The transcript from this week’s, MiB: Lynn Martin, President of the NYSE, is below.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Lynn Martin. She is the president of the New York Stock Exchange, the world’s largest, with over 2,400 listed companies for a combined market cap of about $36 trillion. She is also chair of the fixed income and data services at ICE, Intercontinental Exchange. She began her career at IBM in Global Services and came to them with a BS in Computer Science and a master’s degree in Stats from Columbia. Lynn Martin, welcome to Bloomberg.
LYNN MARTIN, 68TH PRESIDENT OF NYSE GROUP: Thanks so much for having me.
RITHOLTZ: Thanks so much for joining us. I have so many things to ask you about, but I have to start out with you were at IBM pretty much in its heyday. Tell us what that experience was like.
MARTIN: It was great. I’m going to date myself a little bit.
RITHOLTZ: Yeah.
MARTIN: But I was there through the Y2K crisis —
RITHOLTZ: Right.
MARTIN: — when global services was relied upon by customers around the globe to get them through that crisis.
RITHOLTZ: Or near crisis, or almost crisis. Was it a crisis?
MARTIN: Almost crisis. It wasn’t. That’s fair. It wasn’t a crisis, and that I remember waking up on New Year’s Eve 1999, I’m going to work in a call center because that’s what you do in your 20s, working at IBM. And we were watching the Australia open, the clocks hitting in Australia and everything was fine.
RITHOLTZ: Right.
MARTIN: And we sort of knew that once Australia opened okay, we were going to be okay.
RITHOLTZ: So was this like a near miss, or was this, hey, a lot was made about something that turned out to be less of a —
MARTIN: I think the industry became very well prepared. I don’t know that it was a near miss, but I think we got ahead of a potential challenge. There was a technical challenge and that computers only understood years in two digits as opposed to four digits. So 2000 could have been 1900, and that could have caused challenges. I don’t know if those challenges would have been as extreme as was forecasted or not, but I’m really glad we didn’t find out.
RITHOLTZ: Yeah. To say the very least. So IBM, I’m sort of jumping ahead in the story, you began your career in Computer Science is coding on a Commodore 64. Would you like to explain that for the youth who don’t know what a Commodore 64 is?
MARTIN: So I remember when I came home from elementary school one day, and my dad who was an electrical engineer, he used to design fuel gauges on airplanes, came home with this huge box. And it was a Commodore 64. I said, “What’s that?” He said, “The first home computer.” And I said, “What’s that?” And I was a kid, I had no idea. And he also brought home a stack of floppy discs, which were quite large for the youth that don’t remember.
RITHOLTZ: They were literally floppy. They’re not like —
MARTIN: They were floppy. You could bend them, twist them, whatever the case may be.
RITHOLTZ: Right. Though you shouldn’t.
MARTIN: Though you shouldn’t because your program would not work if you did that. And I just became hooked on it. And as any good kid does, you become hooked on video games first. So that’s really what got me into the Commodore 64.
RITHOLTZ: So is that what led to a focus on data service and computer science, the simple C64?
MARTIN: Well, what really led me in the path of studying for my undergrad was my dad giving me really good advice, which was way ahead of its time in the early ‘90s when I was applying to college, where he suggested I not go into the traditional engineering discipline, but instead go into computer science mainly because not only was I good at math and good at sciences, but he said there were always be opportunities for women in computer science.
RITHOLTZ: That’s interesting.
MARTIN: And it’s something that was just way ahead of its time and it sounded good to a 17-year-old filling out a bunch of college essays at the kitchen table. So I ticked off computer science despite, you know, not having a tremendous amount of experience with a computer aside from playing with video games and fiddling around more as a hobby than anything.
RITHOLTZ: And now, you oversee a system that is a combination of advanced data systems, lots of hardware and software plumbing. You have to keep 2,400 listed companies up and running, trading as much as a billion shares a day.
MARTIN: Yeah.
RITHOLTZ: How do you go from the Commodore 64 to that?
MARTIN: Fortunately, technology has been significantly advanced. And I think that’s what’s contributing to the volumes of liquidity that you actually see in the markets, but also the amount of incoming order messages that we see every day.
RITHOLTZ: So when you say technology, it’s the technology at the New York Stock Exchange, as well as the technology at all the companies that are trading?
MARTIN: Absolutely. Absolutely. And just macro technology, I remember the first classes I took in my CompSci major, I learned assembly language. I was coding on a mainframe. I was moving from register 1 to register 2, and that’s like the most basic form. And now, mainframes have become really thin machines. They’ve really moved into thin servers. They have moved into storage capacity like the cloud. So the advancement of technology, since I finished my degree in the late ‘90s to where it is today has really exploded into something that allows for more performant, more real-time type of interactions.
RITHOLTZ: There’s a quote of yours I really like which probably explains your career, which is, quote, “The amount of satisfaction I would get when I compiled the program and the program did exactly what I wanted it to was beyond anything I had experienced previously.” Explain that.
MARTIN: Absolutely. So I tend to view computer coding not that dissimilar to communicating in a foreign language. A lot of times you’re learning your French, Spanish to communicate with someone in a different country. When you’re learning computer coding, you’re just learning how to communicate with a machine. And a lot of times when you’re communicating with that machine, you think you’re telling them something really good and something really positive, and what comes out is something really not positive. So very frequently, maybe because I wasn’t the best coder, I would, you know, come back with errors or stuff stuck in what is known as an infinite loop, where the machine just keeps going and going and going. So those —
RITHOLTZ: Rinse, lather, repeat is a great example.
MARTIN: Exactly. It kept doing that. So on the days when I would put, you know, encode and the machine would do exactly what I told it to, I was like, “Oh, wow, that’s great.”
RITHOLTZ: So you used the metaphor of a foreign language —
MARTIN: Yeah.
RITHOLTZ: — verb tense, syntax, punctuation, all these things really matter when you’re coding.
MARTIN: It sure does. Syntax absolutely matters, efficiency also absolutely matters. The way I think of efficiency around computer coding is not that different to communicating with a local in a foreign country. They’ve got their — you’ve got your typical language, you know, the stuff that you would learn in textbooks, but then you’ve got, you know, the more shorthand types of communication. I kind of view efficient computer coding in the same fashion.
RITHOLTZ: Really quite interesting. Let’s talk a little bit about the IPO process, how does this work when a company decides they want to go public?
MARTIN: So a company will decide they want to go public. Typically, they will interview the variety of exchanges. That could be domestic U.S. exchanges. It could be — if they’re a foreign company, they will look at their home markets as well. Ultimately, they have a certain objective in mind. Do they want to raise capital? Do they not want to raise capital? If they want to raise capital, what investor base are they really targeting?
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MARTIN: More often than not, a company will select the U.S. markets because we have the most diverse, deepest pools of liquidity, the biggest access to investors, the biggest opportunity for a company to gain a global following. So typically they will select a U.S. exchange.
RITHOLTZ: So you guys obviously have to prep when a company comes to you and says, “Hey, we’re considering you and some of your competitors.” What is your process like to prepare for — I don’t know if we still use the phrase beauty contest, but that was the old investment banking phrase. How do you gear up to say here’s why you should list with the NYSE and not our competitor?
MARTIN: So my philosophy is very focused on how can we be a good partner to our listed companies, and what is that listed company seeking to achieve. And it’s not just about IPO day. IPO day I kind of equate to a wedding day. You’re going to have a great day. But —
RITHOLTZ: Hopefully.
MARTIN: Hopefully. But what I tend to think about is what happens a month after you go public, what happens six months after you go public. And how could we be a good partner to that firm in their public company journey?
RITHOLTZ: I love the visual of this as a wedding day. So now, I’m thinking you have mother of the bride, father of the bride. Who are you working more closely with? Is it the investment bank? Is it management of the company? Who shepherds this along?
MARTIN: You’re working with both.
RITHOLTZ: Everybody, the caterers, the flowers.
MARTIN: Yeah, exactly. Exactly.
RITHOLTZ: The whole thing.
MARTIN: You’re working with the banks who are underwriting the deal, the mother and father of the bride.
RITHOLTZ: Right.
MARTIN: I got to use your analogy. You’re also working very closely with the company, because the company has a vision. The company has been successful, and that they’ve gotten to the point where they’re graduating to the public markets, which is something that should be celebrated. But the company also has a two-year, three-year, five-year strategy of what they are really seeking to achieve, not just raising capital to fund operations, or to fund research and development. They have — may have M&A targets. They may want to expand their business through leveraging a community that the listings market, particularly the NYSE brings to the table.
They may have specific concerns about certain areas of the market. One topic that CEOs are very focused on at the moment is ESG, environmental, social and governance, and how they are bringing sustainable practices to the market. So they want to tell that story. So everyone has got a different objective. So we spend a lot of time with CEO, CFO, IRO, the whole team, CMO, chief marketing officer, because they’re the ones that are, you know, orchestrating the story a bit.
RITHOLTZ: Right. So let’s talk about the story a little. I just finished watching Apple iTunes’ WeCrashed. And what was so interesting was as they’re marching towards an IPO, it has nothing to do with the exchange. It has nothing to do with raising capital. The narrative just seemed to have taken over from your perch. You must see these things go by all the time, maybe not so much this year, which is a lighter IPO year. But last year, 2020, how do you look at these breaking new stories and all the buzz and mania around an IPO for both good and bad? How does that affect your job?
MARTIN: Our job is ultimately to ensure that when a company comes to the market, they get the best experience possible when that stock opens and when that stock closes first week, first day, whatever the case may be. And that they’re happy with the experience. Ultimately, if there is news around the company, it may influence their decision to go public at a certain time. Ultimately the, the company that you are referencing did decide to go public. It just was at a different time.
RITHOLTZ: Right. A little later.
MARTIN: Yeah.
RITHOLTZ: And there have been stories where that doesn’t necessarily work out well, or a company like Facebook goes public. The initial rollout is a little dicey. They announce something about mobile and suddenly the stock takes off. So when you talk about the month or the year after the wedding, these stories really very much change. It’s not just about the IPO day, is it?
MARTIN: It’s not just about the IPO day, but that’s about the CEO articulating their strategy and executing on that strategy. And that’s what’s going to give the CEO and the public company, the next group of investors. They’re going to get a group of investors on IPO day. They’re going to do their road show right before the IPOs. They’re going to garner the initial set of interest. And a lot of times, companies will start that process even in a soft manner, even before they’re on the road for the IPO. But post-IPO day, it’s about execution. And when they have really exciting news to share, the market tends to reward it. You know, more people come into the stock.
RITHOLTZ: Let’s talk about some other ways some people take their companies public. We’ve watched SPAC, super popular last year. They all seem to have blown up and done fairly poorly this year. How does the NYSE look at a product like a SPAC as an alternative method for a private company going public?
MARTIN: Ultimately, we think SPACs are still a viable form for companies to go public. What you saw was a flood of SPACs coming to the market at the same time. So that may have contributed to some of the challenges that have now happened, given the time horizon that is associated with SPACs. But ultimately we see it as a very viable form for companies to continue to come to market. SPACs had been around for probably 15 to 20 years and that’s what —
RITHOLTZ: Yeah, since the early 2000, people forget that.
MARTIN: Yeah. And that’s what most people forget is that this was a form that companies were using to go public way before the last two years. They just became much more popular in the last couple of years, which is why you saw the flood.
RITHOLTZ: To say the very least. There’s been a little bit of agitation towards direct listings, where there seems to be a decent amount of controversy on both sides. How do you guys look at direct listings as opposed to the IPO process? Well, we pioneered the direct listing. We pioneered it, I believe, three or four years ago. And we are quite proud of that innovation.
It’s just another innovation allowing for private companies, in this case that didn’t want to raise capital, that didn’t need to raise capital, to become public companies, to have that public currency, to be able to fund their operations and/or to do M&A, and/or all the other great things that come along with being a public company, including providing investors, the opportunity to participate in the upside associated with the company.
RITHOLTZ: What about the circumstances where investors can participate in the upside, specifically a lot of these venture-backed companies have stayed private for much longer. They kept doing rounds and have grown to sizes that we previously would think of as, hey, they should have gone public years ago. How do you guys look at that? Is this something that you pay attention to? Where do you think this goes?
MARTIN: Yeah. I mean, we believe in the power of public markets. We believe in the upside that comes along with being a public company. Transparency, good governance you get. You’re able to reward your employees. You’re able to reward shareholders, allow a diverse group of shareholders to participate in the upside. And based on the feedback that we hear from companies who are private, the public currency is still very strong. Despite the fact that there’s volatility in the market, there is still demand for companies to go public. They’re just trying to figure out what time makes sense for them.
RITHOLTZ: Interesting. My extra special guests this week is Lynn Martin. She is the president of the world’s largest stock exchange, the NYSE. They host 2,400 listed companies, with a market cap somewhere in the neighborhood of $36 trillion, doing more than a billion shares on a good day. That sounds like a pretty complex situation just to begin with. What’s it like managing something with so many moving parts?
MARTIN: There are a lot of moving parts. But because I’m a technologist, I feel really good about the service that we provide. You know, one of the first things when I hopped into this role in January, unsurprisingly that I focused on was system capacity, and thinking about, you know, what’s our average response times? What sort of capacity do we have in the system to handle peak days? I’m glad I did that because a couple weeks after that, we had tremendous volatility. The week of January 24th, 25th, around then, the volatility —
RITHOLTZ: Which is pretty funny because the prior year was almost no volatility. It was the quietest year in a long time.
MARTIN: We started to see it a bit in December. So we saw the signs in December that volatility was starting to creep into the market. But we hadn’t seen that to your point, you know, really since the pandemic. The way we look at capacity is incoming order messages. For those listening and coming order messages is buy is coming into the system, sell is coming into the system, trades happening in the system. And very quickly, we started to see days that were in excess of 20% above pandemic levels from a messaging standpoint, and it equated to half a trillion messages being processed by our systems every day. So —
RITHOLTZ: Half a trillion?
MARTIN: Yes.
RITHOLTZ: And by messages, it’s buy, sell and —
MARTIN: Buy, sell, trade. Buy, sell, trade, that is it, incoming order messages, which is tremendous. And the fact that we were processing those with average response times in the stocks of about 30 microseconds was —
RITHOLTZ: Micro?
MARTIN: Yes. Yeah, micro.
RITHOLTZ: Not milli, micro.
MARTIN: Micro.
RITHOLTZ: That’s incredibly critical.
MARTIN: Incredible. Yeah. And you know, that really has continued. It’s been something I’ve had my eye on throughout the year. But our technologists have done a great job. We’ve recently upgraded our systems to our next generation matching engine technology. And our systems have, touch wood, held up beautifully from a response time standpoint.
RITHOLTZ: So when all these things go right, we never hear about it.
MARTIN: Exactly.
RITHOLTZ: But when there’s a little snafu, it’s front page of the Wall Street Journal. Let’s talk about some of those. Let’s talk about what took place on the flash crash back in 2010. Do we really know whatever happened to that, or did just — and I’m going to give you guys credit. These are all old data systems.
MARTIN: Yeah.
RITHOLTZ: Everything that existed then have more or less been replaced, upgraded.
MARTIN: Well, I think in a situation like that, you have seen a market structure evolve too to the point where there have been systems safeguards from a market structure standpoint, put in place around volatility halts, for example.
RITHOLTZ: Before you go there, let me just back up a little bit.
MARTIN: Yeah.
RITHOLTZ: So this used to be a fairly manual system —
MARTIN: Absolutely.
RITHOLTZ: — with individual specialists, human beings —
MARTIN: Yeah.
RITHOLTZ: — at different posts on the floor for each individual stock. I kind of forget — having grown up with that, I kind of forget a lot of people are wholly unfamiliar with that. And there was a transition process where a lot of the manual processes were replaced with electronics and automated computers. There’s still humans involved but much less than they once were. Was that part of the impact in the flash crash? And how has that transition happened? A lot of which took place long before you got there.
MARTIN: Yeah. It wasn’t necessarily as a result of any one particular area, other than just an evolution of the market. What I like to say is the most technologically advanced companies employ humans, and employ human interaction. Humans are there to make sense of what’s going on in the market, apply human judgment, remove noise from the system. It goes back to what we were talking about very early on, during our conversation today, which is when you’re writing code, frequently, what’s going to come back is an error, because that is just the computer reacting automatically to something. If you don’t have the human who can go in and fix the error, you’re going to remain in an error state. So the human’s job is really to remove the noise from the system, is to remove the volatility from the system.
It’s something that I employed in my previous role, where we value $2.8 million securities on the fixed income opaque side of the market, using a lot of great systems, a lot of great mathematical mouth, and also couple hundred humans. And the reason why we have the best data set out there is because I have those humans who are all former bond traders and former muni specialists who can make noise of what’s coming into the system. I think the floor model is the exact same thing during really volatile days. You saw the human element really come into play. We saw two times less volatility on NYSE issued stocks at the open, three times less volatility on NYSE issued stocks at the close. And that is a 100% because of the job of the floor.
RITHOLTZ: Really interesting. So let’s talk about — so you have stocks that are listed, and some of this is NYSE and some of this is Intercontinental Exchange.
MARTIN: Yeah.
RITHOLTZ: So they do stocks. They do bonds. They do options. They do derivatives. What else — and I don’t know if I left anything out, futures. What else is traded at either NYSE or ICE’s family of exchanges?
MARTIN: We also have six clearing houses globally that clear the bulk of the credit default swaps market. In addition —
RITHOLTZ: Where are those six located?
MARTIN: Around the globe. Around the globe. Our largest —
RITHOLTZ: Like London, Hong Kong?
MARTIN: Yeah. Our largest clearing house is based in Europe. It is U.K. FCA registered. We’ve got a clearing house based in the U.S. We have a clearing house based in Singapore, as well as one in EMEA, one in Canada. So we’ve got them sprinkled throughout the globe.
RITHOLTZ: And some of this is regional and some of this is redundancy and backup.
MARTIN: Absolutely.
RITHOLTZ: It makes a whole lot of sense. So I’ve been talking — I keep talking about the NYSE like it’s just the exchange. Let’s talk about the NYSE Group.
MARTIN: Yeah.
RITHOLTZ: That’s four electronic exchanges; NYSE Arca, which is the leader in ETFs; NYSE American Exchange; Chicago Exchange, National Exchange, plus two options exchanges, the American Options and Arca Options, which I think one is in New York, one is in San Francisco. Is that right?
MARTIN: The floor is in San Francisco for Arca.
RITHOLTZ: So how do all — I just mentioned four electronic exchanges, two option exchanges. How do all of these integrate with the NYSE’s operation?
MARTIN: So common technology is really what pulls all of the exchanges together. The different medallions are really there to try different market models, different matching algorithms on the options side of the business, different market models from the equity side of the business. It gives us more flexibility to have — to be responsive to our customers.
RITHOLTZ: Quite fascinating. So I mentioned 2021 was sort of aberrational.
MARTIN: Yeah.
RITHOLTZ: At no point in the year was the market less than 5% from all-time highs, that led to very, very little volatility in the year. How does a lack of volatility affect your daily work, or really the right way to ask that is when volatility spikes like we saw this year, does that make your job harder?
MARTIN: It makes your job different. It makes your job focused more —
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MARTIN: — on thinking about things like system capacity, response times, you know, looking at that super closely because you always want to have a very responsive matching engine. You spend a little bit less time, though, welcoming IPOs to the market because many companies are not going to want to go out in a very volatile environment.
RITHOLTZ: So this raises an interesting question. What can you guys do to — I don’t know if you can end volatility, but what can you do to tame it or make it more manageable? Is there anything in your trading process that can facilitate taking some of the spikes and volatility out of the market?
MARTIN: Well, that’s where — that’s where our market maker model really resonates. And it’s really resonating with those companies who still believe in the public market currency, which there’s many of them, when they’re thinking about coming to the market because you can’t predict volatility.
RITHOLTZ: Right.
MARTIN: No one can control volatility. No one can predict volatility. But we can do things because of our market model to help the companies that are listed on us, have a less volatile experience. So our market model requires a designated market maker whose job is to trade that stock from the floor and they —
RITHOLTZ: Create an orderly market?
MARTIN: Correct. Correct, correct. And they smooth out volatility, not just intraday, but also at the open and the close. The open and the close are incredibly important moments in time for a company, particularly if you think of a company having quarter-end, or they’re having the share repurchases, or whatever the case may be. So that’s actually meaningful dollars, even post an IPO, in a CFO’s mind, when they’re doing share buybacks, things of that nature. So that’s where our market model really resonates, particularly in times like this, when you see the volatility in the market, when you see the VIX over 20, but you know that companies still want to go out in the public market.
RITHOLTZ: You know, I think the public is probably less aware of some of the institutional order flow, like buy on open or sell on close, which it doesn’t hurt to have a professional overseeing that process so it doesn’t get too out of hand.
MARTIN: Yeah. And also smoothen any imbalances because you’re not necessarily going to have a balanced book at the end of the day.
RITHOLTZ: Which means they’re literally taking positions —
MARTIN: They are.
RITHOLTZ: — long or short in order to satisfy those orders.
MARTIN: Absolutely.
RITHOLTZ: So let’s talk about some imbalances, and I’m thinking about the sort of meme stock mania that began in 2020, when everybody was stuck at home during the pandemic, and just exploded in 2021. It was really a very unexpectedly wild ride, especially the companies involved. What was that experience like for you watching this? You weren’t yet president of the NYSE in 2020 or 2021, but you were still there. Tell us what that experience was like.
MARTIN: I mean, it was incredibly interesting to watch the new retail interest in certain stocks and why they had picked certain stocks. And I think it’s just still something that is fascinating intellectually more than anything. I can’t really comment on any of their decisions, but it’s been interesting to watch how social media has really emboldened a new class of trader.
RITHOLTZ: My favorite moment of that was the young — pretty handsome young couple. And the way we subsidize our lifestyle is we buy stocks. We only buy the stocks that are going up. And when they go up, we sell them. And we just do that over and over again from home. And I’m like, oh, I had no idea it was that easy. You could get rich trading stocks. Why didn’t someone tell me that 30 years ago?
MARTIN: I tend to take the view that having a very balanced portfolio and knowing what you invest in, and investing for the long term is probably 9 times out of 10 the — maybe 9.5 times out of 10, the right philosophy to have.
RITHOLTZ: I think Warren Buffett wouldn’t find anything to disagree with that. And yet we see people piling to companies of questionable potential. My favorite example was — was it Hertz that was bankrupt and everybody decided to buy Hertz since then? So as you’re observing this, is part of your brain saying we have to do X and Y and Z to stop this, or is it, well, that’s going to be an interesting end when that all — when that train stops?
MARTIN: So our job is to make sure the markets are open and are available to the most diverse set of investors.
RITHOLTZ: No paternalism. You just —
MARTIN: Exactly.
RITHOLTZ: Here’s the platform and make sure it runs.
MARTIN: Ultimately, if there is questionable behavior, we police that. Our reg group who is a separate group, polices that and works closely with the regulator.
RITHOLTZ: So let’s talk a little bit about that. You see behavior that sometimes it’s just — that looks pretty stupid. And sometimes it’s like, hey, this is looking a little suspicious, something doesn’t smell right here. What happens when your systems start flashing little alerts? Hey, look at this stock, something seems to be unkosher here.
MARTIN: So that would be the job of reg to look at various trademarks.
RITHOLTZ: Internally, the NYSE regulations.
MARTIN: Yeah. They are a separate organization from the business, but they are an internal organization. And then, you know, they would either take enforcement action if it was suspicious activity, not stupid, not stupid. It’s not our job again to take views on whether or not a stock is worth something. That’s for the market to decide. And then if appropriate, refer it to the regulators.
RITHOLTZ: So I would assume the NYSE has a fairly close relationship with the SEC and there’s probably a lot of back and forth on a regular basis. Tell us a little bit about that. How does the —
MARTIN: Well, they are a regulator. We’re an SRO. So we do have a very close working relationship with them. We are —
RITHOLTZ: So you’re a self-regulating organization.
MARTIN: Yeah.
RITHOLTZ: But you also have a, a relationship with the government regulator.
MARTIN: Absolutely. Absolutely.
RITHOLTZ: And I would imagine that’s a fairly productive relationship.
MARTIN: It is. It is. Obviously, we have a very strong rule book. Anytime we make a change from a market structure standpoint from an order type standpoint, that has to be fully approved by the Commission. So we spend a lot of time with the SEC going through various rule changes. We want to introduce a new order type. We want to introduce a new — a different fee. There’s a variety of reasons why we need to do for filings.
RITHOLTZ: So let’s use an example. I’m always — again, now I’m going to show my age. The circuit breakers from the ‘80s and ‘90s were pretty modest and things really had to go off the rails before they kicked in. Circuit breakers have very much been brought up to speed both on the broad market and individual companies. Tell us about the circuit breaker, is that coming from the NYSE? Is that coming from the SEC?
MARTIN: So that is something in the wake of the volatility that has occurred at various points, various instances of stress in the market, whatever the case may be.
RITHOLTZ: I mean, this goes back to ‘87, right?
MARTIN: Absolutely. Pandemic. The market has really — the positive of every time there has been a challenge, the market has developed system safeguards, for lack of a better description. So — and they apply to all of the exchanges. So volatility halts, for example, we have volatility halts for securities, individual securities. But then we also have system halts when the entirety of the market has a certain drop. For example, you saw the market wide circuit breakers kick in, I believe, four times during the pandemic, really during the height of the pandemic and that’s —
RITHOLTZ: March 2020. Yeah.
MARTIN: Yeah. And the way that works is if the S&P is trading 7% below its opening level, it will automatically halt.
RITHOLTZ: Opening level or previous close, how do you categorize that?
MARTIN: Previous close. Previous close. Yeah.
RITHOLTZ: So we close at 3000 and we open 210 points below that, there’s a halt right there?
MARTIN: Yes. Yeah.
RITHOLTZ: Makes sense. And individual companies, what are those circuit breakers like?
MARTIN: It’s, I believe, 5% up or down. It will be at 10 halt.
RITHOLTZ: So that’s a 10. And the first halt is —
MARTIN: And actually, to be fair, it depends on the liquidity in the stock. It could be 5%. It could be wider, depending on the overall liquidity in market cap of the stock.
RITHOLTZ: But when we — when we see a liquid stock take a 5%, or an 8%, or a 10% haircut, they tend to keep trading.
MARTIN: You’ll have a very short halt, and then it will —
RITHOLTZ: Just to let the book sort of rejigger?
MARTIN: Correct.
RITHOLTZ: So the first halt is how many minutes? Five minutes?
MARTIN: I think it’s 10.
RITHOLTZ: 10 minutes?
MARTIN: Yeah.
RITHOLTZ: All right. And then the second halt is longer.
MARTIN: Yeah. And then if this continues to be a mess, it’s halted for the day. So the first, second, third strike, they’re out. We haven’t seen that in quite a while. What happens the next day when we reopen? How is that priced? Is it just the messages and orders, or is there a specialist trying to facilitate that?
MARTIN: There is a specialist. That’s where the open — that’s where our market model shines. You have the opening auction and the closing auction, which again performed that function I mentioned earlier of smoothing out any imbalances, whatever the case may be to make for a smoother open and/or a smoother close. And that’s why when I mentioned earlier that we’ve seen two times less volatility at the open and three times less volatility at the close this year, that’s what I’m talking about. It’s the opening and the closing auctions.
RITHOLTZ: Because a person is essentially —
MARTIN: Because a person is trying to make sense of what’s going on.
RITHOLTZ: Right. Smoothing that out and making it a little more balanced than it might have been.
MARTIN: Correct.
RITHOLTZ: And that means they’re also going at risk and taking positions to facilitate that.
MARTIN: That’s right.
RITHOLTZ: So you mentioned a couple of things I didn’t get to, I want to follow up on. One is the dual listing. So when a company is listed here and overseas, or is that the only reason to be a dual listing? How often — what are the other reasons to be — besides geographic, to be dual listed?
MARTIN: A lot of times, it’s geographic. Very infrequently, there are some securities that are dual listed on us and our closest competitor in the U.S., but that’s very infrequent. So it’s typically to get access to a different group of investors. A lot of times you’ll also see a primary listing and then something called an ADR being listed in the U.S. where we’ll do the primary. And that’s more foreign issuers that want to have their primary listing on the home market, but then tap the liquidity in the U.S. market. So they’ll issue an ADR.
RITHOLTZ: And then what about additions and subtractions? I know we occasionally see companies that were once smaller companies listed at what used to be considered regional exchanges —
MARTIN: Yeah.
RITHOLTZ: — graduate to the NYSE. And then every now and then, somebody, you know, is past their sell/buy date and they get de-listed. Tell us a little bit about what that process is like.
MARTIN: Yeah. I mean, the de-listing process, you know, there’s a lot of things that go into the de-listing decision.
RITHOLTZ: But it’s pretty mathematical, right?
MARTIN: Yeah, it is. It is.
RITHOLTZ: You know, check these boxes or —
MARTIN: We’ve got — the reg has a variety of requirements to maintain your listing. It could be certain financial wherewithal. It could be the amount of shareholders, individual shareholders that are participating in your stock. So there is a formula that gets followed.
RITHOLTZ: And what about the opposite? What about somebody graduating, for lack of a better phrase, to the NYSE?
MARTIN: Yeah. And we’ve seen actually quite a few companies graduate to the NYSE this year alone. We’ve actually seen quite a few companies transfer to the NYSE this year. I think we’ve had 14 so far to date —
RITHOLTZ: That’s a lot.
MARTIN: — which is our best year on record. But we’ve seen — we have a smaller listings venue called NYSE American, which is for the smaller cap companies. And you know, we’re really happy when we see them graduate to the big board, for lack of a better description, because it means they’re having success. They’re having a tremendous amount of success in the public markets.
RITHOLTZ: All right. Let me throw you a little bit of a curve ball. I’m going to ask you a question you can’t possibly answer, but I feel compelled to ask it.
MARTIN: Awesome.
RITHOLTZ: So I remember getting a tour of the floor of the exchange a million years ago, and it was giant room after room, after room down on Wall Street and Broad, and literally where physical chairs were being traded, traded physically person to person. That has slowly been computerized. That’s slowly been morphed into the modern market structure. But I have very fond memories of that massive building that takes up like two city blocks. Is there always going to be a physical exchange? This is the question that I don’t know if anybody can answer. But is there always going to be a physical exchange on Wall Street? At what point does that just, you know, become a venue for aftermarket IPO parties and things like that?
MARTIN: There is always going to be the New York Stock Exchange at the corner of Wall and Broad. We’ve been here for 230 years, counting us being here for the next 230 years. We have survived many war, pandemic, volatility, crisis —
RITHOLTZ: Explosions.
MARTIN: — all sorts of — all sorts of unfortunate events. So there will always be an exchange at the corner of Wall and Broad.
RITHOLTZ: That’s really good to hear. I have very fond memories of that. And not too far from there, the tour of the Federal Reserve gold.
MARTIN: Federal Reserve, the vaults. Yeah.
RITHOLTZ: Right. So those were — I think — I’m trying to remember if that was a high school teacher or a college teacher. It was ways ago. All right. So I know I only have you for a few minutes more. Let me jump to all my favorite questions we ask all of our guests, starting with what did you do to keep yourself entertained during the pandemic? What were you watching or listening to?
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MARTIN: Well, during the pandemic, I had the unique privilege of homeschooling two children in addition to doing my day job, which was focused on keeping the fixed income markets moving forward. So that was — that was a challenge. But I have to say I look back on it with fond memories, not just because our fixed income business provided a lot of transparency in a really opaque market, but also I got to spend some time — a lot of time with my kids.
RITHOLTZ: That sounds like fun. Let’s talk about your mentors who helped to shape your career.
MARTIN: I would say that I’ve had the opportunity to have mentors that have been bosses all throughout my career. It really started with my first project executive who was helping guide me through IBM, who taught me a lot of really important lessons that I still stay true to, one of which is you can never overcommunicate. But throughout my career, I’ve been lucky, fortunate that my bosses have always given me stretch jobs, where they give me an opportunity to do a job that maybe I didn’t have the background for, or I didn’t think I had the background for, but they thought I was the right person for that job.
RITHOLTZ: Sounds interesting. What are some of your favorite books? What are you reading right now?
MARTIN: Books are a challenge mainly because I have a finite amount of time in my day. Right now, you know, continuing to read a couple of interesting business books like, you know, I always go back to the Michael Lewis books because they’re just a good read —
RITHOLTZ: Can’t beat them.
MARTIN: — on top of anything. They’re a unique mix of storytelling and business, so it kind of scratches both itches, for lack of a better description.
RITHOLTZ: Sure. I just reread Liar’s Poker —
MARTIN: Yeah.
RITHOLTZ: — on its 30th anniversary. It holds up surprisingly well.
MARTIN: Yeah.
RITHOLTZ: And you could see the outlines of, oh, it’s not quite a full Michael Lewis book, but there are hints of the writer he’s about to become.
MARTIN: Yeah.
RITHOLTZ: Really quite interesting.
MARTIN: I also like Moneyball. Moneyball is one of my favorites. I mean, like that’s —
RITHOLTZ: Hard to beat.
MARTIN: You’re in baseball season. I’m a baseball fan. So therefore I’m going to, you know, focus on.
RITHOLTZ: We may see the Mets go pretty deep into the playoffs this year.
MARTIN: That I’m not going to — I’m going to hold my breath. We’re entering September and you know what usually happens to our boys from flashing in September, right?
RITHOLTZ: They seem to be a little different team this year under another market participant, Stevie Cohen.
MARTIN: You got to believe, right?
RITHOLTZ: Listen, I grew up with, you know, the Lenny Dykstra era of you’re on the line and it’s so easy to get to Shea Stadium.
MARTIN: Absolutely.
RITHOLTZ: We used to go to games all the time and frequently to be disappointed, but so far —
MARTIN: Well, I remember my first games were ‘85 and ‘86.
RITHOLTZ: Oh, well, ’86 is —
MARTIN: So I mean — and that’s when I just fell in love with them.
RITHOLTZ: Bucky Dent and the little dribbler through the legs. That was it.
MARTIN: Exactly. Like Bill Buckner and his name will go down in infamy I assume in Boston. But, man, I felt good in New York, right?
RITHOLTZ: Yeah.
MARTIN: So — and watching that team was a lot of fun with Strawberry and —
RITHOLTZ: That’s right.
MARTIN: — Ron Darling, who I think is a great broadcaster. By the way, he’s turned into a great broadcaster.
RITHOLTZ: You know, they were always an interesting team, even if they didn’t bring home as many championships as the Yankees did.
MARTIN: They were. They were. They were. I remember going to the Subway Series between them and the Yankees in the World Series in 2000, I think that was. And —
RITHOLTZ: Is that a playoff or —
MARTIN: No. They were in the World Series together.
RITHOLTZ: Really? 2000 is kind of a blur to me.
MARTIN: There you go.
RITHOLTZ: That was like ’08, ’09, that year was a little bit of a blur. Our last two questions, what sort of advice would you give to a recent college grad who was interested in a career involving data services, listed stocks, any sort of trading or exchange-based work?
MARTIN: The advice that I would give is to, in some respects, expect the unexpected. And what I mean by that is your traditional degrees aren’t necessarily going to be what’s going to make you successful. So be intellectually curious about the things, not just involved in finance. Be intellectually curious about the technology under that underpins the systems. And clearly, never be afraid to speak up if you want an opportunity, or take on an additional project that may not be in your day to day, but maybe something that is just an area that interests you.
RITHOLTZ: Interesting. And our final question, what do you know about the world of data services, exchanges, market trading and public companies today you wish you knew 20 or so years ago?
MARTIN: That is a great question.
RITHOLTZ: We save it for last for a reason.
MARTIN: I guess I wish I knew how important — I wish I knew how important the role of the programmer was going to become in financial markets. I understood then that, effectively, fair value was determined by a variety of mathematical — a bunch of math, for lack of a better description. Those mathematical models became much more sophisticated over time. But I don’t know that I fully appreciated that the guy or girl who is writing the code was going to be the one that was interacting with the systems 20 something years ago, and the importance of efficient interaction.
RITHOLTZ: Quite fascinating. We have been speaking with Lynn Martin. She is president of the New York Stock Exchange. Thank you, Lynn, for being so generous with your time. If you enjoy this conversation, be sure and check out all of our previous 400 or so podcasts we’ve done over the past eight years. You can find those at iTunes or Spotify, or wherever you get your favorite podcast from.
We love your comments, feedback, and suggestions. Write to us at mibpodcast@bloomberg.net. Sign up for my daily reading list at ritholtz.com. Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack team who helps put these conversations together each week. Bob Bragg is my audio engineer. Paris Wald is my producer. Atika Valbrun is our project manager. Sean Russo is my head of Research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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