YouSaid · the spoken record

Joseph Saluzzi

lines on the record: 90
first: 2015-03-02
most recent: 2015-03-02
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

“Absolutely. We're a trading. We were one of the first trading partners. We think IEX, they nailed it with their model. They got rid of rebates. There's a flat fee on the IEX exchange. Whether you make the liquidity or take a liquidity one fee, they got rid of the speed advantage by putting in something, you know, Brad, I'll tell you more than I can. It's a buffer.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“In an individual stock. Exactly. So that argument doesn't hold any water, but dark pools themselves have been so perverted and so over the years the Barclays case that the AG, the New York Attorney General, has brought against Barclays Dark Blue, which is still pending, exposed a lot of what actually goes on inside and the lack of disclosure, the lack of transparency that the clients of the Dark Pools don't have no idea. They have no idea who's getting tiered and who gets the order first. These are the problems inside the market structure when you talk about the term rigged that do exist, that do advantage one class of investor over another that need to be taken out of the market. If we're playing on a level playing field, we've got absolutely no problem with any high frequency trading. I don't care who you are. Low frequency guy, I want to interact with every piece of liquidity, but I want to do it on a fair and level playing field.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Share blocks. And there are still a couple of dark pools now, LiquidNet in particular, that's still over 40,000 shares on an average trade size. Those are institutions crossing stock, reducing transaction costs. And some may say, well, you're shutting out the retail investor. No, you're not, because those institutions are trading on behalf of retail investors. They're a mutual fund”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, dark pools are off exchange venues that don't need to publish their quotes. Back in the day when I was at Instant, we called it a crossing network at night because we wanted to cross chunks of stock. Now they operate throughout the day in an average trade size on a dark pool is no bigger than a lip pool now, less than 200 shares.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. And it changed their philosophy. It changed. Okay, we're now for the bottom line. We have to return money to investors because that's what public companies do, right? Nasdaq, for instance, has less than 10% of their money generated from equity cash transactions. That means stock market. So where's all the money coming from?”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“the structure of the market is rigged. There are forces. The stock exchange model is broken. They're for-profit companies that have different incentives than they should have.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“The book was huge. The book was tremendous just to get the debate really moving forward. And we've been struggling with this since 2008, right? So 2008, we wrote our first white paper. We were on 60 minutes in 2010. This has been a long time, a long struggle. Michael Lewis came in like a steamroller, and everyone is talking about, which is fantastic. But, you know, he used the word rigged, which really got people freaked out.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“The yields went from like 210 to 180, I think it was. That's a huge move, huge, huge, within minutes, and apparently no one knows the Ukraine situation, whatever it was. The same scenario. But why did the treasury market, now it's a known fact that high-frequency traders are now in the treasury market? Electronic trading has taken over the treasury market. So it's the same scenario that, like I read before, limit order books can quickly evaporate. And that's what we're dealing with. So our issue is how do we build those limit order books again? How do we put diverse liquidity back into there where people feel comfortable that they're not going to get picked off all day?”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“For the next hour, I'm not going to be in market. And that means that the exchange won't give you the special pricing that they give to these market makers. But just as an example, October 15th of last year, there was a flash crash in the treasury market. I remember though. Okay. That day should be on everybody's Blackboard, just like May 6th was. That was a very, very disturbing event because that's the most liquid asset in the world. And it crashed in a matter of minutes. And then it zapped right back again, just like the equity market. How big a move?”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, to be considered a market maker, you have to be there. But if you can easily just shut it off and say, oh, I'm not going to be a market maker right now. You get to do that.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Institutional investor who's trying to buy 100,000 shares of a stock that trades a million shares, things have changed dramatically for them because that footprint they're leaving is basically the one that everyone's trying to pick off. That liquidity that's there disappears quickly. The obligations of a market maker are no longer there. The average trade size now on both lit and dark venues is less than 200 shares. Less than 200 shares for an average trade size. It's incredible. How do you get anything done?”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that's wonderful for Vanguard who makes money on how many trillion of ETFs they have right now. Three trillion dollars. Not two ships. I would want local, you know, but for them, it's a different business model, right? They're running some, and for a quant, it's a different business model because they're flipping in and out of numerous positions throughout the day. But we're talking about a traditional...”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Accenturer was treated at a penny a share. So I think it was Sam Adams too, which is whatever stock price now, a penny a share. It was absurd, and it was basically it was called a stub quote, where a market maker could place a one-sided quote, so he'll put a penny bid, offered at $100, whatever it may be. The SEC has since banned stub quotes, but that wasn't the problem. The problem was, why did that market order come into the system and have no bids or offers? Why did the limit order books that we talked about before just disappear? Well, it's not really real liquidity. It was kind of a phantom liquidity.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think they're still looking into that at the regulators, right? But it happened. But basically, the problem a lot of the retail investors faced was folks who had stopped loss orders in there. If a stock got to a certain level, they wanted to sell it, those stop losses became market orders once they activate. Well, what happens with a market order normally, it'll get sent over to what they call an internalizing broker. They will normally pick up this market order. They'll trade against it because they consider retail flow dumb. I'm sorry. But that's their word. It's not mine. And they want to basically give it a subpenny price improvement. And then they're off and they're trying to trade against it. In this scenario, the internalizers tend, they walked away as well. So these market orders got exhausted to the lit exchanges or to New York and to the Nasdaq. And there was no bids or offers there. So what does a market order do? It goes down and it starts looking for the best bidder offer until it finds something. Even that is a sec.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was in order, right? And by the way, it was a 75,000 contract order, which half of it wasn't even executed until after this was over.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't That was an evaporation in liquidity, basically, right? And let me read you just a real quick quote from after the flash crash, the SEC CFTC Advisory Committee put out a report, which we thought was one of the best pieces that ever came out of DC. Really? Listen to these words, they said, talking about the flash crash. Indeed, even in the absence of extraordinary market events, limit order books can quickly empty and prices can crash simply due to the speed and numbers of orders flowing into the market and due to the ability to instantly cancel orders. So the books emptied. There was a situation where there was grease going on like there is today, right? And then there was a supposedly a large e-mini order in the futures market. Not even a fat thumb.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“The flash crash. Well, it had stub quotes then. They were trading him at zero, right? That was how crazy was that. But people will say with a specialist system there were problems and they landed in handcuffs and all this. If there were problems and there were, we would call those out. If we were back in the 90s right now, Sal and I would be talking about problems back in the specialist world because you get rid of all of these problems, right? But let's think about it. At least the specialists had what they call an affirmative and a negative obligation, which means they had to buy stock at certain times and they couldn't sell at other times. And the customer knew that and there was a confidence. A confidence.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Spot on exactly, and that's the problem obligations are nowhere to be found in the market making community anymore, although they will tell you some of the exchanges have an obligation of 8% within the NBBO, which means you can quote 92 offer at 108 on $100 stock. Thank you very much. You can have that liquidity. But if you don't have an obligation, by the way, that's a tough.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“We certainly wouldn't have a problem with that. They would scream bloody murder. And then here's the flip side. They're going to say, well, if you do that, I'm going to take away my quote-unquote liquidity and I'll be gone. And that's where everyone gets scared.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, and we actually had recommended that once also, but the high speed community on the other side will say that that's going to mess up their models. They can't place bids and offers, and therefore they can't arbitrage certain scenarios. Let's say it's an ETF arbitrageur and he's going to trade 500 stocks against the S&P 500. If he's forced to place a bidder for a tenth of a second, which are blinking our eyes, it's ridiculous.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes. And that's exactly one of the problems that we have with certain high speed trading or any trader for that matter. We're critics of potential problems in the market and market structure spoofing has no business being in the market, right?”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's gone. There's never an intention to execute trade. And that's the thing. And how do they prove that? It's an intent scenario in the CFTC again has a lot more leeway. So if you're a guy in the futures world and you're spoofing, you should be a little scared now because the CFTC has a much, much more powerful regulation that they can use against you.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Spoofing his placing bids their offers where you have no intention of trading them. And there's actually been a couple of cases just recently the CFTC, by the way, has much more, the commodity futures and trading commission, much more power now under Dodd-Frank to go after spoofers than the SEC does. It's kind of a weird thing how it was written in the rules. But they've come after a couple of guys recently and have settled a few cases where folks or these firms high speed firms because you could manually spoof, but it's really not going to be effective. But they were basically placed layering the book really, which is another term layering.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Incredible work that Nanix Eric over at Nexix, I mean, he could be, he should be working for the SEC, the amount of data that he processes and the things that he sees, it's amazing that the folks in the SEC or the other regulators don't see this, which kind of scares us a bit. But quote stuffing is that if stocks trade on what they call channels, maybe there's A to Z in one channel, E to F in another, if you're looking at a stock in the A channel, you can kind of go after another stock, send through a whole bunch of quotes, and then kind of extract out that to make your processing faster. It's an interesting theory, and it's certainly, and it's been proven, it's actually been talked about in some regulatory documents as well.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quote stuffing is a theory. It's never been proven by the SEC, but it certainly does seem to exist. We know it's true. Well, we've seen evidence of it.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“While you're doing your own and you're picking and choosing and you're creating your own quote. And the problem with the SIP is that Nasdaq, the for-profit exchange, runs the SIP. They're actually the provider of the SIP a couple years last year that had a little problem with the SIP. And the question became, are they spending enough money upgrading the technology so that the SIP is as fast as everyone else? And currently it used to be around a millisecond time delay. Now it's at a half of a millisecond. It sounds like nothing, right? But a half of a millisecond to a high-frequency trader is all the time in the world.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great question. Okay, so latency arb is basically the matter of having two separate quotes. What I mean is if I was a high speed trader and I can build my own quote. So what I do is there's 12, there's 11 stock exchanges soon to be 12 again. But what you would do is you would take all those stock exchanges, get a direct data feed into them, co-locate your computers, and basically take out any sort of latency or time delay.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“A co location is you can put your server at the New York, let's use the New York Stock Exchange facility right next to the main matching engine, which sits in Mahua, New Jersey, not on the stock exchange is not on Wall Street. It's in Mawa, New Jersey. You can rent a cabinet they call it, a cage. Cage, and put your server in there. It's got an equal length cord just like everybody else in the facility to get to that engine. The trick is to be as close as possible so that you can see the data coming at it or process the data as fast as possible before your competitors are processing.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. Now some of them will hold. And actually now we're starting to see some public statements. There's an S1 out there from one particular HFT. They're holding positions, but they're usually being netted out against others. And we don't necessarily have a problem with a high frequency trading market maker. I don't have a problem. I want to trade with any participant in a pool that's all trading on a transparent and fair way. Why wouldn't I want to trade? The diversity is a good thing. We take issue with some of the high-frequency traders who are more when there's lots of pinging and sniffing, and we can get into exactly how this goes.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question. I was on a CFTC subcommittee, and the job of our subcommittee was to define high frequency trading. And we really didn't come up with a very good definition. I actually dissented to it publicly when they finally came up with it because it's really hard to define. It's not exactly, you know, it's certainly obviously using speed and using technology to, you know, and we think it certainly is a matter of when it comes to inventory and net positions being close to zero at all times. They're not holding huge positions. Although they could be long one particular options contract and short the stock or long an ETF and short the future. But at the end of the day, they're net kind of neutral.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly it. And one of the parts of the rule is called the trade through protection or rule 611, and that's what it says. If the best bidder offer before you can trade, say the best offer is 10 cents. Before you can trade at 15 cents, you've got to clear the 10 cents. So for a block trader, that becomes potentially a problem. You've got to kind of sweep through those levels, which we can do through electronically. They have an ISO orders into market sweep orders. But the bottom line was all of a sudden, once this fragmentation, what the SEC called competition, we call fragmentation. It allowed noise and different types of venues to start coming through. And that's where the games began. And that's where the high traders, the high frequency traders, as they're so-called, they really invent. They started coming in.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Correct, and they had about 80% market share on the New York Stock Exchange pre 07, pre reg NMS. Now they're around 25%. And that dropped almost overnight as soon as the rule was put in place. Reg NMS basically, it was intended to help competition. It wanted to allow other exchanges and other venues to post their bids and offers and have people interact with them and not ignore those quotes. Conceptually, that's a great idea. You should have to trade with a venue that has a better price, right? In other words,”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“They've changed a lot when it comes to the actual who's trading WADA and the types of players that are out there and the diversity of liquidity and diversity of market participants. What we found out, and I'll just back up real quick, was we found as we were trading throughout the middle of 2000s, 2006, 2007, 2008 really changed a lot. And there was a reason why it changed a lot, and it was because of a regulation called Reg NMS that the SEC approved.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. And really, that's my job. My real job now when we're not writing books and writing blog posts is to trade for clients and to leave as little wake. And that's a great way of looking at it as possible so that others aren't pretty much attaching to what you're doing. And it's difficult, even though everyone thinks that there's all electronics and algorithms and whatnot, it is really difficult to make sure that you're not being spotted and taken advantage of. And that's how you lower your transaction cost. You lower them by not being spotted.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, that should go directly to an investment because if you're a hedge fund or an investment advisor and you have fees and expenses, transaction costs is certainly one of them, or at least explicitly commission costs, there's more of an implicit transaction cost, which we talk about all the time in the institutional world, was how much does it cost you to really get into and out of that stock? How much leakage was there? Did you move the stock a certain amount? Did you get the VWAP, the volume weighted average price, or did you actually increase it because you left a lot of trails? And that is really what implicit transaction cost is. And that, you know, that's one of those things that kind of stayed the same over the last few years.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Time with it Absolutely. A good thing. One thing that they forgot about was putting in some sort of minimum spread, but we can get to that later when it comes to small caps. But really, electronic trading is what brought down the cost of trading, right? Today there could be this whole argument we can get into later about high frequency trading and whether or not that increased or decreased cost. But the real fact, and you look at charts and you can see this transaction cost for institutional investors dropped around 2002, 2003 for that's when the real drop and the real decline came in since 2007 or 08, we've kind of leveled off. We've gone down and we pretty much stayed down there.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was incredible Lot for the good, a lot for the good. So, you know, we're known as critics and so on, but we see a lot of good that has come over the last 10, 15 years in the market.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“And even better, actually, the clients had the system on their desks themselves. So we were actually, we were more coverage people. So we covered an account and whether you kind of helped that account along. But they can actually hit the keys themselves. They didn't need us. And the power that the buy side, particularly the institutional investment community, got, that was the first time where they were really involved in the process and they really liked it, which is why the Internet revenue stream went like a ski slope from the early 90s. It really ramped up.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, that was its original intent, exactly what you said. Eventually, brokers came on the system just like today finding liquidity was tough back then when you had two institutions trying to cross stock. They didn't exactly always meet. Brokers were then allowed on the system. But the real action on Instant was between institutional investors was blocking up stock, was trying to put up 50,000, 100,000 shares without moving the stock. And that's the trick. And even today, there's still the trick to trading stocks is trying to find a piece of liquidity, trying to find that block without having the noise come through and a lot of that excess leakage. So that's what our job was. Our job was to facilitate trades. We weren't prop traders or anything we were agency guys just like we are now.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. And if you would have asked me five or eight years ago, would we be here today? Absolutely not. Our job is to trade stocks. That's what we do for a living. We're agency brokers. We trade for institutional clients, hedge funds, mutual funds, and so on. But we got our start, as you mentioned, Sal and I both worked at Instanet in the 90s, early 90s, before electronic trading, just as electronic trading was really taken off in the equities business. So we cut our teeth trading electronically. We learned a lot there. We really saw it progress and then started to see the rule changes happening, mainly at the SEC, some things like reg ATS and a few other regulations.”
2015-03-02 · Masters in Business · Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source