YouSaid · the spoken record

Doug Cifu

lines on the record: 70
first: 2021-03-29
most recent: 2021-03-29
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“As a practical matter, it has not worked in any jurisdiction the world where it's ever been proposed and implemented. And if it ends up happening in the United States, folks up in Canada, Bermuda, Switzerland, the UK, Singapore, they will light up alternative exchanges and all of the U.S. securities will just trade on CFD over there and the treasury will be deeply disappointed that they won't collect Bubkiss. How's that?”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“And he happens to represent New York. He happens to understand that Wall Street and. Manhattan depend on the financial services market. And at financial transaction tax, it wouldn't just impact Virtu, right? It would reduce volumes. The spreads would widen, and Mr. and Mrs. 401k would end up paying the price in the pension plans would pay the price. So when I see unions, public service unions advocating for a financial transaction tax, I say to myself, you know, they've either been severely misled by some Washington hack that's trying to raise money, or they just don't understand how markets work. Because that's just a friction in the market. And what happens to the market makers and to the financial intermediaries, we pass that cost on, right? We're not going to go out of business and make markets. And you're going to still need a market maker. So we would just widen out and volumes would decline. The exchanges would be impacted. And ultimately, you and I in our 401ks and our pension plans would pay that price. So as a policy matter, it is absolutely.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you want to hear my voice go high. Okay, so there's probably nothing. More inane than a financial transaction tax. I have studied this backwards and forwards. I read about the Swedish transaction tax of 1994 where on Friday they closed Ederudas market. On Monday it moved to London. What I have always said is liquidity is like water. It finds its level. So if the folks in Washington see fit to enact a financial transaction tax, I don't think they will because Chuck Schumer is in my view the smartest man in the Senate and he happens to be the majority leader.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it will be. Yeah, I think there's just too much, you know, when you see it on TV and the price of it There's too much mainstreaming of it. And when the institutions start buying it. And then on top of that, you know, we have got a lot of retail clients that have come to us and said, hey, we want to make this available to our high, high net worth. Will you provide a two-sided price incident? So when that happens, when names you know of and you can read the articles want to make it available to their high net worths, then it's becoming more mainstream. And that's when obviously we need to be there as a liquidity provider.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Some country far, far away, that doesn't really fit our risk parameters. We're not a hedge fund. We're not day traders, right? So as it becomes more I'll say systematized, you're going to need market making firms like Virtu to provide a spread between the coin, the future, and the ETF. I'm hopeful. That in this new administration, you'll see the SEC approve him in the United States as well, and we'll be a big market maker in those.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“There's also a future on the CME, so there's various products we can move back and forth in. So I think as cryptocurrencies like Bitcoin get further regularized and regulated, if you will, and institutions like ETF issuers, the US securities market, future houses like the CME recognize that this is a valuable asset class and include them in products that represent the underlying coin, you're going to see an explosion of interest because then institutions get more comfortable, right? It's no longer the wild west of 100 venues, 98 of which you haven't heard, where we trade on Coinbase and Gemini because we've done our diligence on them. And there's no central clearing there, right? So you're taking counterparty risk against those institutions. And so if it's Bitcoin venue you've never heard of.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, for the record, I'm not like an expert in crypto or Bitcoin or whatever it was. I'm a market maker. My determination to get into it was, okay, when I saw that. Was going to be recognized and regularized, if you will, by a regulator. We think the world of, right? We're a market maker up in Canada big time. And so when IROC said that they could do this, that's the SEC up there. I was like, you know, done, virtue's all over this because this plays right into our wheelhouse, right? It's an ETF with the underlying basket is a different asset class, right? That's what we're good at.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll be a schmuck now. I'll say all they do is they take it, repackage it kind of in a crappier format, and then sell it back to us, right? Along with Citadel and other information at a premium price. So that's what really pissed me off. That and the cable really kind of pissed me off.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“At the exchanges, who I get along great with, by the way, we're their biggest customers. They kind of have to be nice to me. They sued the SEC to enjoin enforcement, if you will, of that regulation. So that'll be in litigation in the DC circuit probably for the next five years or so, given. The amount of money here at stake. So that's a continuing kind of kabuki dance between the regulators, Sithma, which is the banks and the brokers. We're a member of SIFMA and the exchanges. This is nothing new. They've been fighting over who controls that data and who can charge for it. Because if you think about it, I'm creating the data, right? To get back to Facebook, Virtue's sending literally hundreds and hundreds of millions of bids and offers every day. That's like important valuable information. The exchanges.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“In the securities exchange act of 1934, I used to be a partner at Paul Weiss. I researched this stuff myself, read all about it. So I went to the SEC and created a star, put in a comment letter, and said, you know what? The exchanges have been getting away with this for a long time. This should be regulated, et cetera, et cetera. The politics of the moment were good because Jay Clayton and Brad Redfern, who were the chairman and the head of trading markets at the time, kind of had a similar view of the world as I did on his way out the door. Clayton and the commissioners by, I think it was a 5-0 vote and nothing in Washington happens unanimously anymore kind of agreed with the argument that I was starting to make in virtue was starting to make five years ago that those items needed to be a cost benefit analysis, right? You couldn't just every year keep charging us more and more and more without any cost benefit because it was part of the quote unquote facilities of a national securities exchange. That is now in litigation because my friend”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Limited liability in the securities laws, you need to have the SEC approve not only just your order types, but your market data fees, your connectivities fees. It's all part of the quote-unquote facilities of the exchange. You said you wanted Wonk. I'm giving you full-on wonk. That's a defined term.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“The exchanges charge for what they call a private data feed, right? Which we obviously have to buy because we're a low latency market making firm. And then on top of that, they charge you for physical connectivity. So I actually went to the SEC. There's an article about this when I brought like a cable that I had bought on Amazon that we paid $179 for, right? Literally a physical Ethernet cable that connected our server to the exchange server. And Nasdaq was charging this. I'm being a little hyperbolic, but really not that much. They were charging us about a half a million dollars a year for that because there was a monthly charge for quote unquote connectivity. And it literally was just an Ethernet cable that you could buy. So I got pissed off and said, okay, physical connectivity and market data are elements of an exchange. An exchange for your license from the government, right, which gets you that market data fee that I mentioned, the SIP revenue and everything like that, and gives you immunity, right?”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, this was, if you go around and Google, I was pretty vocal about this, I don't know, five, six years ago. I can't exactly remember because I got annoyed that you had a duopoly effectively. You know, you had three large exchange groups. And between what is called the SIP or the consolidated feed, right, that's roughly $500 million of quoting revenue that we all pay that gets disseminated to those exchanges, right? And then on top of that,”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Because you think it actually would fit in nicely with the whole notion of a progressive that wants to empower the little guy. People look at the ecosystem like somehow there's something nefarious going on.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Not acting in the best interest of retail brokers. So long and short of it, I think this will get thrown back to the SEC. We have a new chairman who is a brilliant guy who I've worked with a little bit when he was at the CFTC. There's some staff folks there that have been there for a long time that know this ecosystem exceptionally well. I think they'll look at the data and I'm very optimistic they will conclude that this all makes sense. Wholesaling for sure makes sense. I think they will look at payment for order flow or rebates and say maybe we need more transparency and disclosure around it, right? So clients know. But at the end of the day, if you don't want to trade with a broker that uses, that does payment for order flow, then open up a new account. Go to Fidelity. They don't charge payment order flow and they have good prices. So at the end of the day, it's all about choices. I don't understand this hysteria, particularly from those that are on the left of the political spectrum.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Retail brokers do in Europe, which I think is actually worse for the investors, right? Of course, I'm biased because worse than this, they just mark up the trade. So you get a worse price. You get a worse price. So the bid offer that we otherwise could extract on our own, right? The retail brokers effectively are charging more back to their clients. So you're getting a worse price. So which environment do you wors in? Would you rather pay zero commission and get the NBBO or better? Or I know there's a zero commission broker or brokers in Europe, but would you rather get that or get a price that is instead of Joe's $10 for Tesla, Joe's now paying $101 or $102? I would argue Joe's getting a worse deal in Europe than he is in the United States. So, you know, to me, it's just regulators looking at this and kind of, you know, in a knee-jerk reaction.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Say there was a lot of misinformation at the hearing, and I felt kind of bad for Ken and for Vlad and for the others who were basically for five and a half hours. I know how Washington works. It's great. I have spoken to over half a dozen congress folks and more of their staff to try to explain, hey, this is when you peel back the hysteria and peel back the onion and look at it. It really isn't that bad. And actually, if you're a progressive, a Democrat, whatever you want to say, you should be thrilled with this ecosystem because the 300, $500 broker that used to rip you off by making you pay an eighth or a 25 cent spread doesn't exist anymore. So the old Wall Street way of really taking it to the real retail investor has gone away. The retail investor is totally empowered, to use an overused word. There's been democratization. Now, in Europe, right, everything isn't as it seems.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, what I would say is look, I mean, this is not like some new, obviously, people acted as this was a new situation, right? This has been, you know, this structure, this ecosystem has been going on for 30 plus years. To answer the first part of your question, which is, you know, the SEC has looked at this five or six times the whole notion of wholesaling and payment for order flow or rebates. The SEC and FINRA are always examining the best execution statistics and obligations of all the retail brokers from Robin Hood to Zecho trade and of all the market makers from Virtu Citadel, et cetera, right? So this is not like an area that has not been looked at by regulators because of some of the hysteria, I'll say it around these meme stocks and kind of the situation, it ended up in Congress. And I will charitably”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“But they had to get out of it. If you go look at the list, like UBS is in the business, they're probably like number four or five, and they're kind of not as competitive, frankly, because it's really hard to do this business if you've got a huge global institution you got to feed. You know, someday I'll invite you to my office when the pandemic's over. It's not that pretty, right? We don't spend money on that kind of thing. We have to spend money on the research environment and the simulation environment. And so that's why this business works for these kinds of firms. And Citadel is by far our biggest competitor. And they're fantastic at it. And the notion that somehow they were mixed up in this Robin Hood conspiracy theory was just beyond comical to me.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Course of a day. And this is a very scaled business, which is why it's very difficult. You didn't notice in the names of competitors Goldman Sachs or J.P. Morgan or Barclays or Morgan Stanley, right? They all used to do this business.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“So, what's our competitive advantage? We've got great relationships, we provide great service to those retail brokers, right? Because it's a guaranteed execution. If we F up and the market data is wrong or if we have like, you know, the power goes out in our data center or something like that, it's still our execution. We eat it, right? So if we have a mistake, we eat it. Exchanges can't do that. So it's a service we're providing. And as I said, we've been doing this for a long time and invested a lot of money. And we do it really, really efficiently. So if you think about like what's the margin on this, like the margin on an individual basis, like on a single name is literally single digits and subpenny. And why are we so profitable and why is this business work? Again, it comes back to scale, right? We trade 25,000 different financial instruments. And if we try to make a couple hundred bucks, a thousand bucks on them, that kind of thing. And it adds up over the.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“The retail brokers around a table and said, Hey, you guys are mad as hell at the New York Stock Exchange, essentially. Why don't you send your word? And so starting 20 years ago, they built a simulation environment, a research environment, obviously that we now run that cost us a lot of money. We've got very sophisticated algorithms and strategies that can internalize that order flow and hopefully more often than not make money on it. We've got dozens and dozens of really, really smart men and women that have PhDs and things that I vaguely understand. I'm a liberal arts guy, right? So this is not my area of expertise that literally spend thousands and thousands of people hours every year trying to be better at. And what I'm good at and what Virtu's good at is we run a very, very lean efficient environment. So yeah, we trade an awful lot, but we're not a big bank, right? So we have less than $1,000 employees and we have a very large scale business that's in over 250 marketplaces.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, maybe with some small exceptions, you're never going to see anybody really north of 50%, certainly when it comes to marketable orders, maybe non-marketable limit orders. It might be higher. So the brokers naturally, right, what would you do if you needed vendors, right? And you could have people bash their heads together. You'd like to keep two, three, and sometimes four or five of us in competition. You want to give us enough that we can be profitable, right? And we can make the investments in technology. And I'll come back to why we make money. But you don't want to be dependent on a single provider. So they want competition. So that's why when analysts, research analysts asked me about market share, I said, well, it's really overcooked because there's a natural cap. Really the way we make money is, look, look, and again, this predated virtue. So there was a firm called Night Capital that actually kind of helped create this ecosystem. It was called Night because it was the Knights of the Roundtable.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, what I would say is it's not in the brokers don't want there to be a monopoly, right? So there's sort of like a natural cap, if you will, that any one of us has over market share. If you look at, if you go through all those 606 reports,”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“These orders. Unfortunately, it doesn't work that way. So the ecosystem in the United States where you can get literally for no money, a guaranteed fill of a price that you see on your smartphone or better is by far the best ecosystem in the world, where in every marketplace in Europe and in Asia, and there is not a market structure that is as beneficial to retail investors as the United States. That's why I get so frustrated when I see folks on that other network sitting there mixing metaphors and castigating an ecosystem that they have no clue about. They don't even understand. I mean, Sorkin sitting there talking about his grandmother. And I went on TV and said, yeah, your grandmother can hold up her smartphone. And he talked about his grandmother, not me. And for no money can get a price that's better than what T-Row price can get. What the hell are you complaining about?”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“And in some instances, like, you know, for Robin Hood, we're actually paying for the privilege of doing that. And there's some other brokers that take payment forward to flow that are very large, right? So think about that juxtaposition. You've got a retailer tested order that could be hundreds of thousands of dollars that's getting guaranteed execution at or better than what they could get at an exchange. And sometimes they're getting price improvement and the broker is getting paid for it. Whereas an institutional order, we're getting paid by the broker. Now look, I'm not screaming poverty. For the most part, the orders aren't that size, right? But if you talk to any institutional investor that is, I would say, balanced and even keeled about how they explain themselves, they will say that retail investors have an amazing deal in this country. They would love to be able to do that. Their jobs would be so much easier. The institutional traders, all they would be doing would say, here you go, Virtuit, it'll take.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's say it's 700, right? So you can do the math. That's a large order. That order comes into the retail pipes that we have. And as soon as it hits our environment, regardless of what the NBBO is in terms of size, that thousand share order or 5,000 share order, it gets measured and we price it off of the MBB up. So even if there's only 100 shares at the inside, I'm being very technical right now, we're not only are we price improving that, we're size improving it.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“And let me go back to institutional order. We're measured not at whether we can provide them the NBBO, but whether over the course of a day what the impact of their order is on the marketplace. So as long as we beat a certain benchmark, right, they're happy. They haven't moved the market too much with their order, right? So that's kind of institutional trading 101. We're getting paid a commission. We're acting as an agent. We use our order routing skills and our financial technology in order to route those orders as adroitly as we possibly can to minimize impact, to not move the MBBO too much, right? Now you go to the retail side and what the federal securities law say is that every order that is retail attested from a broker that is less than nine, listen to this, $9,999 shares is eligible for those 606 reports. So literally, I can get a thousand share order of Tesla. I don't know what the hell Tesla is at right now.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“They are. They get much better execution. And that's the irony of this thing, right? We have both sides of the business. So I'll give you an example. I'll use a couple names. These are public companies, right? Or they're large companies. So Fidelity and Vanguard are giant companies, right? They both have retail arms and they have institutional arms, right? Fidelity's got an asset management business, got a retail business. Vanguard is the same. They're both great clients of ours. I love them dearly. We have fantastic relationships with both of them. I literally have been to visit both of them. The retail and institutional business are clients and they're in different buildings, right? And I literally, we get orders from the institutional side and they're paying us something less than a penny a share, but more than zero. I can't tell you exactly how much to route orders of Tesla. And the notional size of that order and the way we trade it is really not much different than what we do on the retail side. On the retail side, we get paid.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“The NSCC because we wanted to make sure that we could trade with Robin Hood, right? They were a counterparty of ours. We take risk. And so the NSCC did a brilliant job in risk managing what was otherwise a situation that was getting out of control. They didn't do it for any nefarious reason other than to mitigate risk in the system because you had a broker that had gotten a little over its ski tips, right? Once they did that, obviously Robin Hood raised an unbelievable amount of money. So there's some really smart people that believe in the business model. I applaud that. And Robin Hood did the only thing they could do, which was de-risk their portfolio and reduce their margin. I would have done the exact same thing were in their situation. I would have done a much, much better job, I would think explaining it because I know these rules exceptionally well.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Explain how margining works in this country. I'm happy to do it. I'll put you guys to sleep. I know it very well because I started this firm and it was my money making the margin calls, right? So when it's your own money, you tend to really know the rules pretty well. But they got one-sided GameStop because that's where their clients were buying or selling. It's an enormously volatile security. And so the rules of the DTC, technically the NSCC, are that the variation margin, so the variation at risk of our margin, if you will, for that name is going to be 100%. So when they had clients literally buying billions of dollars, right, they're going to get margin 100%. And the rules do not allow you to use customer funds to meet that margin call, right? So this was literally, as he said, a five or six sigma once in a generation kind of event that happened. Really, it was the rules of Wall Street that really slowed this thing down. So the system worked exceptionally well. We were in constant communication with...”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, of course. No. I mean, look, overall, we were making money during that time period, right? And I didn't have any conversations with Robin, who had nor did Citadel. Ken Griffin is a once-in-a-lifetime, a business builder entrepreneur. He's extremely ethical, right? There's not a chance in the world he would risk his billions dollar empire to have some kind of conversation with Robin Hood. I knew immediately, immediately, I don't want to sound like the guy. I mean, we are a self-clearing broker dealer. We know the folks at the DTC very well. We know how the margin rules work. I understand the plumbing of Wall Street, so I knew immediately what their issue was and that they had had a huge margin call. Could the public relations and the explanation of that been better? Yeah, of course. I'm sure if Vlad could go back and redo his life and he's an incredibly talented guy, he probably would have been more direct or more a little more transparent. But it's not an easy thing to.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“There's no barrier to entry here. Get yourself some investors, spend hundreds of millions of dollars in technology like we have developed the relationships and compete. This is a very sharp elbow, difficult business. And when the market rips in one direction in a particular name, more often than that, we lose money. And there are days where I sit in my office and we can be down significant eight-figure amounts. That's like tens of millions of dollars, right? four time periods more often than not it reverts and we've learned over the years and this business predates me and virtue because we bought it from a firm called night capital that over 20 years right it tends to make more money than not but it is not an easy business and the market maker has zero zero informational advantage that's the thing that really pissed me off about uh when sorkin was talking because he made it out like there was some information asymmetry for the market maker and it's exactly the opposite”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“We lose millions of dollars. I sit in my office And I'm sitting there grabbing my table and my knuckles are turning red on whatever it was January, whatever it was, I forgot that day, when the market rips in one direction and there's limit up, limit down, I mean, it doesn't always happen. Sometimes we get lucky because we're not flat at all, right? We can be long or short. All right. So sometimes we get lucky. More often than not, you do not get lucky and you get your faces ripped off. And we lose millions of dollars. That's why we trade 8,000 names. That's why we have a big firm that does a lot of other things. This business is not profitable every day retail market making. It's not. The critics think we just sit there and we collect the spread between Joe and Sally and we collect pennies like we're a toll bridge. If that was the case, then literally dozens of other institutions would come in when industry critics say, oh, this is an easy business. You know what I say? Compete. Compete.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“There's six or seven firms competing. Every single one of the orders we get, we get millions of them per day are 100% anonymous. We have no idea if it's Joe Sally or if it's some institution behind it, right? So the notion that there's some big nefarious Facebook thing going on here is just a concoction of people that spend way too much time looking at Silicon Valley companies. This is completely opposite. If anything the information asymmetry is the opposite way. We have no idea if everybody's going to send us 100 shares to buy Tesla at the same time and we're going to get our faces ripped off. We have no way of knowing that. We don't have a clue.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“So, where the critics are just completely ass backwards is there's no value that I'm taking out of your pocket. I'm taking value out of the marketplace. And in fact, I'm profiting it back to you. It's a win-win for everybody. The last point I'll make, and then I promise I'll shut up, is the reason I got so pissed off at Sorkin was because he sits there every time he says, well, it's like Facebook. There's an information advantage. We're getting client information. Complete and utter bullshit. Am I allowed to say that on this? It's complete utter bullshit. Sorkin is 100% wrong about that. I told him that. I'll say it publicly round and round again. This is not Facebook. If anything.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“All right, Joe, we're going to give it to you nine spot 99. So we're actually going to price improvement. So, Joe's happy. He bought it actually at a better price than what he saw on an exchange. The reason we're willing to do that is because we think we can make, maybe there was a nickel, we can make maybe half a penny. So Joe gets price improvement. Virtue makes a little bit of money. And Joe pays literally zero. The alternative would be, if there's not payment for order flow, Robinhood's going to charge you $4.95 per trade. So you bought $100 shares and maybe we made half a penny and you got a penny of price improvement. You're not buying that Tesla at $10 because you think it's going to go to $101 and you're going to sell it and you're going to make a dollar. You're buying it at $10 because you think it's going to go to, you know, $30. And you're going to make $20.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Makers over the last 30 years. This is not a new phenomenon. Said, listen, we know you guys are good. We know you guys can make money off this. We know that this money means this value is only there for the market makers. It's not there for anybody else. We're not taking money from a retail investor, but we, the retail brokers, we want you to pay profit share some of that bid offer back to us. And for the most part, we're going to return that to our clients in the form of price improvement. The ad I mentioned before, right, the 1293. And in some cases, the brokers have made a decision, which I don't care about, that they're going to take that money and they're going to use it to offset their cost of providing their service so that they can provide that service back to their clients for zero commission. So think about it this way, and then I'll stop my diatribe, which is Joe is a retail investor. Tesla is offered on the market at 10. We're willing to say,”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to push his little button. He's going to want to buy a market shares of Tesla at the market, and he's going to hold it for six months, a year, three months. And whether he buys it at 10 or we're going to slightly price improvement, Joe doesn't really care, but we care a lot. So you're not competing with Virtu and Citadel, right? Virtu and Citadel have this unique ability to narrow the bid offer spread and extract some value, right? Joe has a very different temporal view of the world. Joe's thinks, all right, I'm going to hold this thing for a week, a month, whatever it is. We're trying to hold it literally for, if we can, 10 milliseconds a second because it's going to be thrown into this portfolio that we're managing and we're going to try to extract that bid offer. And really what the brokers have done, they're smart. They realize there's value to smaller non-correlated markets, to orders, excuse me, and they've gone to the market.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Of how much value are we willing to provide back to the broker? From our perspective, from the virtue perspective, I imagine Citadel and the other competitors look at it the same way, we're Switzerland. There is value to us as the market maker in extracting the bid and offer. Really what we're doing is if Tesla is a nickel wide in the marketplace, we think we can narrow that spread maybe by a half penny, maybe by a penny, right? Because we're really good. We've really good. We've invested a lot of money in it. And because your order and literally the hundreds of thousands of other orders that we're getting are smaller in size, so they're not going to move the marketplace, right? They're not big institutional orders. And they tend emphasis on the tend not to be correlated with the remainder of the marketplace, right? Because the theory is, hey, Joe is a retail investor. He's going to trade five times a day, five times a month, whatever it is. He's going to buy his 100 shares.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Let me take a step back. So before I mentioned there were 200 odd retail brokers, wealth managers, et cetera, right? And those are our clients. And Citadels got a similar bunch. It's not just U.S. institutions, by the way. There's Canadian and European wealth managers. They're sending us orders and getting guaranteed execution along the ecosystem I described to you earlier. So of that 200 odd brokers, there's roughly 10 that say, okay, in addition, that's the key to price improvement. We want you to pay us a rebate. And so effectively, and that rebate is going to be set. There's not an auction, right? They're not routing flow because Citadels will willing to pay a couple pennies more than Virtu. It's set and it's in stone. So there are some brokers that say give us 10 mils, right? 10 cents per hundred. I don't want to be too technical. Others say 18 per 100, whatever it is. And that goes into our calculation.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“In terms of being a retail market maker, and over there, you know, retail is a big part of market. People have their smartphones and they're trading all the time, and not just equities. I mean, they're trading yen futures. They trade the S&P futures. They trade the Russell. So this shift is important and systemic, but it's not without global precedent.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Tesla, there's a whole bunch of other factors that led into it, but it really was a zero commission phenomena. And so if you think about retail trading as a percentage of the U.S. equities market, it went from, call it like 15-ish percent to as high on some days as like 25%. So that is a meaningful increase. It's kind of settled somewhere between 22% and 23% of the overall U.S. equity market. But this is a very important and as was demonstrated in late January, a powerful segment of the marketplace. And so it needs to be understood and reckoned with. And the regulators obviously will look at all this. But at the end of the day, you've seen a systemic shift in the US equity market. I will say, because we're a global market maker, this is not unprecedented. If you travel over to Japan, where we do a lot of business, we have a partnership with SBI securities where we do something similar.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, look, I mean, it was huge. I mean, and again, thank you for noting it really was the Zero Commission phenomena. And that was a long time coming, right? There was a whole bunch of regulatory changes in 2005 decimalization, right? So spreads narrowed, technological advances give a lot of shout out to all of the pioneers and guys that started Ameritrade and E-Trade and et cetera, et cetera. Robin Hood was the first Zero Commission broker, I believe. They started, I think, in 2015 and I knew at some point the incumbents obviously, you know, Schwab, Fidelity, E-Trade, et cetera, would have to match that pricing. And they did. And that happened in November 2019. So that was like sort of the coup de gra of a long period of technology and evolution. And then on top of that, the pandemic hits, right? Work from home. There's no sports betting.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, not really. I got nothing to hide. And he was so naive, I'll be nice about what he was saying. It was embarrassing, I thought. And I told him as much. Anyhow, so I will get off my soapbox and allow you to continue.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“The juxtaposition of the two was just so amazing. Here I am watching the anchors on that network who don't have a clue what the hell they're talking about. If you follow my Twitter account, I actually tweeted one of them and told them that. And then he had me on the show.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“But that's literally what we do, right? So think about how important it is that an advertising agency for one of the largest retail brokers in the world, right, that's an American institution. I'm not going to name their name. You can think of the commercial, right? They are spending money advertising the work that Citadel Virtu, Susquehanna, et cetera, do. Think about how ingrained that is in the system and then juxtapose that against the frankly lunacy that people were articulating about Robin Hood and Citadel. It's just, you know, that's why I watched late January and my jaw was like hitting the table and thinking, my God, these people have no idea what the hell they're talking about. You know, it's such an important part of the ecosystem. And it's so ingrained and it's so valuable that one of the largest American financial institutions think so much of it that it advertises that this as like a service, right?”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Trying to get us to frankly provide more value back to their clients. And if you watch TV, I'm not going to name the network because it's a competing network. There's actually one of the really, really large brokers. There's two dudes sitting having lunch. And one guy shows him his little iPhone and says, well, you know, look at the execution quality I got And he saved twelve dollars ninety three cents and he pays for the grilled cheese sandwich at lunch. They must be in like not New York because the grilled cheese would cost more.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“Here's the aggregate amount of price improvement, and Citadel came in first place, right? Because they provided 42 points of EQ. It's all measured off of the mid of the mid. So how much are you willing to improve off of the midpoint between the bid and the offer? And Virtu came in second place, Susquehanna third, two Sigma, et cetera. So therefore, in the month of March, we're going to give Citadel 42% Virtu, 23%, Susquehanna, 12%, et cetera. During the measurement period, whether it's a week or a month, we're in constant dialogue with them. They'll say, hey, look, you're doing really well in the top 500 names, but you're really doing poorly in the bottom 1,000 names. Can you improve your EQ? So there were always...”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source
“In the beginning of the week, let's say the beginning of the month, every broker's got their own rule and they say, okay, in the prior period, right? So it's, you know, we're now in March. So in February, Virtu Citadel, Susquehanna, two Sigma, I don't know who else is in UBS, Wolverine, right? There's five or six firms. We bashed our heads against each other. And for every broker's got a different way of looking at it. But for the top 500 names that are in the S&P.”
2021-03-29 · Odd Lots · Virtu CEO Doug Cifu Explains Payment for Order Flow and the Future of HFT · IDENTIFIED FROM THE TRANSCRIPT · source