Before arriving there as part of the big push, Katsuyama had never laid eyes on Wall Street or New York City. It was his first immersive course in the American way of life, and he was instantly struck by how different it was from the Canadian version. “Everything was to excess,” he says. “I met more offensive people in a year than I had in my entire life. People lived beyond their means, and the way they did it was by going into debt. That’s what shocked me the most. Debt was a foreign concept in Canada. Debt was evil.”
For his first few years on Wall Street, Katsuyama traded U.S. energy stocks and then tech stocks. Eventually he was promoted to run one of RBC’s equity-trading groups, consisting of 20 or so traders. The RBC trading floor had a no-jerk rule (though the staff had a more colorful term for it): If someone came in the door looking for a job and sounding like a typical Wall Street jerk, he wouldn’t be hired, no matter how much money he said he could make the firm. There was even an expression used to describe the culture: “RBC nice.” Although Katsuyama found the expression embarrassingly Canadian, he, too, was RBC nice. The best way to manage people, he thought, was to persuade them that you were good for their careers. He further believed that the only way to get people to believe that you were good for their careers was actually to be good for their careers.
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The online broker TD Ameritrade, for example, was paid hundreds of millions of dollars each year to send its orders to a hedge fund called Citadel, which executed the orders on behalf of TD Ameritrade. Why was Citadel willing to pay so much to see the flow? No one could say with certainty what Citadel’s advantage was.
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“There are still some human beings working on the floor of the New York Stock Exchange and the various Chicago exchanges, but they no longer preside over any financial market or have a privileged view inside those markets. The U.S. stock market now trades inside black boxes, in heavily guarded buildings in New Jersey and Chicago. What goes on inside those black boxes is hard to say – the ticker tape that runs across the bottom of cable TV screens captures only the tiniest fraction of what occurs in the stock markets. The public reporters of wht happens inside the black boxes are fuzzy and unreliable – even an expert cannot say what exactly happens inside them, or when it happens, or why. The average investor has no way of knowing, of course, even the little he needs to know. He logs onto his TD Ameritrade or E*Trade or Schwab account, enters a ticker symbol of some stock, and clicks an icon that says “Buy”: Then what? He may think he knows what happens after he presses the key on his computer keyboard, but, trust me, he does not. If he did, he’d think twice before he pressed it.”
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“The line was just a one-and-a-half-inch-wide hard black plastic tube designed to shelter four hundred hair-thin strands of glass, but it already had the feeling of a living creature, a subterranean reptile, with its peculiar needs and wants. It needed its burrow to be straight, maybe the most insistently straight path ever dug into the earth. It needed to connect a data center on the South Side of Chicago* to a stock exchange in northern New Jersey. Above all, apparently, it needed to be a secret.”
* The principal data center was later moved to Aurora.
*
“After some unsatisfying years working as a stockbroker in Jackson [Mississippi], [Dan Spivey] quit, as he put it, ‘to do something more sporting.’ That turned out to be renting a seat on the Chicago Board Options Exchange and making markets for his own account. Like every other trader on the Chicago exchanges, he saw how much money could be made trading futures in Chicago against present prices of the individual stocks trading in New York and New Jersey. Every day there were thousands of moments when the prices were out of whack – when, for instance, you could sell the futures contract for more than the price of the stocks that comprised it. To capture the profits, you had to be fast to both markets at once. What was meant by ‘fast’ was changing rapidly. In the old days – before, say, 2007 – the speed with which a trader could execute had human limits. Human beings worked on the floors of the exchanges, and if you wanted to buy or sell anything you had to pass through them. The exchanges, by 2007, were simply stacks of computers in data centers. The speed with which trades occurred on them was no longer constrained by people. The only constraint was how fast an electronic signal could travel between Chicago and New York – or, more precisely, between the data center in Chicago that housed the Chicago Mercantile Exchange and a data center beside the Nasdaq’s stock exchange in Carteret, New Jersey.
MORE SPIVEY
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phil rosenthal
Posted on April 6, 2014
