Those words were the beginning of the end to my career on Wall Street. It was the first time I realized that everything I had learned about my profession would soon mean nothing. To be honest, the words were a bit harsher. More vulgar and dismissive. At least the guy was up front with me. I knew my life would change the moment I heard those words.
I was one of the first brokers in the trading pit of the S&P 500 Exchange traded fund. Trading under the symbol SPY. It was and is still one of the most actively traded securities in the world. It was around this time, the mid-nineties, when automated trading started to take hold. As I stood in the trading pit I noticed a pattern. A broker from off the floor was sending in orders through the automated system that went directly to the specialist. The specialist would announce the trade and divvy up the shares to the traders in the crowd. “You sold five thousand, you sold ten” or bought this or that. You get the idea. I would be in the crowd as a broker working contingent orders. I was to buy or sell a certain amount of shares of SPY with the futures at a certain level or based on some other index. Many times I had to stand there for quite a while to complete my order. As I waited for the right moment to make my trade I watched the action. I picked up the pattern and soon realized that I could get the off floor broker better prices if I executed the orders rather than him using the automated system. After I explained the situation to my boss, he found out who the broker was and I set up a dinner.
We sat down at Harry’s in the Woolworth building. If I remember correctly, he ordered the lobster. After drinks and pleasantries, I got down to it.
“I see that you’re sending in market orders to buy or sell through the automated system. Here’s how the trading works. The spread in the SPY is wider than the spread in the futures the traders are hedging it with. The traders sell the SPY on the offer to you and buy the futures on the offer and lock in an easy profit. They do the opposite when you sell. They’re printing money off your orders.”
The guy didn’t seem impressed.
“I’m in the crowd.” I told him. “I know that there is plenty of order flow between the posted markets. I can buy your customers orders below the offer every time and sell it higher than the bid every time. Think of all the money you’re going to save your customers. They’re going to love you. In fact, I’m so confident that I can do better for you that if I buy on the offer or sell on the bid, I won’t charge you.”
What a deal. I thought.
That’s when he said it. “I don’t give a ….”
I was stunned. “Why not?’
“I’m doing all of my orders over the machine and paying pennies. My customers see that they buy it on the offer and sell it on the bid and they’re happy. Why would I start paying you to start doing better for them?”
There it was. The end of commerce as I knew it. I had superior knowledge and access, the key qualifications of a good broker and it no longer mattered. His trading program was a commissions producing machine. His personal ATM. The trading floor model was dead. Most of the people that worked just didn’t know it yet. Or didn’t want to know.
We can debate the morality of not caring about your own customers but there is no debate that my days were numbered. Besides, that guy was wiped out by an algorithm soon enough.
This is capitalism, it’s always been this way. I read recently that the Pony Express shut down two days after the international telegraph connected Omaha Nebraska and Sacramento California. I think the difference now is the “I don’t care” attitude. You may have been told about synergies or downsizing, or one of my favorites, “if it can be quantified, it can be commoditized”, but what they’re telling you is they don’t care.
No, they don’t care about you or how hard you worked to get where you are, how long you honed your craft, but you do, so you should anticipate what is around the corner. I started writing shortly after that dinner. Start looking ahead for your next move. Find something that you are passionate about outside of work. My old trading floor buddies who moved on and moved ahead didn’t live for the job. There was more to them than the work and they don’t spend much time talking about the good old days. Like me, they got off the horse and moved on before the telegraph line was connected.