Transcription
[Narrator] Abusing Wall Street had never been so easy because tucked away in the back offices of big trading firms, teams of financial hackers had found a tiny loophole in its newly implemented electronic trading systems. One they had been exploiting undetected for years to make billions of dollars in profit, but unfortunately for them, upping Canada, a lowly frustrated trader couldn't shake the feeling that something was horribly wrong with the orders he placed. It was like some invisible force knew exactly what he was about to buy or sell the second before he clicked trade. His clients like big pension funds were hemorrhaging money and he needed answers fast. But Wall Street's elites weren't about to let an outsider blow up in their secret. They had already sunk in hundreds of millions of dollars into high speed infrastructure to protect their edge and to keep it, they were ready to gamble with the entire market.
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By the late 1990s, Wall Street realized it was falling behind in the technological revolution. So in '98, the Securities and Exchange Commission dropped regulations around what they called alternative trading systems. This opened the door for new digital stock exchanges, but these new electronic exchanges were still years away. None of the stuffy Joe's on the trading floors expected to be at home, scratching their butts in their underwear buying and selling stocks anytime soon. But then the planes hit, and with physical trading floors closed, manual trading essentially impossible, there was an immediate push to fully electronic trading systems to keep the market running, and they were a huge hit. Here to stay, firms started closing down their old trading floors, instead replacing them for wires and algorithms. But in an era where teenagers were hacking into telecom companies left and right, what could go wrong putting the world's most important financial systems online.
Enter Brad Katsuyama. He had risen quickly within the Royal Bank of Canada, starting as an institutional trader specializing in energy and tech stocks. He was so good that he eventually ran RBC's entire US Equity Risk Trading operation. No small feat in a world measured by split second decisions and razor thin margins. RBC was seen as an outsider on Wall Street, less entrenched than the big US banks. Yet Brad built trust with major institutional clients through this role. He was buying stocks on their behalf, think big hedge funds with tens of millions to spend. Maybe it was just the Canadian niceness in him, but he really seemed like a guy who cared whether they got a fair deal.
Then around 2007, Brad noticed something odd. Orders that seem straightforward on his screen, suddenly vanished or shifted the moment he tried to execute them. Prices moved away as if someone knew exactly what he intended to buy before he could even complete the order. Suspicious he did what any trader would do.
- I do whatever every trader does when they think their computer's not working. I'd call tech support and the guy would run out of the back and say, "What's going on?" I'd say, "Watch this. I see 50,000 shares at $2.93. I'm gonna try to buy that. I will only get a fraction of what you and I see on the screen." And I try to do it and I get 15,000 shares. And I say, "What do you think is happening?" And he says, "Well, I think that there's more people that wanna buy AMD and it's not just you. Meaning that you're part of a market that's moving very quickly and many people want to trade." And I said, "Okay, well I'll prove you wrong." I say, "I now I'm gonna try to buy 45,000 shares at $2.95, but I'm not gonna press this button for five seconds." And if while I'm counting the stocks trading, you're right, other people wanna buy AMD." I said, "But nothing's gonna happen until I press this button." So I'd count to five or seven or whatever I did, I could change it, it doesn't matter. And then I hit the button and that's when the stock would move. That's when the offers would disappear. And I'd say to them, I said, "I'm the event. This is not a random occurrence." The only reason people wanna buy AMD is 'cause I wanna buy it. I had no idea why this was happening. It went on for two years.
- [Narrator] Two years with no clear answer is crazy for this, because somehow, someone was beating him to the punch, abusing the new electronic systems to front run his trades. In financial markets, knowing what your counterparty will buy a moment before they buy it can make billions in profit. But for Brad, that wasn't so obvious just yet. He was stuck. Not much he could do as a trader. Till 2009 when RBC offered him the opportunity to become the global head of electronic sales in trading. Essentially he be responsible for overseeing the bank's software developers building their in-house digital trading systems, but he didn't want to take it. He long thought that this division was a hot pile of garbage. It's actually run by a company that RBC had acquired in 2007 that was more or less in shambles and he had attributed this bug to the Dodgy programming. He didn't want to attach his name to that sort of thing, but RBC was persisting. And so before committing, Brad sought some advice from an old friend who was working in this sort of technology at SAC Capital. That's one of the world's largest hedge funds, renowned for its cutting edge tools and algorithms. To Brad's astonishment, his friend was facing the exact same issue. This wasn't some glitch in RBC's system, it was something bigger, systemic. Someone was gaming the entire market for billions of dollars in profit. That revelation changed everything. Brad accepted the new role. Now as Global Head of Electronic Sales and Trading, he had both the mandate and the resources to dissect the problem from the inside out. What he would uncover was more unbelievable than he could ever imagine.
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- I was hiring people in the spring of 2009 and all of a sudden I could convince a bunch of people who'd never in in their wildest dreams ever wanted to work for the Royal Bank of Canada that the Royal Bank of Canada was actually a pretty good place for people to work. So I built a team at RBC.
- [Narrator] So Brad gung ho in his new role, was set on bringing together a team of all stars, wanted the brightest minds from Wall Street to figure out what was going on to protect RBCs clients from losing their butts. Small issue, the Royal Bank of Canada isn't exactly known for retaining top tier financial talent, but luckily for Brad, he was hiring in spring of 2009, just to boot the lowest point in the jobs market after the 2008 financial crisis. AKA, he could hire whoever the hell he wanted because he was one of the few people still bringing people on. Now, he already suspected that the issue had something to do with speed. So he was recruiting people who knew how the market was structured underneath the hood, how the actual cables were run and what protocols the network used. One of those hired on was Ronan Ryan, a network expert specializing in low latency connections who had in-depth knowledge of the infrastructure used by high frequency trading firms. Early on, he explained to Brad how spread networks had laid high speed fiber optic cable between exchanges in Chicago and New York spending 300 million to save just three milliseconds of latency. A light bulb went off in Brad's head. Clearly someone was making a lot more than 300 million to spend that kind of money. And with this new information they had a theory, that high frequency trading firms were exploiting something that would become known as latency arbitrage.
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- The 100,000 shares of AMD that I saw on my screen wasn't just at one stock market. There were actually at the time 13 different stock exchanges in the United States that were geographically located in different buildings. Now, the geography actually is important here, because what that means is that when I see a 100,000 shares on my screen and I try to enter an order, me pressing the button once isn't just one action. Me pressing the button once sends one message to something called a smart order router. It splits my order up into as many as 13 different messages and blasts them out to the stock exchanges. This is gonna sound crazy, but RBC at the time we were located in downtown Manhattan. All the exchanges were in New Jersey, which is west of Manhattan. So what that means is that by one order to buy a 100,000 shares of AMD, let's say there's 25,000 shares offered at four exchanges, I would blast four orders out to the market from RBC and they would arrive in sequence first at BATS because BATS is located in Weehawken, New Jersey, right on the other side of the Lincoln Tunnel, It's closest to Manhattan. Then Direct edge in caucus, Then NASDAQ in Carteret and the New York Stock Exchange built a new, I heard, they spent close to a billion dollars building a data center in Mahwah, New Jersey and one in Basildon. It would arrive there last, it was 60 miles away from NASDAQ. The difference in time, this is gonna sound completely bananas, was two milliseconds between arriving at the first and the last exchange. At the time I thought that was actually pretty fast. It's 300 milliseconds To blink your eye, two milliseconds to me seemed pretty fast, except for the fact that one of the people I hired, this guy by the name of Ronan Ryan, had just come from building out high frequency trading infrastructure for some of the biggest high frequency trading firms there were. And he said, I got bad news free Brad. I can get from one building, BATS to the next in 476 microseconds. A microseconds is one millionth of a second. He could actually get there four times faster than I could, which meant that as my orders were going out to the market, we would arrive at BATS first, Ronan clients would pick up a signal and race us to Direct Edge, NASDAQ and New York. And they were doing two things. One is, they were canceling their sell orders. Now that they know a buyer's come in and bought everything, all of the AMD shares at 2.91 on BATS, they're racing out to cancel any sell orders they have in the market, but second, they're also trying to buy shares ahead of me to sell back to me at a higher price.
- [Narrator] In hindsight, the concept sounds simple, but at the time it was revolutionary by leveraging faster data feeds, high frequency trading firms had gained a billion dollar edge by using their speed advantage to detect large incoming orders on one exchange and react ahead of those orders on other exchanges. By doing so, they could buy or sell stocks in anticipation, locking in a profit at the expense of slower traders. The best part, this was totally legal. Normally having advanced information and using it to place trades is known as insider trading. But here, well there's no regulation for this sort of thing. This tactic essentially granted these firms a near risk-free commission on every trade made by anyone with a slower connection. And the more Brad thought about it, the more disturbed he was by the implications.
- When we first discovered latency arbitrage, when I sat at RBC and we tested it out and we figured out that people were racing us back and forth, I'll never forget it. I went home that night and I thought about it, and I said, "You know what? There's no way in the world we were the first people to figure this out." I don't think we were fifth or 10th, maybe we were 15th or 20th. Every single person who had figured out that this game could be played by racing between the exchanges, figured it out and went to play the game. The quickest way for me and my colleagues to get rich was to go back out there and exploit what we had discovered. The problem is the world's changing. I don't wanna be the 15th or the 20th person to do that. You wanna be the first person to actually go out there and say, this is the real problem here. The other aspect was that I took my job seriously. The fact that I represented retirements, the fact that I represented pensions, the fact that I actually represented the savings of so many people, every time I had a trade, I felt like I had a duty to my clients to actually do the right thing. And here, all of a sudden you figure out that that we're being electronically front run. That was a huge problem to me.
- [Narrator] The idea of hardworking people's retirement savings feeding these financial predators was deeply unsettling to Brad. He had a duty to protect his clients from being preyed upon, but solving the problem wouldn't be so simple. The first idea was the, just speed everything up. Get as fast as the firm's abusing this, but Ronan Ryan quickly shot down that idea. They were RBC after all, they would never be faster.
- There were things that his clients were doing that we would never do. A funny story is that also proximity where you're located in the data center. So now that I've paid to be in the data center, where you are in the data center matters. And he said that next to one of the big stock exchanges, Toys R Us actually owned a cabinet next to one of the big stock exchanges by accident. They were there, I think they were probably running their website or something like that from there. And he said he was working on behalf of clients trying to pay Toys R Us insane amounts of money and they finally gave in. They finally sold their space and they wanted to leave Toys Russ as the identifier on the cage 'cause they didn't want anyone to know who was in the cage. Proximity matters and they spent a ton of money on that. He said, "We cannot be faster than them."
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- [Narrator] It's at this point with his team in place, Brad persuaded his boss at RBC to allow them to conduct a series of experiments. For the next several months, he and his new team would trade stocks not to make money, but to test theories. RBC agreed to let his team lose up to $10,000 a day making these trades just to collect information that might be helpful. And all of this was generating a mountain of data. They weren't just combing through their own trades, they were combing through the millions of trades that high frequency firms were placing every single day. Trying to get tick level precision to understand what was happening, more importantly, a way to beat it. Most nights Brad would go home, brain buzzing, unable to sleep. But then an elegant solution emerged. Instead of trying to beat the high frequency speed demons, Brad's team realized they could just take the opposite approach and try to slow things down. The idea was simple. They would create an order router that would take into account the arrival times of order requests at different stock exchanges, then stagger the sending of those messages so they all arrive to different exchanges at the same time. However, that would mean rethinking the entire concept of an order router and conducting a complete overhaul of how RBC trades were processed in the first place. With a team needing to create a sophisticated algorithm to predict and synchronize the arrival times of the ones and zeros beaming across the miles of cable to get to these various exchanges. Factoring in things like network latency and the unique characteristics of each exchange's infrastructure in real time. Something impervious that any changes these exchanges would make in the future. Now, if you're a tech nerd like me, you're thinking, "Oh man, you could do a simple ping command or a trace route." But I promise you I looked into this, it's so much more complicated than that. There's some really impressive math to calculate latency in real time in a system like this. So you know, who are they gonna task with building a system like this? It's gonna take an impressive programmer. And luckily for Brad, he had just the guy. Allen Zheng, the most talented programmer at RBC. Brad went to him and said, "Hey man, we wanna solve a really big problem." And he did, he built the minimal viable product, a software solution to prove that it was at least possible to synchronize these order requests with enough tolerance that the high frequency trading firms wouldn't be able to front run their orders. Testing was relentless, even the smallest margin of error could cost millions of dollars to them and their clients. During this development phase, the button to send an order was labeled THOR to tell it apart from the normal order button. And so every trader that was testing this got used to calling it THOR. Ready to place a big market order, THOR it. It was counterintuitive. Everyone wanted to go faster, but slowing things down, it worked. Normally when you hit the button to place a stock purchase order but failed to get the full amount of stock, the screen would light up red. As you know, that had become Brad's reality for the last many years. But when he THORed it, the screen lit up green. It meant that he got all of the stock they were trying to purchase. High frequency trading firms were no longer able to front run their trades. He was overjoyed, and funny enough, the name stuck. When the solution was ready for deployment to actual clients, THOR became the official name of the tool. They even came up with a cute acronym, Tactical Hybrid Order Router to make it more fitting.
- This was the easiest product in the world to sell. I'd walk into any asset manager out there and I'd say, "You wanna buy Bank of America? You see 2 million shares in the offer. How much of that do you get?" People would say anything from 500,000 to a million shares. And I said, "I'll get you all 2 million." And they would say, "Give me the product." Product actually was it took RBC from 19 to number one in the Greenwich Associates survey in one year. It was a 100 million dollars product in less than 18 months. The problem was clients couldn't just trade with RBC. One of my closest clients put it to me brilliantly, he said, "Brad, you've solved 2% of my trading problem." "Like what do you mean?" He goes, "2% is the amount of of trades that I can actually send to RBC." He's like, "What about the other 98% of my trading issues?"
- [Narrator] While THOR was a huge success for Brad in RBC, he realized in the grand scheme, it made only a small difference. High frequency trading firms had grown huge and fast. By 2010, they accounted for a majority of the market's trading volume, often cited at over 50%. Their influence extended so deep that exchanges began tailoring their offering to attract them, granting benefits like special order types, access to private dark pools and liquidity provision rewards. Brad had come to learn that the core business model of stock exchanges was shifting. Wasn't about facilitating trading anymore, but facilitating faster data to the highest bidder.
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- Exchanges collectively in the United States pay $3 billion plus in what are called rebates. This is like figuring out that the electricity company pays you to turn your lights on. It was something that just completely baffled me when I learned it, but they're paying people billions of dollars to trade. Which means they don't actually make money from trading anymore, which is why they open data centers to sell people access, to sell people technology, to sell people cabling. They've even gone as far to put microwave towers on the roof of the exchanges to beam orders back and forth faster, 'cause all of this really adds up to the 476 microseconds that Ronan needed to beat me. It's being sold to him and his clients by the stock exchanges. The stock exchanges were enabling the issue that I just explained to you. A stock exchange exists to help companies raise capital, to help investors allocate that capital. They do not exist to sell this stuff, but why do they do it? So first of all, they sell fast data. If you wanna learn about the the changing of a price faster than someone else, you have to pay for it. If you think about it theoretically though, there isn't anything technically wrong with someone getting data before someone else 'cause there's no way to ensure that everyone gets it at the same time. If I broadcast a signal from this stage, everyone in this room will get it first. Maybe someone in the front row will actually get it technically before someone in the back, definitely before someone in New York will get it or someone in San Francisco will get it. There's no way to ensure everyone gets data at exactly the same time. The problem is the person with advanced information, how do they monetize the information? They monetize it by trading against someone who doesn't yet have it.
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- [Narrator] Things were getting further and further away from the world of fundamental trading that Brad knew and loved. These new incentives offered by modern stock exchanges were often touted as beneficial for providing liquidity and improving market efficiency, but Brad understood the ugly truth and he hated it. The thing is, this stuff was all playing well within the rules of the SEC. It helped that high frequency trading firms were lobbying regulators, but nevertheless, the exchanges remained complicit. They were playing within the rules after all, incentivizing and profiting off providing ways to get faster data. This all led Brad to realize that even with THOR's triumph, he couldn't fix the issue. He began questioning the fairness of the financial system itself. Started dreaming of a way that he could level the playing field for everyone. It had to be him. He would often have conversations with his friends from Silicon Valley that come from big tech startups, about disrupting the way that stock exchanges are run, but they would get scared away because of all the SEC regulations and how hard it is to get any of those changed. Brad knew if he was going to make a difference, he would have to find a way to use the rules against them to level the playing field just as he had done with THOR. But he had another problem. Very few people even knew what these high frequency trading firms were doing. But come May, 2010, that was about change because the financial world was going to learn the hard way. And speaking of using data to get an edge over someone, let's talk about today's sponsor Incogni. So I've been using incogni for more than eight months now, and during this time they've removed my information from more data brokers than I can count. That's those nasty scaly wags that have been collecting phone numbers, names, addresses, relatives, medical conditions. Crap, some of them are even getting social insurance numbers and then selling it to the highest bidder. People that wanna spam my phone numbers, send me junk mail or help people stalk me seriously. There's all these people search websites where you can buy information on pretty much anyone. I suspect that these have been used in a few hacks that have covered over the last year to steal millions of dollars from victims. That's where Incogni steps in. They request on your behalf using data privacy laws that these brokers remove your information. Then they follow up and keep insisting and they do this constantly throughout the year, and that's so important because there's a constant churn of new data coming in. If you've seen my video on breach forms, you understand how important this is. Like there's a whole sect of hackers that are specifically targeting data brokers to get their full databases and then they sell them online for sometimes hundreds of thousands of dollars. The problem is once a data broker is breached, like you can't claw that information back from the hacker. I think Incogni at this point has saved me from like nearly a handful of breached data brokers in the last eight months that I've been using them. That's how frequent this is happening. I've even signed my parents up now for Incogni. Since using them, they're getting way less spam phone calls, that's been my experience too, and I'm not so worried about them falling prey to some crazy phishing campaign. Like there's this porn one going around right now requesting money or they'll allegedly leak all your dirty business online. I bet they bought their target email list from a broker or got it from one of the hackers that breached a broker. So look, start off 2025, right? Take your personal data back, go to incogni.com/crumb and use promo code, crumb to get 60% off an annual plan. That's incogni.com/crumb code, crumb. An amazing deal by an amazing company. Thank you Incogni.
Brad and RBC had discovered the exploit, built THOR and shielded their own clients. Yet outside the walls of RBC, the broader market was still blinded just how dangerous unchecked speed trading could be. That ignorance was about to vanish though, because come May 6th, 2010, the entire market was about to be launched into chaos and what will become known as the flash crash.
- Everyone else is watching and they're seeing these big negative numbers and their confidence gets affected.
- What the heck is going on down here? This is capitulation really.
- [Narrator] There's some important context here. Turmoil had been building in the markets because of the European sovereign debt crisis. Investors were fearing Greece's financial stability was about to collapse, that they would default on their debt, which could spark other heavily ended European nations to do the same. This had been building since 2009, but come May 2nd, 2010, Greece formally requested a bailout. A package to the tune of 110 billion euros. This might sound unimportant, but what it did is it led to increased trading activity in general market instability as concerned traders and institutions began adjusting their portfolios away from European assets to buy things deemed safe from this possible conflict. In other words, during this week of May, there was a lot of big money, worried about losing their butts, moving their money around, watching the markets closely. 9:30 a.m as the opening bells on Wall Street, the main stock indices begin to drop.
- 30 minutes since the market's dropped.
- The Dow Jones Industrial Life dropped more than 900 points.
- US stock market and futures markets just crashed
- [Narrator] Indices are like a scorecard by the way. They measure how a large group of important companies are performing, and all the investors already worried about this debt crisis see this and some of them start offloading their own holdings.
- All of a sudden here we started hearing screaming, bu, buy, buy.
- [Narrator] But by 2:30 p.m things were about to get a lot worse. A large mutual fund later identified as Waddle and Reed decided to initiate a large sell order to hedge against this market decline. They make a request to sell 75,000 E-mini S&P 500 future contracts worth approximately $4.1 billion. Unbeknownst to them, a small flaw in their trading algorithm was about to bring Armageddon to the markets. See, their software was programmed to sell these contracts at a rate of 9% of the market's trading volume until it got rid of all 75,000. No matter how the market price or conditions changed. I know that sounds confusing, but stick with me. This means that an entire extra 9% of the market volume will be pushing the price downwards for the next few minutes. Might not sound like a lot, but in reality it's actually an insane amount of downwards price pressure, but it's about to get a whole lot worse. Because instantly high frequency traders detected Waddle and Reed's sell order and began to trade rapidly between themselves buying and selling future contracts within milliseconds, much like a nuclear reactor gone bad. This is the moment that the markets became uncontrolled. With these firms rapidly passing the contracts amongst themself trying to get ahead of Waddle and Reed, it amplified the trading volume without providing any additional liquidity. It's like a group of kids tossing the same ball around in the circle. It looks busy, but no one knew was actually getting the ball. Waddle and Reed's algorithm didn't understand that. They just saw an increase in the market trading volume and likewise, their algorithm increased the selling quantity further making the price plummet faster. And as the price continued to fall even further, many liquidity providers and high frequency trading firms started withdrawing from the market altogether to mitigate their risk. However, the mutual funds algorithm continued to sell aggressively still unresponsive to the change in price. This combination of aggressive selling and reduced liquidity created a feedback loop causing the prices to plummet further. The Dow and Jones Industrial average plunged nearly a thousand points, about a 9% drop within the minutes, and then other individual stocks start experiencing extreme volatility with all the panic. Some dropped to as low as a penny, and others spiked over a 100,000 due to erratic trading. It's hard to invade the shock on traders this day. It felt like the financial market was collapsing before their very eyes. Circuit breakers finally realizing that this was a technical issue, pause trading from many securities, giving those algorithms a moment to reassess. Human traders now with a moment to breathe are spotting the bizarre prices, shares trading for a fraction of their true value and begin buying them up. And by the time the stock market closed at 4:00 p.m, well most of the stocks had bounced back up to where they were before. Still the damage had done. A lot of really rich people lost a lot of money and they were pissed. Confidence in the market and how it worked was shaken and regulators had no choice now, but to investigate how the heck the market failed so bad.
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Teams from the SEC and CFTC poured over millions of trade orders trying to pinpoint what caused the flash crash. Four years later, they concluded that although high frequency trading firms didn't single handedly cause it, their ultra fast order placements and lightning quick liquidity polls made it much worse. Yet surprisingly, much of the blame ended up falling on a self-taught British trader named Navinder Sarao. On April 21st, 2015, nearly five years after the crash, the US Department of Justice discharged him with 22 counts, including fraud and market manipulation, focusing on the technique they were calling spoofing. In reality, the 38-year-old autistic and still living at home with his parents had come to understand exactly how high frequency trading firms behaved just like Brad. He realized they were kind of like a flock of sheep, reacted the same way every time. So he developed custom software that placed thousands of orders and then cancel or modified them almost instantly. When high frequency traders scrambled to react, he would then cancel those large fake orders before they could be filled. Then as the price shifted in his favor, he placed new genuine but smaller trades and pocketed the difference. It was a rinse and repeat tactic that netted him millions in quick trades. He was beating them at their own game, front running the front running, but now the US authorities were pinning the $1 trillion flash crash on him. Navinder spent four months in a London prison before being extradited to the US. Meanwhile, journalists began writing about how the decision didn't feel quite right. John Bates of Traders Magazine put it bluntly, arguing that, "Blaming this 38-year-old small time trader for sparking a trillion dollar stock market crash is, "A little bit like blaming lightning for starting a fire." And that the investigation had taken so long because regulators were using, "Bicycles to try and catch Ferrari." Referring to the big firms. To coincide the investigation, there was also a series of congressional hearings, and this actually led to a few people from high frequency firms coming out to the public with information never before heard. David Lauer testified about how practices such as, "Stuffing and latency arbitrage destabilized the markets." For Navinder now in the US he took a guilty plea, agreed to pay the US government $12.8 million, the amount prosecutors said he earned from his illegal trading over five years. They took into account that he didn't spend the money on any luxuries and it actually quickly lost it all to fraudsters. But that's a story for another day. Now, despite these high frequency firms seeming to have their fall guy, they weren't totally off the hook. Following their investigation, the SEC also announced stricter rules specifically targeting spoofing, layering and front running. The new regulations clarified and intensified enforcement. Firms now had to abide by tougher guidelines meant to level the playing field for all market participants no matter how fast their trading systems were. Yet, critics argued that these rules still didn't fully address the underlying issues. See, in reality, much of the behavior regulators were trying to stop remains difficult to detect and prove. Meaning it continues to be a problem, a problem, Brad, now more than ever still want it to solve.
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You've probably seen this video by Tom Scott.
- This is actually 38 miles of cable. It looks like three big fishing spools. So anyone who wants to trade on our exchange has to come in and traverse this distance. The high frequency guys can be fast and that's totally fine with them being fast. But because physics is physics, they'll never be 350 microseconds faster than us.
- [Narrator] This is Brad's stock Exchange. See, in 2012, Brad and Ronan decided it was time to walk away from RBC. They had done all they could with THOR and now their idea was to make an exchange that no one could have an advantage on. They named it Investors Exchange or IEX for short. By now, all the high frequency firms had become more or less trapped in a stalemate with each other because they all had the same crazy fast speeds, but still all the little guys that don't have access to that are getting screwed. So the innovative twists that IEX put out was a physical hardware speed bump, adding this tiny delay by just coiling miles of cable. This effectively neutralized every incoming order to the high frequency advantage. It was like taking Brad's THOR concept kind of flipping it on the head, because instead of using it to propagate trades now,' they were accepting trades and hard wiring it directly into an exchange. Now this sparked a lot of controversy on Wall Street when they applied to become an official stock exchange. Other players were coming up with all sorts of reasons of why this speed bump would be a bad idea. I think the truth is they were scared to have an exchange that would level the playing field, but IX was playing by all the SEC's rules. They got that approval in 2016. Investors suddenly had a choice to trade on a market designed to protect them from latency arbitrage. Two years later the SEC released a white paper on IEX becoming an exchange because of all this controversy, and they found that the markets have been more stable since. Seems like Brad's really the only guy trying to do good things on Wall Street for the average Joe.