Out of the Darkness

I guarantee that you will enjoy this video!

Wasn't I right?  How on earth does it only have 3,200 hits?  It's not for lack of trying on the star's part.

Her name is Whitney Hess. I first heard about her about two months ago while taking a class at General Assembly.   She knows a thing or two about publicity, and harnessing social media.  If you find her on (very active) twitter, the photo is a close up shot of her grill.  Her linkedin is free for you to see.  She blogs about personal stuff.  She gets the joke- you are either all in or not in at all when it comes to branding yourself.  She has also forgotten more about "user experience" than I will ever know.  If you asked me two months ago what UX was, I'd probably have guessed it had something to do with Unix, the awesome operating system we used at Knight Securities in 1998, and never saw again.


If someone were to ask me (no one has) who has inspired me along my recent journey, of "trader returned human being who is driven by a concept stage startup that will be built to help empower individual investors" this chick would be pretty high on my list.  It was today at La Esquina where I have lunch on a bench and read blogs on my iphone before coming back to work that I decided I was going to write a blog all about her.  I think everyone who reads my blog should enjoy the aforementioned video and pump the breaks on the attitude that the smart tech people are mainly maneuvering to find ways to abuse your privacy, reveal your identity and even worse steal that idea you had that apple stole, and realize there are some incredibly bright opportunistic people out there who make a living improving the human condition.

When Whitney's name came up in that class, and the VC guy who briefly mentioned this female cult figure (I don't dare say Guru- which is either a deceased member of rap collective GangStarr or an 80 year old spiritual gangster from India) that came from Liquidnet of all places.... boy my interest was piqued- a kindred spirit from the world of equity trading kicking ass in the startup world?  And oh, do I know Liquidnet...

Imagine you're a cash equity trader at an investment bank.  Last night, your salesman fully worked his Knicks seats + steaks game with his camp friend/cousin/lacrosse teammate client- the head trader at Fund X and this morning you have an "embedded" order in stock XYZ on your desk.  Trader at Fund X assures your salesman that the whole order is yours.  Sweet, everything is falling in to place.  All those very differentiated and unique resources you have delivered this client are finally being monetized, and the salesman provides you with his expert instructions on how to operate the buy or the sell order throughout the day.  Your job as a cash equity trader is to "find the other side" of the order- by ventilating the presence of this "natural merchandise" internally and inducing the other lazy and much less talented salespersons to (that's the general attitude about each other) rattle the cages of their own clients to try and find the buy order for your client's stock for sale, or vice versa.  Double commissions for the firm, no impact in the stock.  Your firm provides both parties with liquidity.  Everyone happy.

Except at 9:51AM,  a report 27,104 shares of XYZ just hit the tape.  You send the cursory IB (bloomberg's IM) to your salesperson and "yeah (he) saw it!".  You're in trouble.  You really felt like you did your job, talking to everyone you could inside and out of the firm, and it's now apparent that you suck at it.  The client is clearly executing shares away.  Here's an even bigger issue, since the execution that occurred "away" from your firm is not being advertised on bloomberg's system, you can't figure out which competitor (and therefore which asset manager) is transacting with your "embedded client order".   Since people switch firms a lot, people know which big funds like to transact at certain firms.  Now you're preparing for the worst... here's what happens next

The whole department is aware of any really beefy merchandise internally, and they make another accusatory round of calls to their clients "Just making sure you didn't JUST transact away from us after we told you we had the big order".  While you're considering all of this, a clean 50,000 shares executes.  No advertisement this time either.  You're completely F'd.  The salesman just vaporized you on the phone or if you're lucky you can get the wrath from across the desk through the black phone and squiggly wire shielding the redness of their face while trying to get through to their very loyal client.  You are trying to get some sympathy from the trader next to you when you hear that same phone slam into the desk from across the room.  Oh no.  As you see the cancelation of the order come to your screen, 347,554 shares print. You don't even look for an advertisement.  You know who where it was executed.

Before the financial crisis seized the volumes of the US stock markets permanently, Liquidnet was putting traditional institutional brokers out of business for years by anonymously letting asset managers connect directly with each other and trade independent of traditional brokers.  They're the biggest provider of liquidity in small cap stocks, by far.  Brokers and banks lobbied against dark pool liquidity so hard-- for the investors sake, of course.  Liquidnet matches up hundreds of asset managers on trades, cheaply, efficiently, and I'm guessing with an elegant and sensical design and user experience at one point enhanced by the lady seen above.  They weren't even the first of their kind.  I'm sure they just executed better (pun intended, I guess).  They truly disrupted.  I hated every minute of it, but now I tip my hat to them.

Candidly, I have to admit I've never even seen the interface.  This thing, that frustrated the living shit out of me and all of my colleagues for thirteen years,  took countless "money out of my pocket" and probably facilitated the (thankful) ending my trading career.  I wasn't on the asset manager side of the transaction- so I wasn't entitled to see it.  I never even bothered asking a client to show me some time if I visited their office. Why would I, right?  What could I possibly learn from seeing it?

I was always in the dark (pun intended).  Now I'm putting it all out there, and this is a crucial part of reinventing myself in this industry.  I'm thankful there are people like Whitney out there (and there are several others)- who blog, speak, teach while opening themselves up completely, just to be helpful.  Spend some time on her blog and you'll see why.  I hope you enjoy learning from her, too.

I'm in the business of meeting people and learning now.  It gets better and more interesting every day.  Incidentally, the term Guru actually means to take out of the darkness and into the light.