Fireside Chat with Robert Greifeld, Virtu Financial, Inc. (2019)

So first off, John has been the fastest talker I've ever known, so you slow down a little bit, John. Are you trying to look at the pace? Okay, so we'll see. So I would say this: writing the book is a difficult endeavor in that I like to believe that I live in the present, thinking about the future, and the art of writing a book is you're forced to live in the past or a period of time. So it was the thing that I'd like to procrastinate on. But that being said, you know, we look at the time period that's covered in the book, and memory fades, but 2003, we were living in the aftermath of the bursting of the dot-com bubble. So it was a really a different time and place. Maybe we felt we were going back there a little bit. And it also was the time where the floor, the trading floor, still predominated as a method of transacting in our markets and in other parts of the world. And the world changed quite dramatically. So I look at the book, and in general, since you had the period from 2003 to really the Google IPO, where we had headwinds with respect to how the economy was doing. From the Google IPO up until the great credit crisis, we had a cold tailwind. Had the great credit crisis, which was certainly death-defying and a mark we'll never forget, and we talked about our role of that in the book. And then the economy gradually improved, and our diversification as a business, and John, you remember, really started to bear fruit, and we started doing better year after year, time after time. So that being said, you know, the interesting backdrop of the historical times and also great business lessons in terms of how you respond to those environments and how do you take difficult times, good times, and try to continue to execute quite successfully.

Well, not about the first day, but you know, my first day, I knew what I had to do on the transactions side of the business. So I had been a software entrepreneur integrating into the Nasdaq system, so I knew how bureaucratic and non-competitive the systems were. So I did clear a path. I knew that it had been part of the regulator, and our job was to separate from the regulator, get to be really set up to go public, which we eventually did. So that I was ready. But as I was writing the book, I recognized how woefully I was prepared for different aspects of the job, which I didn't really knew existed. So one of them was to come down to this great town and government relations. Right? So coming from a technology background where you wanted to change a feature in your system, you just do that. So here, when you're at Nasdaq, I remember the first time somebody was explaining at night, or somebody saying, 'No, if you want to make this system change, you'll have to make a rule filing, and that might take a month or two months before you can put it in.' I was like, 'Really? How could it be that way?' So the whole government relations thing. And I remember quite naively when somebody said, 'You know, Chairman Oxley wants to meet you,' who was, you know, obviously, Sarbanes-Oxley, used the head of the House Financial Services Committee. So I'm like, 'That's pretty good. Oxley wants to meet me.' And then somebody said, 'Yo, Bob, he just wants to raise money, right? He just wants to use you to raise money.' So I had to learn that aspect of Washington and how they were so important to our job.

The second aspect was, you know, publicity. You know, when you're an entrepreneur in America, you can be quite invisible. You're CEO of Nasdaq, then you have, you know, we had beat reporters would cover what we do. So that was somewhat new to me, and you had to guide me through that process. And the third was when I first got there, the salespeople for a listing business would come to me and say, 'Dick Grasso's in the account.' And at first, let those typical salesperson saying, 'Well, you know, they always want to get your attention and consume resources.' But I would call the CEOs, and Dick Grasso was in the account. So I went in there thinking I'm gonna spend 110% on getting the organization ready to go public, getting the technology ready, and getting our market share up in the transaction business. And yet I found myself spending more time calling CEOs and visiting companies trying to explain why Nasdaq was better than New York Stock Exchange. So those three things, you know, the listing business, government relations, and clearly the publicity. If I had to start it again, I wish I had a greater background in that and had to learn as we went.

See, see, John is just being quite clever because it's going to lead to a compliment for John, right? So there, you know, we're not cost competitive. We're losing $250,000 a day, which can only go on for so long. So we're trying to cut cost, obviously. And I come from a background where I started in ECN. I knew how they ran, right? They had a shoestring operation, had a couple of UNIX servers, change the code all the time. So we have to look more like them. So I go to the market site in Times Square, and we're spending like $28 million a year on keeping this market site going. And I said, 'Okay, this is an easy one. Let's just get rid of the Nasdaq market site.' From my background, that's $28 million, right? You have all these different things you can cut, and this stands out with bright lights. And John emotionally says, 'No, we can't do that.' And Bruce also. And then I said, 'No, we're gonna go, you know, shut down this market site. How long will it take me to get out of the lease?' So then simultaneously, I'm meeting the listed companies, and they're all talking about how great it is to come to the market site. They bring their parents there, the kids there. They start tearing up, you know, it's a signal, you know, activity in their life to do that. I said, 'Okay, maybe John has something there.' So what we did is we cut the expense base down from like $35 million to $25 million, which is still unconscionable, but I recognized it had something of value. And that was again a new thing for me, the concept of brand. Right? The transaction business had zero element of brand. It was a business about reads and feeds, right? What are you charging? What's your response time? Nobody cared about what your brand was. Island, you know, anything. The listing business was quite the opposite, where brand mattered. So we kept the market site open. We actually invested in it through the years, and I thank John and others because it would have been a mistake for the listing business. And it was clearly a global branding event. And when we bought the OMX exchanges, which were basically all the Nordic exchanges, they were ecstatic to be able to come to Times Square with their listing company to use the market site. And never ceased to amaze me in my 30-plus years how important a bell ringing is for people to market things and things like that.

Well, tie back to the point with the opening you just came to me. So we had done a transaction with Dubai, right, where we owned a piece of Dubai exchange and they owned a piece of Nasdaq. So we're doing a market open ceremony in Dubai, and the crown prince is going to come to ring the bell at the time. And so he's running late, and the people come up to me and said, 'Well, we have to delay the market open.' And again, I mean, he's a sovereign ruler, right? He is life-or-death power over people. But I said, 'No, we really can't do that. But when he comes, will you know, we'll fake it and do it again,' that kind of thing. The market's gonna open at 9:30. So they again thought that he was pushing the bell will open the market there. Yeah. But you know, with respect to, you know, the ability to meet the different CEOs, it's interesting is that when I first came to Nasdaq, I got to know John Chambers, who was a CEO of Cisco, very well. And coming from a technology background, it dawned on me, I said he had suppliers that were, he was spending, or spending $20 million a year with, who could not get to John Chambers. And I said, 'Why is it that we can?' Then it dawned on my head, they care about their stock price, right? So he gives you instantaneous access to the CEOs there. So that was kind of fun. But what I said after spending time with them is you realize that every CEO you meet is very smart and very hardworking, but I met many who failed. And it said, 'Okay, what is the common theme? Why did they fail?' And you know, to me it was very clear: you fail because you work on the wrong things, right? So you have a to-do list which you never get to the bottom of, so you have to pick those things that represent leverage for your time, right? And will have the most impact on the organization. And you also have to be very comfortable with not doing other things well, right? So you meet many CEOs who want to do everything well, not possible. The to-do list is endless. So if I looked at that recurring theme, they had a clear vision, right? Because I've seen some CEOs who just, you know, you not think they're working that hard, as you get to know them, but they know exactly what they have to do. So that's, you know, underlooked skill set for, you know, obviously success.

Well, I say, you know, with the high points, so when I first got there, and I covered this in the book, I kept saying to myself, 'I'm six months too late,' right? So it wasn't like, 'It's okay, we're gonna just do great here.' So we continued to lose the money, we continued to lose market share. So you're three, six months in, it's okay, we haven't got where we need to be yet. So that was treacherous times. We were making progress, we're doing a proper nation-building, but it takes a while for it to manifest itself. So when I, you mentioned the 44 acquisitions, they all were optional except for one. The one we were at institutional risk, right? We might not have existed in form if we really didn't complete the INET acquisition. So INET gave us the best technology on the street, and it also gave us necessary market share which buttressed our listings claim. Everything else was optional. Now, diverted a little bit, I knew INET was special. And what I cover in the book is back when I was a software entrepreneur, this is in the early 90s, we had a trading firm startup called Datek, and they were a customer of our back office system. All of a sudden, they're doing these massive amounts of trades, and we're getting paid for a ticket, so we're loving it. So I said, 'Let me go out to Staten Island where they're located and see what it's about.' And you know, I don't know much at this point, and I had never been in a neighborhood in Staten Island. And this is a world before cellphones. I came from Queens, so I kind of knew the feel, but it was still different. And I'm going block after block, a row house, and I can't find out where to go. And I turn one block, and I see a Porsche, BMW, and Mercedes in front. I said, 'I think that's the house.' So what's a sounds like? What? Okay, okay. So I get there, and then this is the dawn of electronic trading, right? They're in that basement house, and that was the dawn of the INET technology. Right? And that time they had a satellite feed, they're taking the feed in, and they had a simple program which identified the six risers and the six followers, and they knew that the manual-based Nasdaq market makers probably weren't keeping up, and that was the order flow to go after. And that was the beginning, and that became the watcher technology, which became INET. So I deep knowledge of the industry said, 'I need to own this technology.' We were banking on a product that we had out of Europe, which is based on Microsoft Windows, which I know not a lot of faith in that time. And you know, it could have just not worked, and then, you know, we would be in a different place. That was, you know, one of the highlights, able to make that and, you know, make that deal happen. And we came out a deal levered almost ten times. So today, if the economy went sour six months after that, then we would have been one of the guys swimming without any swimming trunks on, according to Warren Buffett. So that was that.

The low point, you know, obviously has to be Facebook. You know, we bungled, botched that IPO. And again, we covered in the book. It's interesting to me, the easiest thing for a CEO to do was, the problem is to fire a bunch of people, right? And that's, you know, you got the reflex to go do that. But it was a lot more complicated than that. And what led me on the trail of discovery is one, there was no incompetence in terms of what we've done, that we had a job too hard for us. But when it happened is I let the engineering talent, which I always say great respect for, over-engineer something, right? And the user, the business heads didn't have any enough saying. And so we were refueling in flight when we could have landed the plane and fueled it on the ground. And that was the opening IPO cross wanted to be perfect, and if there any cancellations, it would run itself again. And this unique situation, the cancellations kept increasing, so the cross had to keep running, and it wasn't catching up to itself, who's actually falling behind. So basically, I had to somewhat go back to where we were, John, remember, in 2003, and institutionalized procedures. And I cover it in the book is, you know, the right answer today, right? Because how we look more like a startup in 2004, and it was the right answer, that's the market wanted. But that's not the right answer tomorrow, because the industry had matured and the requirements had maturity, and you had to look more like you looked in 2002. So we changed the culture, which is the hardest thing. And what's interesting is the people who had grown up with me in the culture, which is more of a startup culture, they then self-selected to leave. Because those development people, if I was starting a company, I would hire them tomorrow, but that's not what Nasdaq was, and they didn't want to be there where they had to operate within, call it, the man in the machine, that kind of thing. So that was a, you know, we became a better company for it, but it was not a pleasant way to learn.

Yeah, because when we acquired INET, we acquired their culture too. Well, it wasn't a hacker culture, but these were, you know, counterculture guys would wear shorts to work, which seemed radical back at the time. And they were the smartest guys on the planet, and we let them kind of run and run the show, and they were in it too far. And it was interesting because in the beginning, you know, people assumed Nasdaq was the best platform out there. People were not in the industry, and it was the insiders who knew we were not up to snuff. And then later on, it was like it was a blow that we, as the people invented the modern IPO and the men of the technology, to, you know, make a mistake, okay, with Facebook. But in both cases, the resilience of the brand actually helped over time.

But well, you were there, so one, yeah, we had to just basically become efficient, right? So that's one path. The second is, okay, what do we choose to do? And some of the things we're doing didn't make any sense, others made a lot of sense, but we just couldn't afford to do that anymore. We didn't have the management bandwidth and or the capital to do that. And what we set up is the Socratic debates with respect to these initiatives. John was involved with some of them. So I'd have people argue the pro and the con, and you know, I would say nine out of ten, the answer would reveal itself, and I wouldn't have to weigh in. One of the ten times I had to there, but you'd have different sides. It's never a question of black and white in any decision you make. It's not, okay, that clear cut. It's always a shade of gray that you have to choose from. So you know, we went through that for the first number of months, and then there were a number of initiatives that we had to stop, even though they had merit, but we had financial constraints or management bandwidth constraints. One was the over-the-counter bulletin board, with Adena just about wanting to choke me on when I said, 'No, we're killing that one.'

No, it was interesting. At NYU, I did my thesis on the Nasdaq stock market and how technology was changing the market and the equity market. So who knew at the time? Maybe great.

Well, I'm a big proponent of direct listings within the proper construct, right? So I think it's going to be a niche part of the IPO market, won't be the dominant part. And to set the context, when companies go public and they go up 40 percent on the day or down 40 percent of the day, to me that always has seemed quite inefficient and wrong. And if I'm the company board of directors as CEO, you know, I don't want to be taking a bet on up 30, down 40. I just want to, you know, get the price. So direct listing, if I don't need capital the time I go public, let the market establish the price, and then I do essentially a secondary and raise capital at that price, or maybe a 3 percent discount or 5 percent discount depending. So it separates the pricing action, right, of where I raise money from the act of going public. So I like that. But let's be clear, most companies when they go public want money, right? So that's why I say it'll be niche. Niche companies don't need money when they go public, go public, let the market establish the price, then you do your secondary 6, 12, 18 months later. So I think it's here to stay, but it's not gonna be 50 percent of the market. You know, 10, 20 percent, yes.

I think, okay, that was a long-winded. So I would say this, you know, when you look at financial markets today, first, to be on a happy side, they're the most efficient they've ever been. It's the best for retail investors it's ever been. My commissions are now going to zero, which is hard, hard to contemplate. The fundamental challenge of financial markets regulation has is how to allow innovation to happen, right? So the regulator will always be behind, right? That's by definition. But how do you narrow that gap while keeping safety and soundness in the system?