All right, gorilla gang i've got uh a freaking awesome guest today that i'm excited to have a conversation with this is uh dave lauer, and this uh this guy man. Let me tell you, i have so much respect for you in terms of the way that you put yourself out there. I really don't think anybody can can truly appreciate it enough, because we talked a little bit earlier about this, but you can say more uh sort of the risk associated with what you do and uh putting yourself out there for retail investors. So i i i before we start man, i got ta just thank you for for doing what you do and being who you are you know.

Thank you. Oh. I really appreciate it. It's really good to be on here and i you know i mean i said the same thing to you: hey you're, bringing attention to all of this, and if there's going to be any change, if we're going to get anything done it's because of that.

So you know, i think, we're all in this together and it's great to be a part of it, absolutely man so for for anybody who might not know who you are right, i'm assuming the majority do. But can you just give a brief background on certain of the jobs? You've worked uh your your basically experienced within the space, because i think that's truly the value that we're gon na have here in this uh conversation today about the topics we're gon na discuss. Yeah. Sure um i've kind of done a lot of different things in finance all centered around trading um.

So i started my career as a. I came from a computer science, background technology, uh programming and hardware engineering and so um. I started off building high-speed trading systems for uh at a startup for the biggest banks and the biggest hft firms uh. I did that for a few years in new york and then i moved to chicago where i worked at citadel and i did quantitative research and high speed training.

So i did i moved sort of from technology to math and i started doing mathematical, research on markets and then programming those trading strategies and running the trading strategies um. I wasn't at citadel very long and i've which i've noted a few times to people. I was there about nine months, which i hear is about average. It's not a great place to work um and then i left and i went to another small high frequency firm and i was there a bit longer and did some really interesting trading strategies around etf market, making, um interlisted arbitrage across different markets and something called event-based Trading, which was trading around opening and closing auctions, and that kind of thing and always uh in high frequency, always like software, was doing all the trading um and i left about a year after the flash crash, and i actually wanted to leave finance entirely.

I was disgusted with the industry and i wanted nothing to do with it, and so i built a storytelling website and on the storytelling website. I the first story i told, was called why i left high frequency trading and someone from npr heard the story and asked me to come on and tell the story. And i did that and suddenly people are calling me like from the u.s senate and the sec, and these guys building a new stock exchange in new york, um and and so i kind of got sucked back into the industry uh. And so i testified before the senate banking committee a couple times.

I i worked with the sec, a bit uh to just tell them what i knew cftc same thing, and then i worked with the guys at iex who were building a new stock exchange. I helped them in the technology design process and also just sort of thinking about how high frequency trading approaches, exchanges and that kind of thing, and then i found that i could still be in finance and and be doing uh. I guess work that i was more satisfied with, so i started working with asset managers like pension plans and mutual fund companies, and i helped them uh to understand how their orders were being treated by their brokers and how they were potentially being taken advantage of by High frequency firms - and so i helped them, reduce execution costs and that you know all sort of goes to the bottom line of people retiring so um that that that's what i've been doing for like the last 10 years, which is some exchange work. I sit on the board of a canadian stock exchange called neo.

I sit on finra's market regulation committee to represent the public as a sort of non-industry participant, and i do some ai work and now i'm also starting a new venture called urban finance uh to bring sort of professional data and tools to retail investors. That is a hell of a road there. You go tell you what i went to school for nutrition, so i i i'm not as well versed in all that awesome, freaking stuff that you, i can tell you all about like when i tried the carnivore diet and uh when i was keto for a while That was interesting too going vegan. I went vegan for about seven months and now oh wow, to my life, yeah yeah, i'm actually pretty interested in this.

So i want to talk about a little bit before we dig into the meat potatoes here, uh, iex and citadel, because you spoke about having you know, experience with both of these companies and it's funny you said the turnover rate's about nine months. That's about the same as i i was a bartender at buffalo, wild wings we'd keep people for about the same amount of time uh, so i want to start there. A citadel right turnover rates about nine months is how long employees will stay there uh. Why do you think that is what was your experience working with citadel? What can you kind of discuss in terms of uh why you think that situation exists in the first place? Uh, you know it's an interesting question um.

I can say that i came from the world of startups, like you know like i grew up during the dot-com years, and you know i i loved working at startups. I was always starting. My own thing and citadel was actually the first corporate experience that i have um and it wasn't for me that's flat out. That was, i am not made to work in a corporate environment.

Um i mean, and you know yeah. You know i've been working on my own for the last 10 years and that's that just works for me much better, but um there were. There was a lot i mean. First of all, it was a a really tough environment, um and we were brought in as a trading desk.

We were supposed to be coopetition, which is not a word of course and um. You know so they they wanted us to like compete with other trading desks at the firm, but they were supposed to cooperate with us, but obviously come on like what you know yeah. So you know there was a lot of like i don't know it. The attitude at the firm was you, are there to work and you you are judged, you know by the hours you're putting in the intensity of your commitment.

I just moved, you know, relocated with my wife to chicago, and you know we know any anybody, and that was tough for me to be working like that. Um and you know there were. There were all sorts of things that went into it. You know like.

I would walk past the same people in the hall every day and they wouldn't even make eye contact with you, like they wouldn't smile and it's the midwest right. That was like my first experience in the midwest man. That's everything! That's so nice! I swear. I swear.

That's just that place, i know midnight, you know the first time i moved from new york to chicago and i went across the street and a car stopped for me and i was like what what are they doing. Are they waiting for me to run me down, or so you know it's like a totally different experience and i loved the midwest. I i really enjoyed living there, but it did not feel like that. That kind of attitude there yeah no, i can.

I can imagine that that's that's actually super fascinating. It's honestly what i would expect just based on what i've kind of heard and what i've seen uh just reading documents and kind of yeah it operates their business now. I think it'd be interesting, then, to contrast that you said: you've also worked with iex, which is going to tie in directly to what you know. A good portion.

We're going to talk about today is how is that different? How is iex and sort of their mission statement what they're trying to accomplish differ from what you experienced at citadel? Oh, so you know when i met the guys at iex. It was the earliest days they were just getting started. Um they hardly. They had this office space, it was like office space for four people and there were like 15 of us in it um, but it was like it was so much fun and it was people uh who you know.

Even if there are a lot of people on wall street that don't agree with iex's view of markets, they certainly don't agree with flash boys which did not depict things in the most accurate way at times. And that was unfortunate because there are real issues there, um but uh, regardless of how you feel about that stuff. These were this was a group of people on a mission um and they really passionately believed there was a problem in markets and that they had thought of a way to fix it, and i you know that that worked. For me that was exactly what i was looking for um and it was what brought me back into finance, because i had no interest in being involved in the industry.

After my experience in high frequency - and you know these guys did it, and - and so i really bought into that - and it it was just a great experience and - and it was a fun time to be designing from scratch a a way to combat this practice that We were all concerned about um and that we thought didn't make any sense like it didn't make. The this type of structural or latency arbitrage didn't make any sense to us as in terms of something that would make markets better or improve markets. It seemed to simply be a cost in markets uh imposed by firms that had better technology um for no apparent benefit, and so that you know it was. It was a good time.

I mean i really loved it. Your latency arbitrage, that's uh, that's sort of the fun word. That's the key word there that everybody's gon na kind of wonder their scratches go huh. That sounds interesting, which, coincidentally enough, if i as as you already know and many know, uh, maybe not citadel and other firms are kind of tied up with that at times.

Now i i know what it is. You know what it is. Can you kind of explain what latency arbitrage is to the people who might not know, because that's a pretty interesting topic that i don't think has really been discussed much until this iex uh d limit ordering kind of rose up from 2020? To now i mean it really started getting dug into about a month ago. Uh thanks to people like you, you know and uh.

It's it's gon na be an interesting piece. Come the next week, so uh yeah for sure enough go on go on and explain what uh, what that is, if you could so, i saw it described today as i was looking through some documents about the d limit order type one, a high frequency trading firm. Actually described latency arbitrage as high-speed information asymmetry, and i think that that does capture it very well and um at its core. Um latency arbitrage means that you, you have a server in a place in a data center.

Let's say that gets a piece of information and is able to act on that piece of information uh faster than others are able to act on it, but but it it it's able to do that because of advantages that are being conferred upon that server either by The exchanges or by the structure of the telecommunications networks, um and so i've just given sort of a very technical explanation, but the best example of it is actually what brad described in flash boys, which was uh. He would see a thousand shares. You know on the offer for a certain stock and he would enter an order to buy those thousand shares and the the nuances of the networks and the exchanges and the data centers and the market data feeds all came together to make sure that he would only Get like 500 shares of the thousand shares and he was looking at the screen and said a thousand shares. He tried to buy a thousand shares, lift them off, lift the offer he gets 500 he's like what's going on now, the price moves up, there's still a thousand shares up.

There tries to lift those thousand shares. He only gets 400 this time. That's the the byproduct of latency arbitrage, which means that you, as a broker uh, who are purchasing shares on behalf of an institution, keep having to pay higher and higher prices uh because uh, you know, the the firms with those resting orders in the exchanges are resting Them in such a way using order types and using feeds and colo facilities and like lasers and microwave wireless technology, to make sure that, when they get hit with the first part of your order in the secaucus data center that they can race ahead. Of that order.

To mahwah and carteret, while your order is still transiting these telecommunication lines, and so that's in a nutshell, what latency arbitrage is so essentially, it's uh an advantage of timeliness and advantage of technology like the way that i think of it. You correct me: if i'm wrong, is you have 10 race cars out on a track right, they're, all the same models same engines, the specs that would be expected out of a race track uh for that specific uh. I don't know what you call it. I don't watch nascar or anything, but those nine cars, 10 cars and you've got one car who's got better specs and they're held to the same standards they're running the same race.

Does it sound about right, yeah yeah, that that's a pretty good way of doing of thinking about another way might be that you know the guy who's. Judging who finishes first is like can't see very well right, like he's, got really thick glasses on right and so microseconds, yeah and so like. Another form of latency arbitrage is called stale price arbitrage and it's relevant to the delimit order type because it deals with pegged order types and so a pegged order type like a midpoint peg. You know if a stock is trading 10 by 1001 and someone has a midpoint peg order in there they're looking for an execution in at 10.005 right right between the spread at the midpoint.

But if your exchange is using slower market data feeds than some of your participants on the exchange, then that that stock might have ticked up, it might be trading 1001 by 1002, but the exchange still thinks it's zero by zero one. And so you know that as a very fast participant and you're going to go, sweep those slow exchanges in the slow, dark pools and you're going to pick off those stale orders. So that was sort of another principle of iex was that the exchange should always be faster faster than its fastest participants, which i think is a really important idea behind how an exchange should operate. So, essentially, taking advantage of the opportunity to make money based on better technology and that guy, with the glasses too thick can't see the can't see the line they make money using latency arbitrage to take advantage of people who don't have that same technology.

Who aren't getting the fastest possible uh market pricing? That sounds bad, sounds about right, yeah, yeah, and to get that fast. Pricing in those fast lines is extremely expensive, and so that's like another angle to this is every exchange has like its own monopoly. So if you're, a high-speed trading firm, you have to go, consume the fastest feeds, get the co-location facilities, the fastest network, interconnects at every single one of them, and they know it and they charge crazy prices. Man in my head, that sounds like a lot of baconators from wendy's or five dollars.

I think i'd rather have a good burger. You know yeah right yeah. That kind of brings us into uh citadel right. So so iex has sort of this uh.

You could say a counter to this: this latency arbitrage the delimit orders which i'll let you talk about. You can definitely explain that better than i can, but citadel doesn't approve this obviously, and one can only think that that's because of some sort of conflict of interest right typically, if people have money invested, or they have some reason to believe that that new practice in The stock market is going to affect the way that they are able to make money they're, obviously not going to support that and they've stood against basically many other market makers in that practice. So why would citadel want to stand against this? This delimit order uh? Why would they be against this? You know basically new ability to counter latency arbitrage yeah, i mean why, who can imagine why? I don't know and - and you look and you know, for example, virtue which also um you know - is an internalizer payment that engages in payment for order flow uh. But is one of the largest and fastest high frequency firms out there xtx markets, another one of the largest high frequency firms out there.

Both of them came out in favor. They supported the d limit order, type and and citadel uh is standing out there, uh unique amongst them at fighting in order that it's such an interesting order type because it the the the way it works. The equation that it's based on is just very similar to the kind of equation you would find in a high frequency trading system uh, and what it's looking for it's looking for this crumbling quote is the quote: about: is the level about to tick down or tick? Up right, and if it is then we're gon na we're, not gon na execute any orders against your resting order, because we want to make sure that it's not at a stale price. We want to make sure again that we, as an exchange, are protecting you and we're going to let the price level change, and then you can execute at a better price for your resting order and so citadel.

In their brief and in their comment, letters opposing it held themselves out as representing retail uh, saying they trade. On behalf of retail, i remember seeing the trade on behalf of people like that. I don't know, that's it yeah. I i've i've had found few people who agree with that statement.

Uh they certainly trade against retail um, but you know i i think that they're they there are there's what they say and the case that they're gon na make in front of this panel of judges. Next week and then there's the reality of: why are they actually uh fighting it when you know so many other firms, and it's not just other high frequency firms, it's pension plans and asset managers and even brokers? Even you know, goldman sachs came out and supported it, because it's a really novel and innovative order type and that's it's a very it's a big difference. What you tend to see out of iex, which is an exchange funded by investors and asset managers, um and and the type of innovation you get from iex versus the other exchanges, which tend to be publicly traded, and you know, focused on satisfying their cl, their customers And their customers are the high frequency firms interesting. You know i kind of want to come back to the the piece about these deal limit orders, but but first i want to kind of focus on virtue and citadel, because i think something interesting is they're kind of a duopoly right.

They handle a lot of the liquidity. You look back in the january uh time frame for the amc, gamestop saga they handled, basically all the liquidity right. They were basically the major source of transactions, but vertu didn't stand with citadel on that. Why do you think that that's the case? Why do you think citadel stood alone to essentially be against this deal limit order that protects investors, specifically retail investors from arbitrage um? It's a it's a tough question.

You know my experience with virtue is is mostly before they bought kcg, so i i knew them pretty well. I spoke with everyone there all the way up to the top, and they were very supportive of a lot of what we were doing at the time. In terms of the reforms we were advocating for, which included um, getting rid of payment for order flow and off exchange internalization, and then they bought this firm kcg, which was next to citadel as one of the largest of the uh off exchange. Retail internalizers.

And you know virtues views changed when that happened, but at the same time they always struck me as a firm of a very high level of technical sophistication and and um confidence in their abilities to adapt to any market structure. They had their views on what a more fair market structure might look like um, but at the same time you know i it. I just think that there are firms that don't care as much about latency arbitrage um as others that you know some firms have different trading models and um. Not all of them involve this kind of structural arbitrage um.

I you know. I i'm certainly not saying that citadel does. I never worked in any division like that. That did anything like that, and i can't speak to any specific knowledge but um.

You know what i, what i can say is when you look at the actions of some firms. Uh, you know you can certainly draw conclusions over the kind of trading models that they use. Well, it's definitely hard not to draw those conclusions about citadel right. I mean you, you uh, put up this fantastic thread on reddit detailing through this ie uh iex d limit order, lawsuit, that's gon na be taking place between the sec and citadel citadels doing the sec, which i think is absolutely absurd, but whatever besides and i mean It happens like recently the new york stock exchange in nasdaq sued, the sec too.

That's just that's just i don't know. I don't even know what to make of that. It's just like a meme man. It's a meme, but it's weird because especially firms like nazi and nasdaq not to go off on a tangent but like they're self-regulatory organizations right.

That means they're, quasi-governmental they're supposed to be like an extension of the regulator but, of course, they're publicly traded, for-profit companies too. So like it's like, the two sides of the company are like battling each other. I would love to be in that uh that courtroom that'd be interesting to listen to honestly. What i find to be.

The interesting, though, is one piece that you had outlined in that reddit thread, and it was talking about how citadel is not for the retail investor, and this is what leads me to believe. This is obviously just a hypothesis right, i'm just basing my my thoughts off of facts that have been laid out, it's hard, not to believe they would. They would practice this arbitrage because of the way that they fill orders. It doesn't seem like it's in the best interest of retail right.

They'll they'll have an order come in from, for example, my mom or something wants to buy a hundred shares of apple and what they'll do is they'll buy that into their portfolio and in the name of of their market maker right and sell them shares. Now that doesn't seem like that's in their best interest. At all i mean, if you're filling the order to yourself and then selling it that's a transaction on top of a transaction which means you're profiting likely somewhere in the middle of those steps. I don't see how that benefits retail in the least bit, but you're gon na know that stuff better than me.

What do you think man i mean, i think, there's a reason to put it in that thread. Um yeah i mean i, i can tell you what they would say. First, they would say that, oh, you know we're just there to satisfy like there's. There are always differences in terms of timing and size and price, and you need an intermediary.

This is what they would tell you, and you know we're just here to capture the spread, we're just buying in the bid selling on the offer, capturing that spread all day, a bunch of the yeah right and and - and i do believe there are market makers out There that do that, like they, they you know, make their money capturing the spread, and you know they probably aren't opposed to a dean limit order type, for example um but uh. When i you know, i, i do think that, for example, citadel was fined 22 million dollars by the sec a few years ago, and it was not because they were doing a great job at making the spread and filling orders. It was because they were misrepresenting to clients how they were pricing trades and they were using different feeds for different prices and um. You know it was, it was a mess and - and then there were i, you know, i think there was something where they were trading ahead of a client of clients in in one area as well.

So um, you know, i i think that citadel. You know they make a ton of money off of this franchise that they have of of retail internalization. They make even more money in the options, market and they're a huge presence. There they're also one of the largest traders, just in general, in markets they're the dmm for gamestop on the new york stock exchange, which gives them certain privileges.

You know it's, i. I really think that, as gary gensler has identified, there is a serious problem in markets with corporate concentration of power, and it is a problem that is pervasive in the united states and it's sort of the natural outgrowth of a crony capitalist system, which is what i Think we have - and so you know not to wax like philosophical here, but you know this is the manifestation of a really serious problem um and when you have citadel and virtue combining for 70 or 80 percent of the off exchange market. That is a de facto duopoly and it doesn't make any sense, because there are like a thousand market makers out there right and they're all on exchanges, and they would all love to be competing for these orders. Right and so citadel will say.

Well, look we give every we give retail investors, awesome levels of price improvement and size improvement, and it's like well, okay, you, you can measure price improvement in certain ways and it's especially problematic when you take. You know sixty percent of amc or seventy percent of amc off of the lit market and into these internalization systems. The spreads on the market blow out right. So now the spreads are wide and citadel's, so it was like look.

You know we're price, improving this much. It's like well, but the spread would be here if all these orders were going on to the exchange and that spread widens and what grows with that for citadel right. What happens when the when the spread gets wider? They just print money. They, you know, that's how it works if they're making the spread, they're printing money and it bleeds through into the options market.

You know where volatility increases the premiums that they're making increase as well as spreads widen when volatility increases the premiums increase. You know it's like uh. You could just follow the whole pipeline of this money, printer that they've got. You know we kind of talked about this earlier, but this is what's scary to me about citadel invert ii.

More so than than anything, that's even happened in january is if they went down right. This is some tin, foil, hat stuff. I'm representing my own thoughts. This is not dave.

I just want to put that out there. This is simple hat stuff. If there was anything nefarious that had taken place back in january, i think what it likely would have been is they had to protect the main source of liquidity, the market maker, citadel right, citadel and virtue who, like you said, represent like 70 to 80 percent of Market transactions, market liquidity, they move the markets, they make things go the way they are, despite there being thousands of market makers, that could do the exact same thing, and if they were to go down, this is what's scary. It would, i think it would crumble.

The market, i think i think, it'd, be a huge problem. I i think they're systemically important, which and they're not regulated as such they're, not even subject to regsai, which is um the it was a new regulation put into place, not not quite new anymore, but i don't remember maybe six or seven years ago, and it was A technology and cyber security standard that the exchanges had to abide by after a bunch of exchange glitches that brought various exchanges down brought market data feeds down from time to time. So you know the sec passed this new regulation, regsai sci - that brought very extreme technology burdens onto these systemically important companies in markets, but it doesn't apply to these internalizers who again, like you, know, yeah they're responsible for in some names, 70 of the volume, and what Would happen if they would go down, that'd be a big problem. Man, it just makes me feel so safe knowing that uh.

That is that that's the name, that's really keeping this this market moving holy crap all right. I want to ask you one more thing about this: this uh citadel lawsuit and then i think, it'd be interesting to move into the the short report that the gamestop report that came out by the sec. What are you hoping for when you see the results of this citadel versus sec lawsuit? What do you think is going to happen? What are you expecting? What are you hoping for? I mean i hope, that the judges will see that this is an innovation that is good for markets. I mean even the sec as the regulator.

First of all, it was. It was approved unanimously by republican and democratic commissioners, right uh and in the sec's brief, which i was i was actually kind of surprised by. I didn't read it until recently and they they even acknowledged they're, like iex, has shown that there's latency arbitrage and they have shown that this is an order type yeah that can help protect. I i yeah, i mean my mind, was kind of blown because i don't.

I hadn't remembered the sec really acknowledging uh the importance of latency arbitrage until then um, and so i was, i was rather impressed by it and you look at the supporters of it, and you want to hope that the judges do the right thing and that they Recognize that this is the marketplace innovating and uh, that that's a good thing, and you know that something like that should be allowed um. It doesn't even mean that it's going to be a very popular order. Type iex has struggled to increase its market share. Unfortunately, for all sorts of reasons that might not have anything to do with how good of an exchange it is, but have to do more with, like the artificial, inducements and rebates that the other exchanges use the kickbacks that are paid throughout all of wall street uh.

To attract order flow, which is payment for order flow, is part and parcel of that system. Um, but you know, am i optimistic. I can't say that i am, i mean you know, i don't know how well-versed these judges are in market structure. I don't know you know how much influence has been exerted behind the scenes and political contributions and and the like.

So you know i i'm. I've definitely become uh more and more cynical uh over the last 10 years when it comes to market structure, reform and the political process. What i uh, what i like to tell people is: is, over the last 10 months, i've aged 10 years by markets and learning all this crazy stuff yeah my hair used to be orange, and now it's like half brown and half gray. I don't know: what's going on, i get some grey in my beard, yeah yeah, i'm getting a little, you know getting to that stuff man, you uh.

You said something interesting and it was regarding the sec, and i think this is a good transition. It was that you were surprised that they were actually recognizing this, this arbitrage right. They recognize sort of the the problem that that that lies there. I've read that piece too uh that that was out, and that kind of brings me into this.

This report that was put out today regarding the gamestop and emc saga and i'll, tell you what i think about it, but i'm more interested in your thoughts, because i know that you would uh you read that and uh they kind of danced a little bit. It seemed pretty political, it didn't seem like they really. They said a whole lot without saying anything, but maybe uh. Maybe that's, maybe i'm just interpreting it differently, i'm just no.

I think you got it yeah yeah. I i i'm not. I'm not shocked again. The sec is a political animal uh.

There are poli, you know it's run by. It's got five commissioners at the top and they're political appointees. Two republicans two democrats, the chair, is whoever the president has appointed. Now it's gary gensler, the last one was jay clayton.

It was the trump appointee um and - and that's not look, i you know - i actually. I know one of the republican commissioners relatively well - um i've interacted with um one of the democratic commissioners in the past when she was working for kara stein, a previous sec. Commissioner. I mean these are these: are people who understand market structure and it's good to have that kind of experience in there, but that you know that there are politics, uh behind everything and and certainly uh at work here, and you know it's this - this this report is Actually, more more of what i would expect, the sec brief in the in the court case was was the surprising thing uh where it was, you know it used pretty strong wording and and pretty firm conclusions.

This report was um, i mean yeah. I would describe it as like a nothing burger. It was basically like you know. A horde of retail investors came into gamestop drove the price.

We didn't see any uh significant short covering driving the squeeze. We didn't see any uh see any um indications of a gamma squeeze um yeah. That was kind of my reaction too. I read that i was like.

Where have you guys been? What what are you talking about? I don't know where that yeah right, i i don't know where that part came from uh. You know it said we didn't see any persistent failures to deliver. Um. It didn't talk about how the failures were mitigated.

Obviously they just assume shares were delivered, but there are other ways of mitigating failures to deliver it, and i think that they should really should have gotten into that and who knows, maybe they did and it was peeled away. My understanding is that you know gary gensler wanted to use this as a chance to highlight market structure problems to go after payment for order flow and internalization um and - and i don't even know if this would have been the right vehicle for that anyway. Um. But you know if if he did want to do that - and this was sort of quashed politically, that that doesn't shock me um and - and i would say, and what i said on twitter.

It was something that i was really surprised with was that they just looked at gamestop right. They didn't, they didn't look at the broader picture. They didn't look at other stocks at the time or in the more you know subsequent to it, and they didn't look at the the systematic short attacks of previous years, which are significant and which are well documented and so um. I i that was probably one of the areas of biggest disappointment for me.

I would, i would agree with that and it's for this reason i mean, i think anybody can think back on january right what happened when the squeeze came. You know crash into a hall on gamestop cost blackberry. Like you said, there was a million stocks at the time that were running like nobody's business. What happened right? What caused that? I don't think it was necessarily payment for order flow that caused the the margin issue.

I mean that's, that's a source of revenue for most these brokers right right, it probably wasn't naked short selling. If that was one of the cases they debunked that in this this article so to speak, i don't think that uh, i think naked short selling can be thought of in a different way than traditionally spoken about. To be honest with you, i'd look more derivatives but different different talk right. What actually caused that? Why was the buy button taken away? They can claim that it was liquidity issues, but why were the liquidity issues in the first place? Why did they get to that position? I don't feel like they actually answered that question and i don't think people are really satisfied with that.

I think people still want to know you know yeah and i don't blame them absolutely like and - and i think like a firm like robin hood, which is kind of operating on a shoestring right like they're, on the knife's edge, where a flurry of buying interest can Actually put them at risk as a firm because they don't have adequate adequate capital um. You know. Why was i agree. Why was that even allowed to happen? How is that even possible um? I you know, i think it's problem it.

It's good that markets didn't sort of crumble, but you know i. I do think that what pederfe came out with when at the time um was this statement that, if they hadn't taken the buy ability away that it could have been a systemic event. Now, how does someone like thomas peterfy, who there are very few people in this world that know more about marcus than that man uh, and i have had the pleasure of meeting him and and seeing you know the the technology that he has used and talking with Him and honestly there are, i, i don't know of anyone else. You know on his level uh, certainly not above him, yet he saw that exact problem and how does the fcc not get into that? You know that wasn't like a tinfoil hat thing that was thomas better, be like one of the original market makers and one of the you know the guy who runs one of the biggest brokers and the biggest uh proprietary trading desks on wall street uh.

You know this is not. That was not tinfoil hat. That was, you know, one of the the biggest voices in the industry saying that there should have been an examination of that. I was shocked that there wasn't, you know, there's a lot more people kind of coming out and talking about that sort of thing too, i don't know if you uh, if you watched matt's last interview right with mark, but that was a phenomenal piece yeah.

I i started, and i have not finished it like yeah. It's on my list to watch right now. Mark is a really really smart, guy and yeah that guy has a character yeah, it's colorful, which i can respect, because i'm also careful yeah. I can get behind that.

That's that's pretty good stuff, but nonetheless there are intelligent people who know things about markets that have come out and said: hey, look. The apes aren't crazy. Retail is not crazy. This is something that was actually problematic and i don't know why you guys are being spoon-fed this i mean that's something what it comes down to to me, like, i think about guys like - and this is my opinion right - i'm not pinning this on dave guys like, Like uh chanos or charles gasparino, or xyz xyz xyz, who just come out and make us sound like we're stupid, you know like i don't i don't understand why you can't recognize what happened was wrong.

I mean i think about it like this. You can give your opinion about it. Um the buy button right taking away just buying taking away demand, so all there can be is supply. Why would you not just halt trade right with like a volatility? Why would you not have it just like mark said in matt's interview? Why wouldn't you just have buying and selling both cut off for 90 minutes, raise some money so that everybody can go on with their date right continue with the squeeze.

Do what you got to do that to me is why i think it's nefarious, why i think the sec was not doing their job while they're not giving us the answers that we really deserve is because they didn't tell us anything. They told us everything. We already knew you know yep yep and you can halt. You can halt a stock for extraordinary market volatility, extraordinary conditions, there's no reason you couldn't have halted it um, and i totally agree with that.

I think absolutely it made no sense as soon as that was a possibility by a, and it was not just robin hood, it was, you know, a set of major brokers, um something should have been done from a market's perspective, not from the broker perspective. So i'm still pretty wet behind the ears right. I'm 24 years old i've been in the market for about a year and a month a year and two months, something like that uh. I kind of want to know your perspective.

What you're able to talk about? Looking back on january, because i haven't asked dave, i haven't asked you dave: what do you think happened in january? Right? I'd actually be pretty interested to know your perspective, because there's a lot of different opinions out there. I've seen a lot of research a lot of due diligence, a lot of youtube videos, whatever i have my opinions, but i think someone with your kind of experience having been at citadel, having worked at iex having been surrounded with a whole lot of fast. You know high frequency trading and the the system. You know the cogs of the system pretty well, what's your hypothesis, what do you think actually happened that day? You know it it's it.

I find it hard to say now with this report out, because i you know my opinion doesn't jive with the report and the data in it and i'm someone who is always willing to sort of revisit um my beliefs in the pace of new data, while at The same time, i'm not really impressed with the level of an analytics and analysis in that report. So you know i my opinion is that it was first of all um. It was what is called an illiquidity contagion, um, and so normally, when we think of that term, we think of flash crashes. It usually it's it's like the bottom falling out of the market, but an illiquidity contagion can also be the top falling of falling away.

Um and when you have an illiquidity contagion it it, it actually doesn't make sense to say that something caused it, and this is a hard it's a hard thing for people to get their heads around, because it's not we're not dealing in linear systems. Our brains are used to operating in a linear cartesian world, but but this is the markets. Are not a linear system? They're a complex system right. The world is a complex system.

The markets are a complex system and things happen in markets um. These feedback loops happen and and this sort of sensitive dependence on initial conditions. You know like the butterfly flaps, its wings and suddenly there's a hurricane. You know: that's that's what you're dealing with here so um, i i always hesitate to like pretend i can assign any kind of causality to extreme market movements.

Um people tried to do it with the flash crash in 2010, and i thought that was all like that. It was clear that they didn't know what they were talking about. Even the official sec report, especially the official sec report, which so you know, here's another official sec report that doesn't jive with our all of our lived experience of what happened. Those days uh as well as doesn't acknowledge this complexity.

Uh that's at work, and so you know i mean my my belief. Is you you had this huge influx of buying? There's no doubt about that right. The retail got. You know keyed onto something through social media and decided to flood certain names, and the market makers were not prepared for it.

They they hit their risk limits and started falling out. You know, maybe one or two stayed in and continued to fill, orders and spiked. The price and at the same time you had this crazy action in the options market uh that was forcing delta hedging uh. You know like crazy, and so you know all of that kind of comes together and who knows what causes what or what's what's kicking it off uh and then at the same time, you're dealing with a name that has a more than 100 short interest, which still Seems completely off the wall to me and while i know what how mechanically it's possible, it still doesn't seem like it should be.

Um, and you know unethical, is what i would call it yeah. You know it's like it doesn't make sense. Like sure you know someone on twitter, who i respect very much, keeps pointing out that this is rehabilitation at work, and it's like yeah. I get that.

I understand that that's the mechanism. At the same time, that means two three four people have a share in their brokerage account that they think they own, but none of them do because they're all holding the same share and how does that make any sense. So you know it's it's all of this stuff kind of coming together. That creates extraordinary events that we witnessed, and you know i don't blame the the apes and the retail community for the reaction that they've had subsequent to that.

When i lived through the flash crash, which was another like extraordinary example of complexity at work, that i lived through, um that messed up my world and it and it really changed how i saw markets - and i think everyone is kind of experiencing some of that now - Um and over the last year, and and it does make it makes you question things in the mechanics of how everything works, and that what's what's interesting to me is this has to be really rewarding for you to watch. I think we've talked about this a little bit is this. You know the top falling out people losing money on a play that looked like it was absolutely going to crush some shorts right. People are going to make nasty money.

Is they started asking questions and change started coming? I think uh, like i said, i've only been in the market for a year, but it's really fascinating to see tangible things happen because i've watched it right. I i i'd like to see more i'll. Tell you that right now i'm not satisfied, but you can tell that there's, there's cogs churning somewhere. People are thinking about sort of uh.

What people are saying and that to me is a start. You know uh. What does that mean? Does that mean we're eventually gon na get answers for january, i'm a little bit jaded you'd. Call it cynical i'd.

Call it jaded right. I don't know what yeah it's actually gon na happen, but uh you'd like to hope. So you know i uh. I do, and i that's why i'm still here right, that's why i'm still in it.

I am like at heart a naive optimist who always is going to push for the right thing, and you know uh and i've been doing it for a while and yeah. I you know, i'm i'm beyond excited at all of this right like i, i. I can't believe that this many people care about market structure. I've said it many times and it still kind of blows my mind that people care and they're learning about markets, which i think is a great thing um.

I i still am a believer that you know you build wealth by investing and you build generational wealth. That way - and you know i hope people uh - are learning more about how to do that, and and do it responsibly while having you know a crazy yolo experience with you know, whatever they can stand to lose but um you know i i do think it's a Great thing for um the younger generation, who you know for a long time, uh didn't care about markets or probably had this vision of you know it's like some guy on the floor of the new york stock exchange. You know yelling at each other um and that's not how it is what what right and then they got this app and they're like. Oh, i can buy and sell.

This is great, it's free and, and then they got you know, then they got a bit jaded and they said wait. I want to know what's behind the app and then they started to learn and that's awesome and - and i you know, i'm really hopeful that that does give me some hope that if enough people learn enough and become vocal enough, that that's how we can make some Change dave it's just because you're such a freaking inspirational, uh, genius guy. It really does help having you having you in our corner to talk about these sort of things. I think this is probably what i'd like to know the most from you.

What is sort of your end state here? What would you like to see more than anything come out of this amc, gamestop saga the buy button? Takeaway right, i honestly. I think this is going to take years to truly get the answers that people want, which is frustrating when you're expecting something to happen overnight, but uh i'd like to hear your thoughts. What's what's this uh? What's the win looks like for you, you know, i think a lot of this came about as with many problems in markets. The i mean you know, i don't know if it's reductionist of me, but i always tend to see it as a problem of complexity and when you have too much complexity.

If for no good reason - and there can be good reasons for complexity. But when you have this much complexity for no good reason. Just because a bunch of firms have made a lot of money and they have successfully maintained the status quo for many years, because they're making so much money and amassed so much political power that that complexity leads to problems. And if we can um, you know get people to understand what an end state could look like as you're as you're calling it.

You know what a more simplified market structure could look like, one in which the most people possible are interacting in the fewest places possible. Satisfying the original tenants of the 1934 exchange act, which, as one of its goals, set out to minimize intermediation uh, you know so either. This is not a new thing right that go all the way back for a long time and you can find that desire. So you know i i think markets should be simpler and if they are simpler, they'll operate better and we would not have these same kinds of issues, and so you know i think that involves getting practically rid of all of this internalization order flow back onto exchange.

I think you should reduce the number of exchanges and reduce fragmentation. I think there are all sorts of different ways to do that. You can reduce costs dramatically for everyone, and you know you can hopefully have free functioning, competitive markets. All i ever argue for is open competition for order flow and a simpler market structure.

And again, i don't think those things are controversial unless you happen to be making a billion dollars a year thanks to the current complex market structure. Yeah, that's what i was just about to say. You know it's it's interesting to me. I think about this.

A lot in 2004 citadel came out and said they don't support payment for order flow right, yeah they uh they weren't for it and things change over time. Your opinions change when money starts coming in the picture and i think uh, where we're sitting now with this sort of uh duopoly, you got citadel you've got virtue, is just a lack of competition and that lack of competition means they can create that complexity. In terms of coming to off exchanges, ats's dark pools, so they can use payment for order flow and basically uh take away the i'd, call it capitalism. Honestly, i mean you've just got other market makers that aren't able to compete with them because they're too big to fail.

I think what it comes down to is: how do you make market making more competitive so that other people have a fair shot at the game? So that, ultimately it trickles down to the lowest level and everybody's got a fair shot. You know, i don't know, maybe that's right, maybe no, that's that's it exactly. No, you nailed it and you know. Yes, your opinions can change.

My opinions have changed. Of course, opinions can change right, but if you look at what citadel said in 2004, none of it's wrong, no everything they said is spot on. Actually it wasn't an opinion. It was just a fact, and then they backed it all the way from the fact yeah same arguments.

No, no, no worries, but you know i and - and the funny thing is, is the arguments that i'm making. I want market makers to make more money, not less. I you know if i just want it to be spread over more of them, because we want diversity in markets. Right markets are the engine of capitalism.

If you want capitalism to function, you need well-functioning markets, and you know this is a. This is critical to me to to just economics broadly and and prosperity broadly, is that markets need to function efficiently smoothly and market makers need to make money, so they make deep liquid markets that are stable and that are with tight, spreads and and that's the kind Of thing that drives an economy and allows for capital formation and allows firms to raise money and grow and hire people all of this ties in you know to the broader economy. You know - and i know, you're kind of working towards uh accomplishing that end state. For yourself and kind of a better uh, better market, you know i i got to let you at least talk a little bit about the freaking, really cool project that you're uh you're.

Putting together tell us about a little bit yeah thanks, so um. It's called the terminal and - and it really came about from my interactions - with uh, with the apes and on reddit and on twitter and seeing the kind of data that they had access to and it was kind of shocking um because i'm just used to being in The industry and i'm used to having you know the highest quality data, good tools to to look at it with, and i was just taken aback by the lack of good data um available to most retail investors. And so it sort of started as an idea of well. Let's just take professional quality data and tools and bring it to retail, but it's really grown into a much bigger idea.

Also inspired by you know the collaborative nature of the reddit message boards and the dd. That's being produced, and you know, can we give dd producers a better platform to produce that not you know not take anything away from reddit. You know we, we see it as you can come to the terminal. Have access to all this data and tools work in a collaborative way? Maybe you want to work with 10 people to put a research piece together and then post it out to reddit twitter wherever you want, so you know it's really an idea where we're going to bring good data and tools, collaborative community and education and advocacy and we'll.