The Magic Shoebox

May 14, 2019

Where is a millisecond worth a million dollars? The New York Stock Exchange.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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sorry to wake you up to do this no it's fun all right so what do you think the stock market is that's my son Walker he's 11 roughly the same age that I was when my father sat me down for the talk my father never did actually explain how sex work I think he thought a person just naturally figured that out money was different money was something that needed explaining do you stock market

is a from the way I look at it it it's cool when I board I can just open up the stock market app and it tells me how much a business is growing and making money and another thing you can do with the stock market is you can invest money in it so if the stock market grows then your money will grow with it very true both excellent but how do you open up the stock market app it's cool if you don't have a phone

it's an iPad it's a on the iPad Pro they give us at school yeah there's this is the thing on the iPad that says Stockton Crest on it and now I and then I just type some random I just typed fart on it and far talks came up so I have that on my front page now fart talks if our docs is that a company yep let's call fart fart how do you spell it fa r t-- o-- x fertile what is it

dude let's just check this it's really funny hold on one sec yeah and it's been growing but it has no recent story it looks are you know what it's not an actual company it's a complicated it's a complicated stock back to the talk we're at the desk in my office I pulled up the Charles Schwab stock trading page now my father just handed me a little black Ledger he said it was for me to record my stock market Holdings

he bought me ten shares of a restaurant company called Chart House because they own Burger King and I knew would Burger King was

tell me a company that you like our company whose products you really like here just to company any company like what do you like apple do you like oh yeah apple Apple's my favorite if you own a piece of Apple you you know you might like to own it for a while but if it goes up you might want to sell it right

where do you think you go to sell it you kind of need a place where everybody who would want to buy shares an apple or any other company can meet up with anybody who wants to sell the shares in apple or any other company right so be it be great if there's just one place and it used to be just one place the New York Stock Exchange that's that's what the stats stock exchanges where buyers and sellers come together to trade shares but what if the buyers can afford

fly all the way to well that's a very good point they can they used to do is make a phone call or even before that that send a telegram or even by mail say I want to do this and they'd be someone there for them and and that that's called a stockbroker it's a really good question because you don't want to who wants to have to fly all the way to New York if you want to sell or buy your shares or buy shares but now they know people at the exchange and I was just

there's now it's just computers and like all the orders are going into computers because you can't make its way to computer can't persuade a computer or you can't cheat a computer well that's interesting how do you what do you mean well I mean unless you can hack into it it's pretty hard to cheat your way into getting stopped without paying anything

it's funny that is mine instantly with their mine had to when I was his age I looked inside the little black Ledger studied my 10 shares of Chart House worth roughly 200 bucks this unimaginably huge sum and I noticed a line item 20 bucks broker's commission what's a broker's commission I asked my dad he explained a guy charged 20 bucks just to pick up the phone and tell someone to buy the stock what's this guy's name I asked

t' I still remember this feeling of outrage the sheer unfairness of it all 20 bucks for a phone call my dad told me the stock Brokers name then I asked where the stockbroker lived and my father told me that to the guy lived in a great big house a few blocks away from us then aware he looked cross my dad's face why do you want to know where he lives he asked because I'm ago a his house I said because that's just what you did to grown-ups who behave badly you egg

houses which is to say that when I first learned how the people inside the stock market got themselves paid I was genuinely pissed off

I'm Michael Lewis and this is against the rules a show about the attack on the authority of the referee in American life and what that's doing to our idea of fairness and we're now at the end of our season the final episode in which we try to answer the question why on Earth would anyone ever want to be a referee

do you want to get the front of the mat you care that's good an ellipse yeah donkey I'm in a car outside of Dublin in the village of dulky God it's gloomy

thank you for coming again this time with a man Ryan it spent his career in the 1970s and 80s as a civil servant his job was to encourage foreigners to invest in Ireland which back then seemed to hopeless task in 1990 the Irish government had moved him in his family to the United States to Greenwich Connecticut they were transported to what was and is Ground Zero for America's money culture our bond Traders and investment bankers and hedge fund

the jurors

didn't I did you all enjoy living in the state's who is it the first ones were difficult what did you look what made it difficult it was the people from these rabbits Duty young a bit snooty he says in case you didn't hear it my are ya there no there's yeah I guess their places in the states where you could have found snooty your people but not many I think are far from Chanel Number Five yeah yeah

sometimes they are when the Ryan's move from Ireland they had no heirs about anything except maybe the fact that they had no heirs Ireland was still a poor country the Ryan's weren't fancy and didn't really care to be they weren't inclined to look down on other people or look up to them and were suspicious of anyone who did either in other words they were Irish isn't as hard in Jersey what did he play soccer yeah football soccer yeah he's got to understand the other side and that's his sister

sister sister that's all they remain in America for years they sent their 16-year old son Ronan to Greenwich high school and then onto Fairfield University where Ronan developed a secret love for a kind of person his parents never fully understood the American money person

take me back to the first encounter you ever have with the US Stock Market

years ago my junior year in college they gave us tours of the New York Stock Exchange floor this was in 1995 that's Ronan there was literally thousands of people pushing and shoving and at the end of the day when I'm leaving the office at five these guys had walked out an hour before was flashy cars they were wearing their jackets in the bars they were kind of like the cool kids post-college so I just so I just thought it was interesting actually more than interesting Ronan wanted to be one of them one of those people on the lucky side of America

no connections and no money and no real reason to think Wall Street was waiting for him and really he wasn't much like the Wall Street Traders they were big and he was slight they projected confidence and he projected doubt yet he insisted that Wall Street was where he was going

to himself that is he didn't dare whisper any of this to his parents or his friends it would have sounded phony he knew his parents would say going to Wall Street why have you started farting Chanel Number 5

as Ronin approach college graduation his interest in being a stock market Trader became an obsession he wrote dozens of letters to every Wall Street firm even the small ones he received only one reply a form letter so I graduated in June my parents had already moved back to Ireland I was living with my friend's mother on the floor of her apartment looking for a job and it wasn't going swimmingly well and then I got a call one day from a guy from MCI

MCI was a phone company he went to work for the phone company and not for the Glamorous part of it and it started off as something called a national Account Support consultant and they shipped me off to Atlanta for a couple of weeks and started training me on fiber optic cables and the difference between glass and copper and network switches and voice and data and I was doing pagers on people's belts I was doing voice you know I was working with travel agents you know I would go up to some offices in the Bronx where they literally had phone

it's for people who wanted to call home to Colombia or El Salvador and couldn't afford to a few years later wrote in move from the phone company to another company call radians radians was in sort of the same business as MCI it helped people to move their data around only radians was helping people who worked with Wall Street Traders traders who wanted to speed up their trades in various stock markets

in the early 2000s all the stock market's the New York Stock Exchange and NASDAQ and the others had up and moved out of New York City to New Jersey where floor space was cheaper they'd also gotten rid of all the human beings who worked on their trading floors the guys Ronan had once found so cool the stock markets were now simply stacks of computers inside New Jersey data centers the old New York Stock Exchange basically became nothing more than a stage set for CNBC

one day at radians Ronan got a strange call from a Trader in Kansas City the guy wanted wrote in to figure out why his stock market orders were taking so long to reach the stock exchanges in New Jersey

and as taking him 43 milliseconds round-trip for these trades to be acknowledged and I remember my inner monologue at the time is I don't even know what the hell a millisecond is but I said Ted that sounds terrible I think I can help you

a millisecond is one thousandth of a second it takes roughly 400 milliseconds to Blink your eye if you do it fast Rona knew that the guys biggest problem was that he was in Kansas city data travels at the speed of light but it's still travels the further you are from the stock exchanges the longer it takes for your trades to get to them so Ronan move the guys trading machines into a building in New Jersey near the stock exchanges and dropped his trading time from 43 milliseconds to 3.9 milliseconds or roughly

hundredth of the time it takes you to Blink your eye if you do it fast and this guy came up to visit his computer as I guess a few weeks later and he was thrilled and you know according to what he told me I was trying to ask him I'm like What's the value of a millisecond I'm very pleased that you as my client or happy I just have no idea why a war and his explanation was in the first I believe he said the first four or five days of trading out of New Jersey same strategy that I was running in Kansas I've made more additional profit

that to pay for your services for 18 months anyway word soon got out of cross Wall Street if you wanted to make your trades go faster you called Ronan Ryan and Ronan was soon helping all these high-frequency Traders as they were called Ronan had no idea how they were making their money but they would use these mysterious terms like sniffing out the whale order and they'd be like yeah you know we can see Footprints of large orders entering the market and we can you know basically if we see there's

man of a stock because a big pension firm or mutual fund is trying to buy it we can buy it ahead of them and sell it back to them for more

Ronan was running these super straight fiber-optic lines across New Jersey he was scoping out the data centers that house the exchanges to find the shortest paths from the Traders computers to the stock exchange computers the stock exchanges didn't really understand what was going on at least at first but then high frequency Traders started to offer the stock exchanges huge sums of money for what seemed like absurdly small things like a shorter cable between the Traders computers and the stock exchange

just computers and they all insisted on having their computers inside the same buildings in New Jersey colocation they called it the stock exchanges became a peculiar kind of landlord

just the amount that they charge these co-located clients to connect them you you pay it again into the building and then to get from your spot in the building to the exchanges meet me point is bananas like they'll charge as much as forty thousand dollars a month for a cable forty thousand dollars a month for a cable that you could buy retail for 200 bucks Ronan had no clear idea why these big shots were throwing so much money around inside these New Jersey data centers but then neither did

data centers the American part of him just sort of went along for the ride whatever these people were doing must be cool and great just another wonderful aspect of American capitalism

the Irish part of him began to wonder if that was true

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what is IX group IX group is a IX is a stock exchange all people have things that set them apart with set Brad katsuyama part was his refusal to be set apart ever since he was a little kid in the Toronto suburbs people have been telling him that he was special and he'd been refusing to take them too seriously when he was seven his mom

I told him it'd been identified as gifted and offered a spot at a special school Brad said he'd rather stay in the normal school with his friends

when he was 15 he ran a 40-yard dash in four and a half seconds and the track coach told him he could be a star he said he'd rather stay on the football team with his friends

at 17 he could have gone to any University in the world he chose to go to Wilfred Laurier west of Toronto to stay with his friends

Brad never thought much about what he would do for a living but the Royal Bank of Canada found him and hired him and naturally told him he was going to be a star

Brad never set foot in the United States but right after 9/11 RBC sent him to Wall Street to run their stock trading he was 23 years old and so when the 2008 financial crisis happened Brad katsuyama was making two million dollars a year running US Stock Market trading for the Royal Bank of Canada but by then at least to him something was feeling very wrong the trouble started with the computer he used to trade in the stock market

up until early 2008 the screens on his trading desk had always given him real-time pictures of the market if you wanted to buy say Hewlett-Packard stock hit check his computer screens to see how much of it was offered if they said 10,000 shares were offered for sale at a certain price Brad could hit a button and by all 10,000 shares at that price then one day he couldn't basically my just the computer says okay well you didn't buy 10,000 you about 8,000

and so it was bothersome but you you kind of tend to rewire your brain to realize that trading is computerized it's a fast moving Market things are happening maybe someone else wanted to buy Hewlett Packard at the same time I wanted to buy it the issue is that by 2008 the problem got worse instead of buying 80% of what I saw I'd get 60% by 2009 instead of by getting 60 I get 40% of what I saw so I was missing entire chunks of stock

means of dollars worth of stock of essentially just disappearing

Brad isn't buying and selling stock just for himself or for the Royal Bank of Canada mainly he's acting on behalf of big American and Canadian Pension funds and mutual funds and the ordinary people whose money they managed his losses are also their losses and he can't figure out why they're mounting his first thought was it was a computer problem maybe the buttons on his keyboard didn't work or something

the Royal Bank of Canada is Geek Squad turned up at his desk and told him the computer buttons work fine it was Brad who was the problem they said he wasn't pressing the button fast enough and I count to five or seven or 10 whatever nothing would happen then I'd press the button and then I'd miss shares the stock which rehires it was very clear that it wasn't someone else wanted to buy Hewlett Packard because I wanted to buy it and something between me pressing the button and my trade actually executing something was happening but I could never get

a real answer as to what was happening

Brad figured out that whatever was happening had to do with the way information is started to travel by 2009 the stock exchanges were in some weird relationship with these new Traders these so-called high frequency Traders would Brad hadn't completely worked out was exactly what enable these guys to know what he was doing before he even did it

but then he heard about this person who helped make high-speed Traders go faster and Irish guy named Ronan Ryan like people here all the exchanges are in New Jersey if you don't live in New Jersey I live in New Jersey I happen to know where Mawa is I know where Secaucus is he live in New York but I live in New York in the clue where these places war and these are things that were fairly rudimentary to me not because I'm smarter than anybody on Wall Street it's just this is the industry that I grew up with

Ronan explain to Brad what happened when he pushed the button to trade that instantaneous was not instantaneous the signal Brad sent to buy 10,000 shares of Hewlett-Packard needed to travel from his desk at One Liberty Plaza in lower Manhattan out to the data centers scattered across the Jersey suburbs to the new stock markets full of server racks trading stocks so one press of the button what I thought was an interesting

instantaneous action was actually a series of action that happened over the course of many milliseconds high-speed Traders were able to buy technology and data from the exchanges to pick up a signal at One exchange and race me while my order is in flight to the other exchanges to do one of two things one they wanted to cancel any sell orders they had out there because here comes a big buyer I don't want to sell anymore because I know there's a buyer coming but two to actually buy stock ahead of me to sell back to me at a higher price

ice it's cold front running it's not really about being an investor yourself it's about finding out what real investors are about to buy

and buying it before they do so you can sell it to them for a higher price you're only buying because you know I want to buy and you're buying not to own shares in a company that you think is going to help you know you know develop you know an investment return because you understand their business model no you're buying it just it flip it back to me because you know I want to buy it

so Brad figures all this out with a lot of help from Ronan after which Brad takes a long look at this guy this oddly weary Irishman Ronan still long to be a big shot Wall Street Stock Market Trader and Brad decided to make him one inside of a year Ronan was earning more than a million bucks

Brad builds this team of people inside the Royal Bank of Canada the team consists mostly of immigrants who are running tests on the American Stock Market to see how to unrig it to see if they can make it impossible for their own stock market orders to be front run so they try this instead of sending one signal to the for New Jersey centers they send four different signals so they all arrived at the four different centers at

basically the same moment each signal was an order to buy however many Hewlett-Packard or whatever shares were for sale in just that data center

and just like that the whole problem vanished at least for RBC Brad was once again able to buy all the shares for sale on his trading screen without being scalped without electronic frontrunners in the middle of his trade but the problem still bothered Brad because it was so obviously outrageously unfair the US government had granted licenses to these stock exchanges on the condition that they referee the stock market winners and losers are no longer determined

only based on who understands the company better and fundamentals it's now based on how long my cable is and do I use microwave versus fiber optic cable

we've talked about this sort of thing before in this podcast it happened with CEO pay consultants and the ratings agencies and art connoisseurs and probably all kinds of other referees the ref got bought in this case the rest of the stock exchanges they were now providing a slow picture of the stock market to ordinary investors while selling a faster picture of that same Market to a select group of high-speed Traders

that that is like finding out the Umpire makes more from selling things to one of the team's than they do from umpiring the game one thing a lot of people don't realize is that right now New York Stock Exchange NASDAQ they make more money selling high speed data and Technology than they do for matching buyers and sellers

back in 2015 I wrote a book called Flash Boys about Brad and Ronan and the problem of high frequency trading because I was as outraged as I had been as a kid when my father tried to explain to me that some stockbroker had charged 20 bucks to make a phone call and I wanted egg his house and I assumed that any right-thinking person which share my outrage

this is what's weird the computers aren't in one place anymore they're they're all in New Jersey right outside of New York City but they're in like four or five different places in New Jersey so you see how it says that a a PLS Apple know what Apple Simons

and it's called their ticker and we say bye let's say we want to buy one share we want to buy this buy 10 shares okay all right isn't that a lot you're right with that yeah this is gonna help me get into college it's like I hope it's gonna pay my college good if it goes up a lot

your click it you can do it yeah sit in my chair so what you do is you go play Sodor place order that's it place or so what does it say it says right now it says your estimated total amount is one thousand five hundred and nine dollars and 55 cents and you go down there place order yeah

so you're not allowed by the night

it's closed at night oh so people can have brakes people have certain people you know breaks in the computers I would bet and the computers need a break too they probably do

now I hit him with it right between the eyes the brutal Facts of Life

I explained that when he bought his first Apple shares these other computers get to see what he's doing before anyone else like there are people out there who get to live in the future milliseconds ahead of us

this is the funny thing about the start my I'm trying to explain to you is that you think about you understand why stocks exist you understand why people would want to buy them and sell them but it's harder to understand why anybody needs to sit in the middle between the people who would buy and sell and be given different information from everybody else better information so they can make money off the people who want to buy and sell

the reason all this happens is it happened so fast that nobody sees it these signals move at the speed of light which is the second fastest thing what's the first fastest thing thought thought that threw me for a second I mean is it true you thoughts move faster than light did I just proved that they don't I honestly don't know or if it matters but then

I realized he didn't pick up on what I was trying to tell him let's see what we got it for we got it for a hundred and fifty dollars and forty-five cents actually it's even smaller so you $150 and forty five point four cents that's what we paid for the stock someone's computer in the one of the exchanges in New Jersey was looking at it and sing that Apple was below that and ah

buy it cheaper and sell it to that kid in Berkeley California and steal a few Pennies from you

for kids to buy stock that their parents have to do it for them that's correct so so we didn't break the law technically I clicked the button so what will never do is buy stock drunk yeah it's illegal for kids to buy stock drunk so never never trade stocks while drinking

even an eleven-year-old senses that with all this money flying around there must be laws involved here and there are he's required by law to send his order to a stock exchange through a stock broker and that stock broker gets paid by the exchanges for those orders so the stock broker is in on the game to the game is to maximize the kill of the high-speed Traders so that they can afford to pay the stock exchanges and the stock exchanges can in turn pay the stock brokers

everyone in the middle takes a bite out of the prey the prey Is Us

and it's all legal because the people who make the laws screwed up and they're only now beginning to admit it

the parent company that owns the New York Stock Exchange is among the few most profitable companies in the United States which is astonishing if you think about it because their business is simply the exchange of financial instruments rather than the creation of anything real that's Robert Jackson who in 2017 was named one of the five Commissioners at the Securities and Exchange Commission it's supposed to oversee the stock exchanges think of it as the referees referee I totally understand why a car

manufacturer might be or why an incredibly Innovative internet company might be but the idea that the place you go to make investments is the most profitable business in America is Dells me that something's wrong can you think of any analogy to this situation where you got the companies that are responsible for both providing this public good this public service so this public information and and are also competing with it in the private sector I can't and that's your shows

how backward our system for stock markets are I can think of lots of examples in the American economy and in our history where we've had a publicly provided good and a privately provided good and sometimes the to even compete with each other what would be an example of that so there's public transportation is available in the Subway and then there's privately available substitutes but this is a little like letting Uber run the subway and being surprised that the subway sucks yeah or like having Barnes & Noble run the library that's right and then it's acting surprised

when you get to the library and you realize it doesn't have that many books

let's talk just a little bit about what it says about fairness in the American economy that this has been allowed to happen do you worry about that subject at all here's what I worry about that if we stopped somebody on the street and said hey here's what happens when you buy and sell a share of stock it's not that it goes to Some central place where people figure out what the price should be and then give you the best price possible no no this order bounces around data centers in northern New Jersey and then is routed to one of 12

exchanges where the guy who you gave the order to is paid best to send it there and then you're given a price that's probably reflective of the second class quality of data if we told that to somebody I think they'd be outraged

but would they I mean would they really be that outraged I just want to know how this makes you feel some guy has got a penny or two maybe just a fraction of a penny but it's probably Penny or two of your money

because the stock exchange told him I Walker's coming to buy Apple stock

you can go see if you can get it cheaper and sell it to them you can stand in the middle of his trade you can get between him and the person who's actually trying to sell the stock and make money you feel okay about that I don't really care why not because the original order we placed we got we that's that was our choice right to place it and and if we were willing to do that it really shouldn't have mattered

word

it was true he really didn't care it was just a few pennies and it wasn't even really his money

he didn't even care when I told him that if you added it up across the entire Market the theft from all the little kids and grownups it came to many billions of dollars a year he didn't care that the cost was spread across millions of victims while the benefits were concentrated in the hands of the rich few I obviously found the situation outrageous my son did not

it's like the lottery you're happy when you're if you win it and just stick with that you know really care about when the latter lotteries fair or not if you want if you lose you just like oh well well if you people are really addicted to it and they know that they're going to lose but if they win they're like how jealous go home let's go it crossed my mind and not for the first time that about the best joke life might play on me is for my son to end up a wall Street Trader

he already seems to have a useful character trait a sense that the game is not about right and wrong but about winning and losing a certain shall we say lack of interest in the moral question

hi I'm Beth I'm a senior studying social studies with a focus on Brazil and I'm from Sacramento and I'll be returning to Bank of America in a sales role Kira Kira I'm a senior at the college I study math and computer science and I'll be returning to Goldman in a trading rule

we're at Harvard in a seminar mainly Juniors and seniors anyway they're all older than 11 years old and supposedly interested in fairness since that's what the class is about my name is Michael sandel and I teach political philosophy at Harvard University he teaches a course called Justice it's one of the most sought-after courses at Harvard this seminar called Casino capitalism is its first cousin what are we missing oh Vinnie all right well

tell through this Vinnie yeah welcome Vinnie it's a chance for 13 handpick students to discuss the fairness of a lot of real-world situations especially real world situations on Wall Street many of the students have already worked on Wall Street and plan to return

well why don't we begin I'm delighted that Michael Lewis and Brad katsuyama could join us for the discussion of Flash Boys shall we go around yeah so I'm Michael Lewis I'm the author of Flash Boys and a bunch of other books and working on this podcast which can be called against the rules I remember classes like this the semi preparedness the homework half done the thoughts half-baked

the worry that today I'm going to be found out although today that's not the problem I'm the homework so is Brad Brad can't see I'm a CEO one of the cofounders of IX obviously I work in finance that's fortunately or unfortunately originally Canadian from just outside of Toronto live in Darien Connecticut now after Brad figured out how the stock market got rigged he set out to fix it he quit his two million dollar a year job

job as the head of Stock Market trading at the Royal Bank of Canada he took no pay and lots of abuse from Wall Street as he set out to create a fair Stock Exchange the investors exchange he called it aiex but what's interesting is that never in my life have I been a controversial person or looking to fight

against the system I guess in a way that was the first time I think I was motivated to fight against the system did everyone come away from reading the book believing that Wall Street is rigged yes say raise your hand you did all but a few hands go up and those of you who who do not think it's rigged Cade Marius share is not sure that's how you don't think it's rigged

good

even having red Flash Boys well I'm so here I'm a little like vacillating only for the fact that maybe like I didn't understand it as well as I could have but in my mind it seems to be like a trade gets executed someone catches on the trade and just gets to make a better price because they get to dump it out real quickly and in my mind why is that a problem a moral problem I mean when LeBron James goes to dunk a basketball and Jalen Brown stops him and then passes it to Tatum on the other side and he dunks it no one says anything it

kind of sounds like to me this is the same thing you gotta love him just for giving it a whirl but most everyone else seems to disagree with him the Dutch student Marius is the only one who expresses anything like outrage yeah I think what I found very surprising is when you talk with Traders said have been active in the 50s 60s 70s when there were still like Runners around and phone calls everyone will say yes there was also abused of Arbitrage and there was people like taking their bit out of the market but it was

is clear for everyone that was an illegal action and it was kind of still frowned upon but tolerated but I feel like in this book it sounds like the same thing is happening only on an Institute institutionalized scale with those high frequency Traders but yet still it's not illegal or it's not really frowned upon or not properly regulated I feel like there's like a moral Decay from back then to up here even though the whole problem has increased in scale

it's a great point because I think people are willing to do things behind a computer screen they might not be willing to do in person and I think because you don't have that interface with the person that let's say you're taking advantage of it kind of lets you tell yourself a lot of lies about what you do when you're not getting that direct feedback morally the story Brad tells is black and white as it gets the students see that they argue some about who deserves the most blame for the situation

and who's the biggest villain the high-speed Traders the people like Ronan Ryan who once helped the high-speed Traders her maybe it's the SEC Brad says none of the above it's like sitting in a casino with a broken slot machine you know you the person that puts your hand up and says it's broken or do you drain it of all its you know you know money it's a you know they're capitalists but the exchanges I think broke the system on purpose to make money by selling people the ability

T to take advantage of that system

the fact that they're villains on Wall Street well that turns out to be not all that interesting at Harvard the students know too much to be upset they've long since adapted to this world they don't want to talk about Corruption of the rafts or the elaborate system of bribes and kickbacks or what it all says about Modern Life they want to talk about the person who strikes them as the freak of the story Brad katsuyama a student named Keller kind of puts his finger on it

I think it's extremely impressive that you guys were able to figure out the problem and then March right against it you guys were able to say no to the broken slot machine it would have been very easy to make a lot of money understanding the market this way but and then he says the pronoun he referring to you just chose not to and so I was wondering you know what like why and how because I know and even with my positions about Finance I think it would have been extremely difficult for me to walk away from broken slot machine that was paying

so heavily yeah Michael I obviously talked a lot about this

of course we had because he begs the question why you why would any big time Wall Street Trader rebel against his industry why would anyone quit a multimillion-dollar job to become a Referee have you come away from this experience thinking that maybe you care more about fairness than a lot of people

I think this is a complicated subject and we're fighting a system who are trying to confuse people into thinking the world works one way and we're trying to explain it in a different way and to figure out who's right or wrong you have to put in the work to actually understand the details to come to the conclusion that the market is not fair

and so I don't think it's necessarily I care more about fairness than others I think it's I've put in the work to understand what's fair or not bread cat cm is great at explaining things the one thing he can't seem to explain is himself good people don't like to explain to you why they're good people so the it's these questionnaire will he will not get promise you he will never answer this question to your satisfaction no you actually won't because because he's not righteous he's not self-righteous

actually just a great guy and the people who follow him follow him because they sense that he is thinking more about their well-being than his own and it's a rare quality I associate it with being a Canadian yeah the simple answer is he just a Canadian and then if he was an American there's no chance he would have ever done any of this if I were you I wouldn't say a word Brad yeah but you know what even as I said it I realized I was wrong or any way that I'd let my mind

come to rest before it should but you know it's was peculiar about your situation and character was it's odd to find someone get as deep into Wall Street as you got before experiencing extreme moral revulsion so it's the combination of the power of the feeling you had and how far into it you were when you had it that the kind of person who's going to be you got a long way into it before they offended your sensibilities and then they offended it

yeah so that's actually that's a fair point so this is the piece where you know I don't use this as a place to try to take the moral High Ground because I did tolerate a lot of stuff I saw a lot of stuff that I just did not think was good and I just I just like looked at it that's really screwed up and I moved on so what was it about this particular situation that led him to turn his back on money and risk it all to make the world fair Brad's decision was

is hard for the Harvard students to understand

Ronin Ryan's would have been utterly incomprehensible it's right it's right in that case in this building they and the hey they have direct fiber optic connections to every NBA arena from here it is crazy and it's right it's right and CC the NBA logo oh yeah that's funny because you know the lady who wanted me to meet you were saying you know what the NBA Center I'm like what the fuck are you talking about

there's another kind of shoots them the NBA replay Center is where this podcast began it's also just down the road from where ronan's career collided with Wall Street

the whole area looks as if it's waiting for someone to replace the rock on top of it that they wish they'd never removed but a lot happens here let's see what can we just pull in here you go

it takes us five minutes to drive from the replay Center to the first Wall Street data center where Ronin worked for radians it could be a self-storage facility except for one thing

there's a tower on top festooned with satellite dishes look where we're sitting right now Michael weren't a crappy parking lot across the street from one of the most important Capital Market building on the globe on the globe you just wouldn't picture the epitome of the capital markets being here it's a very curious situation and if CNBC was being honest they just have a camera on that building the whole time while they're talking about what's going on in the stock market yeah because that's where it is yeah eight

in dollars of stocks traded inside this place in the last year and it would occur to no one to visit it to watch you look up you just take for granted the massive enough number wires and power cables in a lot of ways and you don't ever ask what the hell they are all of those Towers up there are microwave Towers you have to pay them from a cable from your computer's up onto the roof and they sell you roof rights and roof rights basically means they'll bolt on your satellite dish your

wave dish that structure right there yeah

Ronan taught Brad about all this new technology inside the stock market and he did it so well that Brad created a stock exchange that might put the entire racket out of business Brad taught Ronan how to trade stocks so well that when Brad ditched his job the Royal Bank of Canada wanted Ronan to replace him which is to say that Ronan Ryan finally after 15 years got the job offer he had dreamed of that of Big Shot Wall Street

making millions of dollars a year

but when Brad left to start IEX Ronan left with him to build the fair exchange to create the honest ref and they didn't do it in the American way by getting outraged or appealing to a higher authority or electing a crazy person they just did an end run around the whole problem of high frequency Trading

inside the same Bland New Jersey Warehouse aiex coiled miles of fiber-optic cable and stuck it in a box then they announced that anyone who traded on IX would have to send their orders through this box the magic shoe box running called it it's slow down the high-speed Traders just enough explained in the simplest way that you can resume mom could explain with the speed bump does it's literally coiled cable 38 miles of cable which

takes the light signal 350 millions of a second to go around it so we're not talking about slowing things down dramatically but what that allows us to do as an exchange is it gives us the exchange this clearest picture on what's going on in the market whereas other exchanges because they're slower than the people trading on their Market they're printing trades without a clear picture of what's going on rather than the magic shoe box is a machine for slowing things down in a speeded-up world an engine of fairness

there's been a bunch of studies about its effects it saves investors somewhere between 1 and 12 basis points a basis point is one hundredth of a percent which sounds like a tiny amount right but across the American Stock Market each basis point comes to 7 billion dollars a year

so if the entire stock market traded on IX investors would be spared being ripped off somewhere between seven and 84 billion dollars a year the shit adds up in Jersey the skimming of the American investor isn't a street mugging it's fantastically complicated and at bottom a little boring there was no reason Ronan had to leave his dream job to step in between

Wall Street and its investors and say stop you're not doing this anymore I think had I not worked at RBC for a couple of years I might have thought this was a great business opportunity but the level of full of shit - on the people that we were meeting was just making me more and more Angry so it was more like a challenge to make this Fair because people what was most annoying as people are saying it's already Fair nothing to see here

Ronan could walked away from his middle-class Irish self and acquired whatever he wanted including airs instead he flew to Ireland his parents still had no real idea what their son did for a living

but he wanted to talk to them about it because somehow they were still important to him their voices were still in his head

that's why I'd gone to visit ronan's Mom and Dad just outside of Dublin in the village of dalkey to hear their voices

what did you think when he told you was making a million dollars a year holy shit I know it's hard to believe you know I couldn't kind of think you know they say in every business deal there are two people who the fuck are enough okay and I neuronal could be the fuck are you know so that's see ya how does feeling

tell me about

and then in the same breath that wrote and revealed his new Wall Street power and wealth he confessed that he was thinking of walking away from it all plus tossing a match over his shoulder to burn the place down in a way that would make it virtually impossible to go back as a regular Trader on Wall Street and for ronan's Dad he was the kicker his son was leaving the playing field to become a Referee as all struck me that if you see referees that was kind of skinny legs and Rawls popping around the place

I was thinking of just you know those who can do those who can't teach you know those who can kick the ball play football there was a can't referee and it just sort of thought is strange you know if anybody would want to be one how do we have why would you want to be one why would you want to be a trap why would you want to be a policeman could have making people miserable every day

IX did not so much open for business as explode after its opening wall Street's biggest banks were fine hundreds of millions of dollars for cheating ordinary investors IX itself as a target of an expensive and mendacious political media campaign bought and paid for by the exchanges in high frequency Traders Brad and Ronan were threatened and slandered they needed bodyguards

it took them two years to get the SE C's approval the open for business more than four times as long as it took an exchange built by high-frequency Traders

all because they were doing the most seditious thing that you could do with the heart of American capitalism introduced fairness yeah fathers never you know their sons erratic my father never knew her job I had he thought it worked first invisible charitable organization give them money to companies you know he didn't understand inward investment but I didn't fully understand what Roman was that Ronan Ryan I don't think he particularly even

wanted to be a referee it just so happened that the place he landed Wall Street couldn't accommodate both his ambition and his character his mama and daddy raised him a certain way and he couldn't quite forget it they raised him to see other people as just people who are either full of shit or not

it turned out that Wall Street had a crying need for someone who was not full of shit and Ronan Ryan had a serious talent for it your tea now I did I got everything why do people become referees actual refs I mean not the ones who get into it because some powerful player has bribed them to play the role

I don't think there's a single simple reason

the refs in the NBA May their mainly because they love the game and it's their way into it

Ken Feinberg he discovered in himself a gift for a kind of ferocious neutrality found ways to exercise that gift and discovered that our society just now desperately needs it

let's pause a moment to thank our rafts the honest ones we can tell ourselves that they're doing what they're doing for the same self-serving reasons the rest of us do what we do but there really are people who Step Up in certain moments in certain situations to insist on fairness even if their fathers never fully understand what they do and even though the world never fully appreciates it

all right consider it a birthday present ten shares of Apple all right all right give me a hug a couple screws up it's not my fault it's not your fault thanks for being thanks for being my guinea pig here good podcast job do you think in the olden days this is very a of topic but it's about money when money was like a dollar you could buy a lot of stuff hmm do you think in the

the Nays people called people with over a hundred dollars hundred hundred mayor's a hundred are as opposed to a millionaire yeah and a thousand are they must have had a word before Millionaire right yeah it was called Rich

they're rich they're just a rich

I'm Michael Lewis thanks for listening to against the rules against the rules is brought to you by Pushkin Industries the show is produced by Audrey dilling and Catherine Jared oh with research assistance from Zoe Oliver gray and Beth Johnson our editor is Julia Barton Mia Lobel is our executive producer our theme was composed by Nick brutal with additional

Goring by Seth Samuel mastering by Jason gambrel our show was recorded at Northgate studios in Berkeley by Topher Ruth special thanks to our Founders Jacob Weisberg and Malcolm Gladwell

that's not yours