Bringing Color to European Equities
IMD: What lured you to Turquoise? Were you involved with the project at Morgan Stanley?
Lederman
: I was involved with Turquoise from the very outset, and then for several months was largely uninvolved. The thing that attracted me is that Turquoise is a great opportunity for someone with my type of background. It's very closely related to things that I am expert in, and it's a real opportunity to do things that fundamentally don't just change the way trading is done, but improve the way trading is done.IMD: Do you have any previous experience with a start-up?
Lederman
: Not explicitly. But I'd say that when you're an experimental physicist and you start a new project, it's always a start-up. You have to build the lab, and then the apparatus, and design everything you do. You require a lot of data, and you have to analyze what you do. And when you have enough to call it a thesis, you have to sell it to a committee. So I think there is a lot of relevance to a start-up there. I also think that what I did at Morgan Stanley is really starting businesses relatively from scratch, first in New York and then in London. I've also had to interact with a number of start-ups and make bets on people who could be reliable providers and partners for us.IMD: What do you see as Turquoise's unique selling point, and what factors do you think will be important to your success?
Lederman
: What Turquoise is, first of all, is pan-European. From a technology functionality point of view, we are differentiating and offering a better service to our users-and clearly our intention is to have a rational tariff structure that will attract liquidity. Those are all critical things in terms of what people will point to. But maybe the most important is relatively less tangible-that we're doing this because markets in Europe have been monopolies or near-monopolies. And whenever there's a monopoly, there's an opportunity for someone to come in and be disruptive. And the most important thing that we're doing is perhaps intangible, but we're going to provide a quality client service, we're going to listen to our clients/members, and we're going to adapt and evolve to make our platform better. In a competitive business you have to listen to your users, and we're going to lead the market in doing that.IMD: How important do you think data will be to your business?
Lederman
: I think data is the secret weapon in a business like this. There's enormous commercial opportunity in terms of the value of the service you can provide with data. With raw data, less so, but to the extent that you can work with data, enrich it, combine it with other data, analyze it and use it to report back to clients on the quality of the service you're delivering, I think data is enormously valuable.IMD: What do you think of the US ECN model of providing real-time data free of charge?
Lederman
: At Turquoise, we're going to provide our datafeeds initially without charge, though our general operating principle is that after some period of time we would not want to be in a situation where other people are making money from our data if we are not.IMD: When do you think you'll be up and running?
Lederman
: We will have a working technology platform in May. We expect to have a couple of months of testing, which is a very important part of getting a launch-like we are planning-right. You have many participants, many business cases, and a very high frequency of messages-there's a lot to test.Our plan-and we're hitting every date in our plan-is that we'll be ready in August, [though] we've begun to get feedback from many members, several of whom are saying that August is not a good time to launch, because of peoples' traditions [around summer vacations] and so on. We're listening to our members, and we may find that we have to delay until September-but in any case, we will be ready.
IMD: Are you fully staffed for an August launch?
Lederman
: No, but I would say that we're correctly staffed for this stage of the build out. We have more hiring to do in virtually every department, including technology, market operations and compliance. But we have people in place in every major function, and that hiring is underway.IMD: So roughly how many people would you expect to be working at Turquoise at time of launch?
Lederman
: Between 30 and 40.IMD: How important will technologies such as smart order routing be for new venues like Turquoise?
Lederman
: I think they're very important. If you listen to the incumbent exchanges talk about new liquidity venues engendering fragmentation, and therefore making it harder to trade, you have to take that with a pinch of salt. In 2008, that's really a disingenuous argument. A good market has choices of where you want to trade, and traders today have good technology that allows them to re-aggregate liquidity. So, yes, there is fragmentation associated with having choice, but that choice is what drives competition and efficiency. And the fact that you have smart order routing that allows for the re-aggregation of liquidity really diffuses any arguments against that choice.IMD: In that kind of environment, where markets are fragmented, does that put more onus on the drive for low latency?
Lederman
: Absolutely. All of these things will become more important as people co-locate. I think low latency is an important part of this. And the other thing that happens when there are liquidity venues to choose from is that they introduce arbitrage opportunities and the likelihood that people are going to parse orders into smaller pieces and send some to more than one venue.If you go to any kind of discussion on this, you have various market participants talking about the latency of the systems they offer. And very often, people are quoting different numbers and really comparing apples and elephants. There's a clear requirement to introduce some transparency and standards around this. One of the things we intend to do is report back to users on their own technological performance, and, to the extent possible, show them how they rank relative to other users, who will of course have to be anonymous. That sort of technological performance statistic will be a very valuable service to them.
IMD: So that could drive further investment from a bank that, say, realizes its performance is ranked ninth out of the nine consortium members?
Lederman:
It could.IMD: Is co-location something you could offer as well?
Lederman
: Over time we will certainly be offering co-location in a variety of ways. Turquoise is going to operate in datacenters as it is, and people have the ability to set up their own facilities in the same datacenters already.IMD: Have you chosen your facility?
Lederman
: Yes, but we're not saying [who the provider is]. And furthermore, we are in the early stages of looking at the potential for Turquoise to exist in more than one European city.IMD: Would it be more than a point-of-presence?
Lederman
: I don't want to reveal too much. Let's just say that it could be over time, as people focus more and more on latency, that Turquoise's proximity to the local incumbent market center may in itself be an important consideration.IMD: Are you in discussions with data vendors?
Lederman
: We're in advanced discussions with data vendors and participants about how data gets distributed, and about all aspects of the interface.CEO Confidential Name: Eli Lederman |
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