest they just have a camera on that building the whole time while they're talking about what's going on in the stock market that's where it is a trillion dollars of stocks traded inside this place in the last year and it would occur to no one to visit it to watch
00:47:43look up you just take for granted the mass of a number of wires and power cables and all the rest and you don't ever ask what the hell they are
00:47:51all of those Powers up there are microwave Towers you have to pay them from a cable from your computers up onto the roof and they sell you roof rights and roof rats basically means they are both on your satellite dish your your microwave dish
00:48:09Ronan taught Brad about all this new technology inside the stock market and he did it so well that Brad created a stock exchange that might put the entire racket out of business bread. Roden how to trade stocks so well that when Brad gets his job the Royal Bank of Canada wanted running to replace him which is to say that road and Ryan finally after 15 years got the job offer he dreamed of that a big-shot Wall Street Trader making millions of dollars a year
00:48:41but when Brad left to start idx Road and left with him to build the fair exchange to create the honest rap and they didn't do it in the American way by getting outraged or peeling to a higher authority or electing a crazy person they just did an end run around the whole problem of high-frequency trading
00:49:04inside the same Bland New Jersey Warehouse IX coil miles of fiber optic cable and stuck it in a box then they announced that anyone who traded on IX would have to send their orders through this box the magic shoe box Road and called it it slow down the high-speed Traders just enough
00:49:25explain in the simplest way that you can resume on face playing with the speed bump does it's literally coiled cable 38 miles of cable which takes the light signal 350 millions of a second to go around it so we're not talking about slowing things down dramatically but what that allows us to do as an exchange is it gives us the exchange the clearest picture on what's going on in the market where is other exchanges because they're slower than the people trading on the market there printing trades without a clear picture of what's going on the magic shoe boxes in machine for slowing things down in the speeded-up world an engine of fairness there been a bunch of studies about its effects it saves investors somewhere between 1 and 12 basis points a basis point is one-hundredth of a percent witch sound like a tiny amount right but across the American Stock Market each basis point comes to 7 billion dollars a year
00:50:22took the entire Stock Market trading on IX investors would be spared being ripped off somewhere between 7 and 84 billion dollars a year this shit adds up in Jersey
00:50:39skimming of the American investor isn't a street mugging it's fantastically complicated and it bought them a little boring there's no reason Ronan had to leave his dream job to step in between Wall Street and its investors and say stop you're not doing this anymore I think I had I not work at RBC for a couple years I might have thought this was a great business opportunity but the level of full of shitness on the people that we were meeting was just making me more and more Angry so it was more like a challenge to make this Fair because people what was most annoying as people saying it's already Fair nothing to see here
00:51:16really good walked away from his middle class Irish self and acquired whatever you wanted including airs and steady food Ireland
00:51:25his parents still had no real idea where their son did for a living but he wanted to talk to them about it because somehow they were still important to him their voices were still in his head
00:51:38just outside of Dublin in the village of donkey to hear their voices
00:51:51what do you think we told you was making a million dollars a year
00:52:02you know the saying every business is there two people is a full car and it's okay you know so that's
00:52:23and in the same breath it running revealed his new Wall Street power and wealth he confessed he was thinking of walking away from it all plus tossing a match over your shoulder to burn the place down in a way that would make it virtually impossible to go back as a regular Trader on Wall Street and for ronan's Dad he was the kicker his son was leaving the playing field to become a Referee it all struck me that if you see referees that was kind of skinny legs and all those puppies run the place I was thinking I can do those who can't teach you know about the football referee and I just sort of strange you know what to be one policeman enough making people miserable everyday
00:53:18Hayek did not so much open for business as explode after its opening wall Street's biggest banks were fine hundreds of millions of dollars for cheating ordinary investors IX itself is a target of an expensive and mendacious political media campaign bought and paid for by the exchanges and high-frequency Traders Brad and Ronan were threatened and slander they needed bodyguards it took them two years to get the fcc's approval the open for business more than four times as long as it took an exchange built by high-frequency Traders
00:53:54all because they were doing the most seditious thing that you could do with the heart of American capitalism introduced fairness never do you know if there's some traffic my father never you a job I had a thought of work first sentence about a charge of an organization give them money to companies
00:54:17investment I didn't fully understand what Roman Road and Ryan I don't think he particularly even wanted to be a referee it just so happened at the place he Lennon Wall Street couldn't accommodate both his ambition and his character is mama and daddy raised in a certain way and he couldn't quite forget it they raised him to see other people as just people who are either full of shit or not
00:54:43it turned out that Wall Street had a crying need for someone who is not full of shit
00:54:48and run and Ryan had a serious talent for it
00:54:57why do people become referees actual r s I mean not the ones who get into it because some powerful player has bribed them to play the role
00:55:07I don't think there's a single simple reason
00:55:10the refs in the NBA be there mainly because they love the game and it's their way into it
00:55:16Ken Feinberg be discovered in himself a gift for a kind of ferocious neutrality found ways to exercise that gift and discovered that our society just now desperately needs it
00:55:30let's pause a moment to thank our rest be honest ones we can tell ourselves that they're doing what they're doing for the same self-serving reasons the rest of us do what we do but they really are people who Step Up in certain moments in certain situations to insist on fairness even if their fathers never fully understand what they do it even though the world never fully appreciate it
00:56:02all right
00:56:04considered a birthday present tense years of Apple
00:56:08you got my fault
00:56:12it's not your fault
00:56:14thanks for being there for being my guinea pig ear good podcast show
00:56:20do you think in the olden days this is very of off topic but it's about money when money was like a dollar you could buy a lot of stuff in the olden days people called people with over $100 - $200
00:56:39100 are in a post a millionaire thousandaire they must have had a word before Millionaire right it was called Rich
00:56:51they're rich they're just the rich
00:57:01I Michael Lewis thanks for listening to against the rules against the rules is brought to you by Pushkin Industries the show is produced by Audrey dealing and Catherine jerideau would research assistance from Zoe Oliver Grey and Beth Johnson our editor is Julia Barton malow Bell is our executive producer I theme was composed by Nick bitel with additional scoring by Samuel mastering by Jason Gambrell our show was recorded at Northgate studios in Berkeley by Topher Ruth special thanks to our Founders Jacob Weisberg and Malcolm Gladwell
00:57:50that's not yours

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