48: The Lost History of Financial Market Modernization

SPEAKER_1 (0:00)

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Tracy Alloway (0:24)

Welcome to another edition of Odd Lots. I'm Tracy Alloway, Executive Editor of Bloomberg Markets.

Joe Weisenthal (0:28)

And I'm Joe Weisenthal, Managing Editor of Bloomberg Markets.

Tracy Alloway (0:31)

So, Joe, when you think about a modern marketplace, what makes it modern?

Joe Weisenthal (0:38)

I think about a lot of people around computers and data flashing in their eyes, and maybe there's not even a person from the computer, maybe just some software making decisions, but lots of screens and blinking data, basically.

Tracy Alloway (0:53)

So, you're actually thinking about some very specific markets, probably the stock market, maybe the currency market, because there is actually one very large market that has stubbornly resisted all attempts to electronify itself and to modernize.

Joe Weisenthal (1:08)

Yeah, I guess I am. I guess I'm probably, yeah, stocks and currencies, probably will become common there.

Right.

Tracy Alloway (1:14)

All right. The one that's been left out is basically the bond market. This is the place where people trade corporate debt, securities issued by companies, and a lot of that is still taking place over the phone, sometimes even by fax, which is kind of insane when you think about where we are today in terms of technology.

Joe Weisenthal (1:33)

That is sort of pretty hard to believe. I mean, we've talked about this before, and of course, you can look up prices of a corporate bond on a terminal, and you'd think that why not just be able to enter and that you want to buy or sell, but it still kind of blows my mind that it's the case that it's not that easy.

Tracy Alloway (1:52)

All right, so today we are going to delve into the mystery of bond market modernization or lack thereof, why it hasn't happened before.

And I'm pleased to say that we have a recurring guest with us today. It's Chris White from, well, he's now at Viable Markets, used to be at Goldman, and was very involved in the bond trading platform they built there called G-Sessions, and to make things extra special, Chris has brought along his former boss. It's Les Seff. He has a very long history, not only in bond market structure, but also in stocks, and he's currently at a software firm called AimPass.

Joe Weisenthal (2:33)

I'm really excited about this, because the last time we talked about market structure with Chris, I think was one of my favorite episodes. I'm glad we're returning to the well and going deeper on this subject, which is fascinating. So let's get going.

Tracy Alloway (2:46)

Let's dig deep. Chris and Les, thank you so much for joining us today.

Chris White (3:00)

My pleasure to be back, Tracy. You know, just having listened to a lot of the other Odd Lots podcasts, I'm just happy to be a part of some of the original.

Joe Weisenthal (3:09)

The early days.

Chris White (3:10)

Yeah, exactly.

Tracy Alloway (3:11)

That's the exact thing to say to get you on yet again.

Chris White (3:14)

Well, no, I really do enjoy it. That's an honest statement. And I think that you're in for a really special treat today because Les Seff can talk about an area of equity market structure history that I think is really pertinent today. It was the formation of a piece of architecture that if you look through history, the Nasdaq system is something that's been mimicked throughout other market systems in terms of being a critical piece of architecture on their way to modernization. So I think it's going to be very interesting to hear what Les has to say about the before and after picture in the equity markets.

In 1971, that's when Nasdaq was introduced, and that's when Les arrived on the scene.

Tracy Alloway (3:54)

Well, Les, why don't we start with you then?

You said you've been in trading in some way or another since the 1970s. Tell us what the stock market was like back then.

Les Seff (4:05)

Sure. Well, let's start with 1971, which is when I started. At that time, not only was the market not connected by computer, or the equity market not connected by computer, but the people that comprised the trading departments were very different as well. Today, you've got MBAs from MIT sitting on the desk. Then basically, we were a bunch of street fighters.

And the connection between one firm and another, or the connection was something called the pink sheets.