Episode 122 -- Doug Cifu (39:38)

Co-founder of Virtu
Formerly a corporate lawyer
Formerly a partner at Paul, Weiss, Rifkind, Wharton & Garrison in NYC for 18 years
Fast talker, sounds like native New Yorker
Private equity firm General Atlantic a client
General Atlantic had idea that exchanges would become electronic, for-profit
He was the lawyer representing GA in all their investments
Met New York Mercantile Exchange (NYMEX) chairman: Vinnie Viola
Vinnie Viola asked him to leave Paul, Weiss and partner with him to found Virtu in 2008
Virtu is an electronic market making firm
"Old school market maker" using latest technology and automation
Vinnie was a local risking his own capital, just wanted to make a tick
Provider of liquidity without customer order flow
Doing one thing, doing it well, and repeating it
Latency arbitrage isn't illegal or immoral
Data centers in New Jersey, data centers in Illinois
Spread Networks: it's not evil, it's just commerce
Evolved to microwave network transmission, even faster
Being faster by a microsecond isn't a sustainable business model
Virtu takes no directional trades, they think they can make a tick
They don't pray for mean reversion
Trading 4.5MM times a day
Bias based on bid side or offer side being stronger, classic market making
The old rewards available to market makers don't exist anymore
For example, specialists got 25 cents a share (the spread) in 1982 on NYSE for holding inventory on blue chips
Wins 51% of time (usually) ... will never disclose scratch percentage [but it's obviously huge]
Michael Lewis running around with his hair on fire
Big barrier to entry to what they do, smaller firms can't succeed
Madison Tyler consolidation in 2011
To be US equities electronic market maker, costs are enormous ($70MM a year), market data, connections
Co-location at data centers, infrastructure, footprint incredibly expensive, wouldn't be profitable for equities alone
Their business is a scale business
Little guys can't make it, must sell out (to Virtu)
Putting out bids and offers is taking risk, so lots of pre-trade risk controls, including human involvement
Hubris is a horrible vice
Virtu went public April 2015
One losing day in five years, operational error, mistake to put that info in, Cifu's fault
Not an arrogant cocky firm ripping people off
We're not swinging for the fences, just hitting singles
Regretted putting "stupid histogram" out there
Guys at ZeroHedge writing crap about it
Michael Lewis's book true of market in 2009 but not 2015, "didn't really know what the hell he was talking about."
Lewis is anti-money, anti-Wall Street ... "he's a capitalist dressed up like a communist"
Lewis wrote fictionalized nonsense
Markets have gotten more efficient, it's *better* than the old days because of firms like Virtu
He was "a reasonably smart young man"
Worked his ass off in high school, got into Columbia, worked ass off there
Got into Columbia Law School, worked ass off, got into Paul Weiss, worked ass off to become a partner
Kept eyes open, learned a lot about a lot of different things, was well rounded
Worked on top-flight deals, big M&A deals, exposed to a lot of stuff
Met Vinnie Viola, became good friends, they worked well together
Need some innate ability, but he's "the dumbest guy at Virtu," must work your ass off
Hire really smart people and empower them
Be modest enough to know what you don't know
No politics at Virtu, flat organization
His success based on hard work, many people helping him out along the way
No clue about financial markets in 2008
Titles are bullshit, don't have them at Virtu
"I'm a smart guy, I can figure it out"
Vinnie took the risk on a "loud-mouthed lawyer" like him
Client used to call him "Dougie Large, the man in charge" (because he's a little overweight)
Twitter: @Dougielarge