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Jos Schmitt

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2015-05-24
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2015-05-24
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  1. “Ever fairness issue, they need to be transformed into more of a level playing field. And there are solutions to do that. And those solutions are being put in place today. But what the book has done, and there I say thank you to Michael Lewis. What the book has done, it has put these issues at the forefront of everyone's mind. It has initiated a wave of transparency. And what we need to do now is make sure that that transparency is really translating the reality of what's happening and not just being an oversimplification of things because then we are negatively impacting, as you just said, all the value that can be brought by high-frequency traders to the markets.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  2. “And what kinds of things are happening in the markets? It's absolutely true. Don't tell me that that's not true. But then the problem, of course, with a book is that a book needs to simplify. It needs to turn the world in black and white. You want people to read the book, get excited about the book. You don't want them to read 20 pages and then put it down and go like Jesus Christ. I don't know what's going on over here and I don't understand it. So it is a simplification of things, but at the same time there's a lot of truth behind it. And by the way, yes, we have an investor confidence crisis. Let that be very clear.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  3. “Yourself basically combating the high frequency trading, the negative piece of it, and then also having the courage to talk about the positive pieces of it too and how it is adding liquidity, but maybe just maybe in the wrong areas or in the wrong type of companies. So that was just fantastic. I really enjoyed this. Thank you. The one comment that I would add about Flashboys and the way to look at that book, Stick, you make the comment earlier. People should read it. Well, yeah, I will recommend the same. And then, you know, I got sometimes reactions back. Why do you tell people that they should read it? This is too negative. This is someone who's saying markets are rigged. This is not good for investor confidence. Just name it. And my view is you should read it because in that book, there is a lot of elements that are correct. When you look at the way that some of the strategies are being developed”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  4. “On a whim. I mean, this is not an easy task, and to do it in such a highly complex and highly technical industry just is an inspiration for people listening to this so that they can take that same emotion and take it as, you know, you, the listener out there, you have that thing that you know you can make a difference in. And it might be something really big. And look at Jose, look at what he's doing. He just went after it. And I think for all of our listeners, that's exactly what they can take away from this interview is they can go after it. They can make a difference and shape the world around them. It's just awesome. I love this interview. I really thoroughly enjoyed hearing your perspective on this. It was kind of neat to hear the other side of the coin to Flashboys because I think Flashboys definitely paints HFT in a very bad light. And it's kind of neat to see a person.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  5. “To be meaningful in your life, you have to do something that is really about making things better. And when I then take that back to the Aquitas Neo Exchange, the Aquitas Neo Exchange is not something I did because I wanted to have a job. It's not something I did because it is something that could generate big returns. It's something I did because I fundamentally believe that we have issues. I fundamentally believe there are solutions. And I fundamentally believe that it's an incredible opportunity to do what is right. I'll tell you what, Juice, that was fantastic. I love the book recommendation. I love how you put your perspective in there of, you know, go after it, make a difference. And I think for a lot of people, they can be inspired by listening to a person like yourself who, I mean, you're a big dreamer. I mean, this is, you don't stand up your own stock exchange.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  6. “For the evolution of this mankind. Now sounds all very nice, what I say. So why did that impact me and how did it impact me? Well, it impacted me by making me think a little bit about what am I doing? What are we doing? What are we seeking to achieve? And is there anything in my industry where I can be more meaningful than just trying to develop another business that's going to seek to be successful from a financial perspective solely, make shareholders happy? Can I do something else? And I would say that that type of realization of who we are in what continuum we live made me think a bit about can I do something more? Can I do something different? Can I do something transformational that can represent at the end of the day some form of legacy for the better of the industry that I know and that I'm good in?”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  7. “Can go in a good direction, can go in a bad direction. And then it was showing that globally, not just focusing on our Western culture, but looking also at what's happening in Asia, like if you think about the entire period of Enlightenment of the Greeks in the 6th century BC, something exactly very similar happened at the same time in China. But the point that I want to make is It shows you big things, a large continuum, and it shows you at the same time that we, as important we may think we all are, are just a very small piece in a history, in a time-space continuum, that has a very small amount of time, or we have a very small amount of time to do something that is going to be really valuable for the evolution of this.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  8. “But I read, I think it was probably a good five, seven years ago, short history of the world, which was a book written by A.G. Wells in the early 20s. And what that book is doing, it is giving a bit of a holistic overview based on the knowledge and scientific knowledge at that time. So we're talking early 1920s, of the evolution of Earth and mankind since inception until then. And remember that it ended pretty much just after World War I. What struck me with that book is how it was showing the entire continuum of history and how history evolves and how it predicts things and how things”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  9. “Here, I am going to take you by surprise because I'm going to talk to you about a book that has nothing to do with the industry, but you can link it back to our vision, our mission. And the book probably impacted me most. And I've had the opportunity to read a few in my life, many linked to the industry, which were usually quite boring, to be honest with you.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  10. “We give you a choice. If you work with us, you can decide where your order is going to go first. And that is the beginning of tomorrow's world.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  11. “Exactly what they trade, what the first marketplace is they trade on, and then also how the price evolves. Can you explain me why this is happening? And I would like this to change going forward. So I think very important to start showing the industry that as an investor, we understand more about what's going on. And when we see things that we don't like, we want our instructions to be followed. And at the end of the day, we are the owners of the shares, no one else. So I think it's very important to raise the issue, ask for transparency, and start to feel empowered about doing it. Today it's not something you can control yourself, but you have to start putting pressure on the system. The second element that you can do, and that is very exciting in what we see again around us, that is that we see some dealers starting to go public and say, by the way,”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  12. “And then sell it back at a higher price. That is typically again that technological front reading. So can you now as an investor influence that? Well, it's very difficult because you cannot say, you know, I want if different marketplaces have the same price at which I can trade, I want to go to the Aquitas New Exchange first. You don't have that on your discount brokerage platform. And if you work with your investment advisor or whatever it is, he cannot say send it to NeoExchange first because that decision is taken centrally. So you cannot impact that directly. But what can you do? What you can do is two things. One, you can say, gentlemen, ladies, I want to understand how you are handling my orders and ask for transparency. Start to raise the issue. When I look at the confirmation receipts of my own orders, I see...”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  13. “Couple of days ago when they started a new market structure advisory committee in the US sponsored by the SEC, where she said, why is it that 90% of all the retail orders are being sent first to the marketplaces that gives the biggest rebates to the dealers? So what we see is that that's a very important element in that process also. And the risk with that is that high-frequency traders know that. And they know that an order is going to go first to a marketplace where there's an incentive for the trading desk to set it. And then what is a typical strategy? They're sitting there. They see it coming in. They trade a very small part of it. And then they know that something else is going to come in all those other marketplaces. And they are going to cancel their orders there. Frontran, they're going to front-run it, cancel their orders.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  14. “Of the markets. So in Canada, you have nine marketplaces now where you can see prices. So you always have to send to your order, to the marketplace that has the best price. Now, what often happens due to arbitrage and other reasons, that is that those marketplaces tend all to be at the same price. And then the second element kicks in, that is the decision of a trading desk. They're going to say, well, I'm going to send my order rather here than there. And what drives that? Well, what should drive it is the market I go to which one will have the highest probability that my order gets totally filled in one shot. What is the probability that the price is not going to move before I hit that market? And so on. So the key consideration that should drive it is best execution. But what we also see, Mary Joe White made a beautiful comment about it.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  15. “Yeah, that is an interesting question and a very critical question. When you want to buy security today, you can go through your discount brokerage platform or you can go through your dealer. But at the end of the day, the decision on where that order will be executed is going to be subject to two things. the fact that the trading desk that is going to place the order in the market needs to make sure that you trade at the best prices available in the market. There's a regulation that is in place in the US. It's called RegenMS. It's the OPR rule in Canada. So you cannot trade at a price that is below the best price available in the market. So that is the first element at plays.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  16. “We are pro liquidity. We are pro doing what is right for the investor and the issuer or the capital raising company. And that is how we will build our solutions.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  17. “Yep. No, absolutely. And, you know, it takes you back to how complex markets became and how complex things are. And then without, as you said earlier, I think it's a very important point that you make. Without getting into a black and white analysis of the scenario, I mentioned it earlier. I would love to go out and say, you know, HFTs are bad and we don't have HFTs. That would be an absolutely false statement. And if you would have that approach, you would have more of a detrimental impact on markets than anything else. But if you get into the nuance, then it becomes all very, very complex to explain. And even us at the beginning, people were labeling us as, oh, this is the anti-HFT stock exchange. And I said, no, we're not. We are anti-predatory behavior.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  18. “There are issues indeed, and these guys were not 100% sure what they're doing or how they're going to solve the problem, because that's a bit the kind of comments that you got. But at least they are raising the right issues and they are coming with a number of solutions. So we should support that kind of innovation and that kind of transformation of capital markets. That was extremely exciting. And with a bit of a funny component to it, because indeed when you talk with them, it is very complex for them. So they don't really know what we do. They don't really know how we do it. But they say you hit the”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  19. “Your security is going to be traded in a liquid way so that you have volume. Because if it is not, investors will look at it and your future cost of capital is going to go up. Plus, you will not be able to use it in a successful way as a currency. You know, if you want to do some merger and acquisition and things like that. And what more and more corporations start to realize is that the way that markets have evolved is negatively impacting the liquidity of their security. And they do suddenly, with us emerging, said, well, wait a minute, those guys are hitting some key points that are at the root cause of the problems that we start to observe in the markets and never seen that before. Suddenly we see those corporations starting to make comments with limited knowledge. You know, you can't expect a company that has a business to run to be an expert in market structure, but they started to say, well, wait a minute.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  20. “This is not what really got me excited, to be honest, when we started that process, something very unique happened. And that was that a stakeholder that has always been silent in the way in any common process or in any debate around how markets operate suddenly emerged. And that was the public companies. That was the capital raising companies. Think about it this way. If you are a corporate, you need money. You've got a number of options. You can go to the bank, you can go private, or you can go public. So you can list your company on an exchange. We know that banking funding is a bit tight for the moment. If you go private, there's often an issue where you may lose substantial control over your corporation. So going public is a great option. But going public will only work”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  21. “I almost introduced it already in what I was saying earlier, and that is when we went through that what we were in technical jargon call pre-filing common process so that common process before we even said, you know, we want to become an exchange, but that process where we went for public comment with the regulators to just discuss principles of what we want to do. So that is something very unique. You don't see that. You've never seen that before. That was something very exciting and it was showing you that clearly there was an understanding that there is something that needs to change. There is something that needs to evolve. And no one is really 100% comfortable with what that should be. Well, we at our very strong views and opinions about it, but you could see that the regulators wanted to get feedback. That was quite unique.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  22. “Went through a common process, an official common process in Canada where the regulators put forward the principles of our exchange, not we ask for a recognition of a new exchange, but the principles of the exchange to see how the market would react. Lots of debate, lots of discussion. And you know what? I thought that was great.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  23. “Had a period of eight months focused on discussing and presenting our solutions to the regulators because the solutions that we came with, you're absolutely right, are totally different. You know, when you say I'm going to slow certain participants down, when you say I'm going to change the way that priorities are taking place in a market, well, it's nothing to do with the way that things used to operate in the past. The models in the market, everyone does whatever he wants, and you typically trade on the first in, first out principle. So this went against a lot of established traditions and ways of working. And we got some reactions and discussions and questions about it. We even went, before we initiated the formal start of this exchange, we even”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  24. “Is a methodology. And some people use it in a good way and some people use it in a bad way. And what we just try to counter is the bad strategies. And if you use it in a positive way, you will have the ability to be successful in our market and we will welcome you with both arms open because I do fundamentally believe that the electronification of the markets has been beneficial to the liquidity of the markets. like always some people abuse it. Now let's come to the legal question and I would probably define it more as a regulatory question. When we started this initiative and I gave you a little bit the history and the background earlier today, all of that started at the end of 2012 and then the seed funding from those aid organizations came in, I think it was May, May or June 2013 and then we”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  25. “I had a beautiful discussion, and I give you that as a quick anecdote. I had a beautiful discussion with a market participant who joined our venue and said, well, I want to be a real market maker on your exchange. I don't do any predatory strategies. I will just provide real liquidity. I'll take up an obligation in the liquid securities, in less liquid securities. So I assume that I'm not going to be subject to your speed bump. And I said to him, well, you are an eye-frequency trader. He says, yeah, but I only deploy good strategies. I said, if you only deploy good strategies, you shouldn't have a problem with a speed bump. And the discussion was over. But why do I give you that anecdote? Because I think it clearly defines what we seek to do. So we are not in any way shape or form anti-HFT. Again, as I said earlier, high frequency”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  26. “Well, probably a couple of comments to add so your assessment of what we do is correct. And it is, as I said, one of the strategies that we use and we use many other ones. And by the way, what I would add to that is that we apply this to anyone we define as a high-frequency trader. And before answering your legal question, it's probably interesting to talk about that because remember, I said that there is good behaviors and bad behaviors. So are we then impacting them both? Well, no, that is a beauty of the approach that we took because our approach is not trying to prevent a high frequency trader to trade on our market. Our approach is to prevent, to roll out certain strategies on our market so that we know are predatory in nature and detrimental to all the other investors.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  27. “Much further in the queue because the trading book is based on the first in first out principle. So you always have the HFTs sitting at the front and the long-term investors at the back at the same price. Well, we say too bad to say, if it's a long-term investor, he's going to jump the queue. So even if you were in that book before him, he's going to jump the queue. So those are two examples of the things that we do. Having analyzed all the various types of strategies that we know they deploy, we then came with solutions to tackle that. But at the same time, we didn't want to punish anyone who's a long-term investor. So I don't see the benefit of slowing down a long-term investor. Why would we do that? So we have been very selective in identifying the strategies and apply a cure, a solution to prevent it, predatory strategies and apply a cure a solution to prevent that predatory strategy to be deployed.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  28. “And it's a combination of tools. So one of the tools that we use is when they want to take liquidity in one of our trading books, as you just said, yes, we throw a speed bump in front of them and we slow them down. Believe it or not, not for more than five to nine milliseconds. And it is something that is random because if it's not random, we know they can adjust to it. And that advantage that they had, like they knew something or they detected something before anyone else, well suddenly You can't execute upon it anymore. But other mechanisms that we use that is if they are sitting in the book, I'm sure you must have heard about layering the books where you see lots of small orders put in books that are sitting there and waiting as part of detection mechanisms or as part of a strategy where you can sell at a higher price. Well, if they do that and you have a long-term investor sitting next to them at the same price, usually.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  29. “Well, we have a set of tools. So if you look at our model, our model is different from a pure trading perspective now. That's what we're talking about. It's different to the model that Brett has been using at IEX. So he has a model where he slows everyone down. We have a model where we say, you know what, we're going to identify who high-frequency traders are. I would say tend to know who they are already, but we have a clear definition that allows us to spot them and identify them. And then when they trade securities on our platform, we apply a series of mechanisms to prevent or try to prevent, you know, I'm not going to say we're perfect 100%. I wish I could say that, but on try strategy is about preventing privileged access to information that allows technological front running to take place.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  30. “Market makers, and remember the concept I talked about earlier. Market makers were stakeholders in the industry. They made money in liquid securities because that is the same as an HFT probably would do today. And then that gave them the compensation to put capital at risk, that gave them the compensation to sit on positions if you want in less liquid ones and act as a provider of liquidity. But they have been totally crowded out in the active securities by HFTs. cannot make money anymore. All they are left with is bad trades and less liquid securities. So they started to pull out and we see liquidity in the smaller and mid-cap securities slowly but surely deteriorating.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  31. “You're absolutely right. I think your analysis is 100% correct, that is that those strategies only work in insecurities that are liquid, where there is investor interest. So if there's no investor interest and you try to do that, well, you put yourself at risk when you technologically front run because you're not sure you're going to be able to sell it back. Because always think about it this way. That type of strategy, that technological front-running strategy is a no-risk strategy. They will only do it if they are sure that there's going to be interest that will allow them to revert their position once they've taken it based on their asymmetric access to information. And what does that mean? What that means, and which in my eyes is quite fundamental, is that the less liquid securities get less and less attention, or they don't get any attention from them. But what you've also seen is that the”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  32. “Element that I would like to add to that, talking about liquidity, because you referred to my earlier comment about smaller securities or mid-sized securities. One thing that we have also noticed, and that was part of that original analysis, when you look at high-frequency trading, you will see it concentrated in the most actively traded securities. So I don't know if you have ever noticed that. It's quite fascinating when they say they add liquidity. One thing that I find fascinating is, well, why don't you do it in securities that really need it rather than those where we don't need it? And many of the transactions for me are more driven by creating more volume than creating real liquidity.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  33. “Front run everyone else in the market in Toronto. And by the way, when I say there are a few milliseconds faster, you have to put that in a perspective, which is that when you blink your eyes or when I blink my eyes, it takes us about 300 to 400 milliseconds. So by playing those games, by leveraging technology where they can gain three to four milliseconds, they are front running other players who have no ability to react to it. Those behaviors are the bad one. And those are the ones that need to be counted. So I think that is a very important element to think about. So can they provide liquidity? Yes, if they apply HFT in a positive side, can they negatively impact liquidity? Can they create an unlevel playing field for other market participants when they apply the negative way? Yes also. So it can go both ways.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  34. “Can be traded in a multitude of different marketplaces. Think about the US, there's 50 marketplaces where you can trade, I don't know, IBM, the 50 marketplaces where you can trade Microsoft or Oracle. So they sit in those marketplaces. In one of them, they're going to see that someone is coming in. They know that he's going to hit some of the other marketplaces and then they're going to try to trade ahead of the arrival of that order in the other marketplaces, frontrunn it, and then sell back at a higher price. That is one way. Another way is that they leverage some of the latest technologies, microwave technology, which allows to move data in a few milliseconds faster, for example, between Chicago and New York or Toronto and Chicago or Toronto and New York. So they know a few milliseconds before everyone else that there's a price change and a commodity, there's a price change in a correlated security in the US.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  35. “Trading technology. Now, as I said, like always, what you see is that some people will start to figure out, well, wait a minute, I can also use that in a different way. And for me, a good example of what probably is the most pervasive use of high frequency trading in a negative way is leveraging information to technologically front run other market participants. So let me give you two simple examples. We know today that certain firms are just sitting in the markets lurking at what's happening in that market. And as soon as they detect that there is an order coming in, whether it's a large institutional order or even a retail order, as soon as they detect that order comes in, they will try to front run it on a multitude of other markets. And you have to put this in the context of a world where today one security, the same security,”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  36. “To provide better quality to the markets, better liquidity in the markets by managing a multitude, for example, of securities that are correlated. Think about someone who is making a market in an index exchange traded fund. Well, he's not only making a market in that ETF, he also needs to be present in the related futures, the related options. If you want to do that today in today's world, and you don't have the right technology in place, you cannot provide a quality service. Another example, and high frequency trading is a tool that can help you. Another example is arbitrage. If you want to make markets very efficient, having the technology that allows you to really do efficient arbitrage between a multitude of markets that are correlated is going to be good for liquidity. So those are good usages of high-frequency”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  37. “Yeah, it's a complex answer. I wish I could say things like Michael Lewis in black and white. And sadly enough, the world is not that simple. But I would put it this way. The first thing that we need always to remember is what is high frequency trading? That's the starting point we need to think about. High frequency trading is not a strategy. High-frequency trading is not a way that you buy or sell securities. High frequency trading is what I would more define as a methodology. So it's a tool. It's being able to very rapidly have access to data and very rapidly react upon that. Now, like with everything, think about the internet is a good example also. With everything, with all new technologies, you can use it in a good way and you can use it in a bad way. If you use it in a good way, you can apply it”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  38. “about the behaviors they see in the market, the impact it has on its pricing, the risk that if they go public, if they're not part of a select few, they will not have liquidity, which can be very detrimental. So many, many issues for which then I started working on identifying solutions. And when all that work was done, a good overview of challenges in the market, a good overview of what the solutions could be. I handed that back to the person I was working with, with RBC, and told them, you know, these are my findings, this is what I believe. And these are the solutions. And, you know, this is not simple because if we want to put those solutions in place, it's not just about setting up a new alternative market or new alternative trading system. But I think we need to set up a full-fledged stock exchange.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  39. “A number of behaviors that are predatory in nature, that are detrimental to long-term investors. But I also notice a lot of other things because people always focus on the concept of high-frequency trading. Also notice that it has an indirect impact on the liquidity of less actively traded securities, and we can talk about that afterwards. I noticed that a category of market participants that we used to know in the past as market makers has been pulling out of the markets and they were a key liquidity safety net in those markets. I noticed that the cost of trading, the cost of access to market data has continued and continues to grow, making trading very expensive. I noticed that the companies that are seeking to raise capital are more and more concerned about going public.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  40. “And my reaction was look, I don't see the benefit of doing this again. This is going to create more complexity, more cost to the industry. Because think about it this way. Every marketplace you launch is a marketplace that people need to connect to, that people need to integrate with. So there's a lot of work with that. And then the conclusion of the conversation was, you know what? Why don't you take a month and a half, two months, sit back, look a little bit at what you see happening in the markets and what you think could be the solutions. So this was great, kept me out of trouble while I was not doing anything else. And I then started analyzing how markets operated at that moment, what the issues were, what the challenges were. And clearly noticed one high frequency trading is a component that is omnipresent in the markets today and that it leads to a certain”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  41. “Brought it together with the incumbent, what we call over here in Canada Toronto Stock Exchange and created one big virtual monopoly again, if you want, in the Canadian marketplace. So when all of that happened, you know, there was an opportunity to stay, but at the same time it was not really an environment that was right for me. And I decided to move on. And probably a week later, one financial institution came to me and said, you know, looking out at the Canadian marketplace, we are back in a monopoly situation and we have a player here in exchange that is rather enabling high-frequency trading than trying to tackle some of the issues with it. Do you think we should start a new competitor again? You can imagine that having left my previous gig a week earlier, it was not the first thing at the top of my mind.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  42. “Marketplace where you can trade securities. So I did that in Canada and that was from 2008 until 2012. And in that period, it's really the period where the concept of high frequency trading, as we know with today, developed. And you look at the US, you look at Canada, I would say high frequency trading really started 2007 in the US, 2008 in Canada, and then continued to grow. And that is also where we saw the development of many of those behaviors that I would define today as proprietary. But that is the history. So in 2012, then something important happened to me, that is that alternative marketplace that I set up and did that with a number of financial institutions got acquired by the group of institutions who”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  43. “I think you already talked yourself a bit about the background and the experience, so I'm not going to spend too much time on that, but it has been many years indeed active in the exchange space, whether it was securities, derivatives, whether it was trading, clearing, settlement, just name it. So had the opportunity to look at how markets worked and more importantly, how they evolved over time. And the last initiative I was involved in here in Canada was the setup and the operations of what we call over here an alternative trading system, so not a stock exchange as such, but a marketplace where you can trade securities that are listed on the stock exchange. I think you mentioned Brad Katsuama earlier. AEX is a good example of that. They are today not a stock exchange, but they are an alternative.”

    2015-05-24 · We Study Billionaires · TIP 036 : Starting His Own Stock Exchange - with Jos Schmitt (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT