How do you conclude a quarter-century probing the plumbing of Wall Street? By ringing the closing bell at the New York Stock Exchange — which Piper Sandler’s Rich Repetto did on Thursday. The doyen of exchanges analysts, with a roster of CEOs* on speed dial, has spent decades being the first questioner on more earnings calls than FT reporters even claim to have listened to.
We caught up with Repetto ahead of his retirement to talk meme stocks, Gensler, HFT, crypto, and how things have changed over his 25-year career.
*Piper Sandler’s fintech industry conference this month included Vinnie Viola, Thomas Peterffy, Howard Lutnick, Vlad Tenev, Doug Cifu, Terry Duffy, Ed Tilly, Jeff Sprecher, Adena Friedman, Billy Hult, Chris Concannon and David Schwimmer among others.
Why cover exchanges and brokers?
I started this in 1997. The big draw back then was the e-brokers. They called them internet brokers. It was fun because they probably had a little bit more credibility — not a lot though — than the crypto movement right now. People said it’s just gambling, you’re going to lose your money.
I picked up Ameritrade, E*Trade and Charles Schwab. I just had this little fascination with electronic trading and the internet.
And before Wall Street?
I’m a West Point grad. And you have to give five years to the military afterwards. I was a helicopter pilot. Then I’m 27, 28 and I went to work for Mobil. And I did that for a good eight to nine years. My job got reorganised and I got sent to Tulsa, Oklahoma. I didn’t feel like I was really going anywhere and my dream had been to go to business school.
Then I was 40 years old and I was on Wall Street still getting people coffee, but it didn’t make any difference to me because I saw these guys knew what they were doing. I didn’t and their time was important
Describe the trading world when you started?
Other things were going electronic. But as far as a real channel going electronic, the e-brokers were the first ones to do it. And it’s because the internet was just catching on. Back then it would cost you $150, $200 or more to do a trade through a broker and the Ameritrades and E*Trades of the world were doing trades at like $30 or $40.
These stocks then got bludgeoned in the internet correction. The big thing was the e-brokers made all their money from trading. So it’s not like today where they make it from interest, and from other sources. Back then it was just trades.
And now?
With the e-brokers its clear, we got zero commission so they make their money through a little bit of PFOF [payment for order flow], the interest they earn on cash or the other services that they can offer like trading crypto. But the exchanges, they know too that the really rapid growth of trading volumes is very limited. There is still some of it, but for the most part, trading is mature.
There’s still opportunities, like fixed income, like (zero-day) options. And who knows about crypto? So there’s still opportunities, but they learned that even though trading is still their foundation, that they need to diversify into other revenue streams. Nasdaq is probably the most diversified, it has the least amount of revenue coming from pure trade.
When you started, open outcry was still the norm. Now high-frequency trading is standard. Have we lost something in the move to electronic trading?
There is something lost — the knowledge, the customer service, the hand holding that voice trade brought. But there’s also something gained in efficiencies. And in the end, the efficiencies outweigh the drawbacks. Not that there aren’t any but especially with the algorithms, the AI, everything else they come up with today, I think it’s made it more friendly for electronic trading than it’s ever been.
Talking of HFT, what did you think of Flash Boys (Michael Lewis’s 2014 book that triggered industry investigations from the FBI and the New York Attorney General, among others)
I love Michael Lewis’s books. He’s a great storyteller. But what he painted wasn’t the complete story — certainly not over time, and even at that time, I don’t think he had the complete picture.
What he wrote was a fascinating story. But it didn’t incorporate everything that was happening at that time — and certainly not where things were going.
The analogy would be crypto — that it’s used for money laundering, there’s so much fraud, that the business models are corrupt. That’s not all non-factual. But there’s also going to be improvements. I think what happened with Flash Boys is that there were some things that appeared to be not so fair that needed to be ironed out in the electronic world.
A more recent furore has been about retail trading. Thoughts?
Retail spurs additional trading so it increases the velocity. When a retail person makes a trade, there can be multiple trades off that when it goes through the whole system.
Prior to the pandemic in 2019, we averaged 7bn shares — total shares in the market traded per day — and 2018 was pretty close to that. Then we jumped into the low teens, 12bn or 13bn shares with the pandemic.
Even with all the things that have gone on and the meme stock correction and the return to normalcy, we’re still trading probably 11bn shares per day average, though we’re a little bit light right now. Anyway, my point would be that a good part of that is retail.
The biggest driver is zero commissions. People thought it was the whole way we were at home because of the pandemic, they thought that the Covid tax cheques were being tilted into the market. But the volumes have held up, and I think the zero commission thing and the carry-on from that has really increased volume overall in the last three years.
While you’re kicking back in retirement, what big trends will we be talking about?
There’s still markets that haven’t gone completely electronic. Mainly they’re fixed income markets, whether corporate bonds, municipal bonds — still not quite electronic. It’s been amazing that they’ve held out so long.
There’s the private markets as well — the trading of stock before these companies actually go public. There’s potential there.
And 0DTE [zero-day options] — they’re coming because the current state of the world is a macro world. We pay more attention to the Fed and what the CPI is. We’re starting to get back more to individual stocks now because the market went up so much. But the innovation towards products that can trade electronically in shorter maturities, I think is going to continue to bring higher volumes.
Crypto has certainly had headwinds. But what you don’t hear is that the underlying tech — the blockchain technology — is flawed. You hear about how the companies do business and about individual cryptocurrencies, but no one’s saying blockchain is not an advanced technology. When the internet stocks pulled back in 2000, it was only the ones that stayed focused and had unique businesses like Amazon, Google.
In the e-broker space, I was constantly being told, ‘well, Merrill Lynch is going to eat their shorts once they get technology resources too’, or that Wells Fargo was going to do it or someone. And they never were able to stay on that cutting edge of innovation. Whereas Ameritrade, E*Trade — they lived on the online trade. So they had to innovate, that was how they survived, whereas a Bank of America had other revenue sources, Those guys were just not as focused. It took, basically, almost 20 years but they survived and they sold for billions of dollars because of this commitment. (So) I think the blockchain evolution is not dead yet.
And then you got AI and ChatGPT. The advancement of AI is going to hit the markets in some ways yet to be determined.
So crypto’s winter will end?
Its regulation. I do agree with (SEC) chair Gensler — I think everybody in the industry agrees — that there should be more regulatory clarity in crypto. And I think where we get in disagreement is the legitimacy of some of these products and services that they offer. I think regulatory clarity is probably the biggest catalyst for crypto going forward.
Talking of Gensler… how do you rate his equity market structure proposals**
One thing I know about him is he’s aggressive. He’s hard nosed and he’s aggressive.
I think the marketplace is sort of digging in. Because there isn’t a crisis at this point, like there was in Dodd Frank and the global financial crisis when he was CFTC chair, he is going to have to likely compromise more than what he’s done in the past — than what he’s used to. And in crypto too.
**Proposals made in December that include introducing an auction for retail orders that would undercut the current model where brokers offer zero commission, but take rebates from wholesalers called payment for order flow. Cue much, much industry outrage and hand-wringing.
Wholesalers like Citadel and Virtu often get painted these days as bad actors. Why?
I think a little bit can be jealousy. But I also think that you know, in the case of Citadel and Virtu, it’s really human nature — people don’t like change. One of the best things in my career that I get to watch pretty closely tremendous innovators. These guys could foresee and get excited about the idea of change and electronics where there’s a whole lot of people that want status quo — that could stand to lose when there’s change.
Is it because trading technology is a black box to most people?
No doubt. People say ‘I just don’t understand crypto. And can you explain it to me again?’ I say I still haven’t figured out how energy can flow through lines so I can turn on a lightbulb. All this stuff to me is miracles in black boxes. It becomes more accepted and its less threatening, but do you really understand it? I don’t.
If you think it’s black box now just watch how the world is going to change.
The exchanges and brokers have been headed by more than their share of big characters — many who literally worked their way up from the trading floors. Will the next generation be the same?
In their own way they’ll be big personalities. They’re going to be more tech driven — technology adept and tech driven — and then I do think they’re going to be more adaptive. I still think whoever the person is, they still need to be leaders in some shape or form. It could be a different type of big personality but I still think they’ll be big personalities.
What does a good analyst need these days?
Everyone has to have the technical skills — to know the numbers, know how to write, how to develop models. Where I think it’s different now is two or three things. Number one, the importance of relationships. That’s my biggest asset — to have the relationships that I have.
And then I do think technology is likely to drive changes in the way over time the way stocks are researched and reports are written, especially with ChatGPT. It’s a matter of time. And then the marketing aspect — what people don’t understand is that a good research analyst has also been a good marketer as well. You’ve got to want to talk to the press or to be on TV or to be up front and make noise. Anybody can read the reports and you just don’t see many people separating themselves, I don’t think, on the analytical skills these days.
FT Alphaville 100 per cent supports there being more media-friendly analysts with something to say, Now, what are you planning to do in retirement?
I’ve been a competitive person my whole life. I want to get back to more competitive physical skills and get away from the books and the intensity of finance for a few years.
Further viewing:— Retirement tribute for Rich Repetto (Tribute.co)
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