How They’re Really Making Money On Your Free Robinhood Trades

it's pretty crazy. I mean that has been you know, there's a lot of like subplots to this crisis. In fact, that's sort of the theme of our podcast over the last several months, is just exploring all of the subplots. But the the incredible boom that we've seen in retail trading activity has to be one of the more surprising ones. And of course the whole you know, it's the whole

robin hood phenomenon. All these people their home, they're not their jobs, there's no sports betting going on, and so it's like, all right, well I got a few bucks laying around, maybe I'll bet on some Tesla shares for free on robin Hood. Yeah. I think that's it, isn't it. It's it's not it's not necessarily that retail investors are jumping into the stock market. It's the way in which

they're doing that. Because we have commission free trading now, you can kind of take a punt on a bunch of stuff without necessarily losing that much money, at least upfront, I guess. And like the punts that we are seeing. Tesla hurts switched to Clared bankruptcy. Everyone's been talking about those, and I think that really that really stands out right now. Yeah. Absolutely.

I remember like last year, I think it was it was last year and Charles Schwab announced that who was going to cut commissions to zero, and a bunch of other online broker bridges followed suit, and my first though was like, oh boy, like, people are gonna lose a ton of money because they're gonna overtrade, and some people probably are. But the weird thing is that a bunch of people who jumped into the market over the last several months have actually participated in one of the most

extraordinary rallies we've seen of all time. So for now, some people are clearly winning. Yeah, But the other part of the story is, I guess the downsides of retail participation, or not the downsides, but the criticism that comes along with it. So obviously a lot of people have been making fun of people who are buying Tesla stock or bankrupt company stock. We've also had some criticism of some of the trading platforms, but particularly robin Hood, which seems

to be at the at the forefront of commission free trading. Right, robin Hood has sort of become it's kind of like

become like the like band aid or Kleenex. It's like this brand, but it also is synonymous with a phenomenon or an industry, you where lots of people are getting into trading and this whole commission free retail craze it also, um you know, raises some questions in addition to just sort of the retail side, about how the industry is making money and who is really the big winner here, Because sure, there are some people that have probably turned a little bit of money into um, you know, millions

thanks to investing in buying call options on Tesla, but also a lot of people are just are making a lot of money just handling this incredible order flow, this incredible activity. And obviously with commissions having gone to zero, the business model has changed a little bit safe from the late nineties when the online brokers say like charged just fourteen dollars a trade or whatever it was, right, so there's no free lunch and economics, there's supposed to

be no free lunch when it comes to trading. But clearly retail investors are getting you know, commission free trades, and yet someone must be making money off of those. How are they doing it? Exactly? And again that kind of feeds into some of the criticism that we've seen around the robin Hood platform. Yeah, exactly right. So that's what we're going to dive into today, like who's really

making money off of all this activity? How sustainable it is, what the new business models of online brokerage really look like. And so we're going to be talking to a great guest. He's actually with us at Bloomberg. He's the head of market structure research at Bloomberg Intelligence. Larry tab is joining us to explain the sort of the new retail online broken landscape. Who's making money out Larry, Thank you very much for joining us, Joe and Tracy. I'm really happy

to be here. It's great to be here. Thanks. How surprising or weird is this moment? You've been examining the world of market structure for a long time. How crazy are things right now? From your perspective, that's pretty insane, you know, if you look at if you look at equity volumes. While we didn't hit a record during during February March, we you know, in terms of share volume, we pretty much almost doubled the amount of notional traded and that has a lot to do with the lack

of stock splits. But um, the amount of value turning over is just phenomenal, given given traditional history, and even this is through the global financial crisis, through the dot com meltdown, the volume has just been astronomical. And and actually the other thing you got to go provide kudos too,

is the market infrastructure. We really haven't seen now. Robin Hood was was down for a day or so, but other than that, you know, you've seen very few outages and and and given all the volume, and especially over a prolonged period, the brokers, the exchanges, the infrastructure providers have really done a great job keeping up with it. I mean, robin Hood was down at a pretty critical time in retrospect. But before we get into all of that, what do you think is driving through retail interest in

stock trading at the moment. Is it as simple as everyone being stuck at home and having nothing to do, or is it people who saw the federal reserve response and assume that it would lead to a big rally in risk assets or is it something else. I think

you've got a couple of different factors going on. First, I think the initial issue was a freak alpium that everybody realized that, hey, the the economy may come to an end, and you know, we might have this pandemic of global proportions that they kind of erect the economy. And so I think a lot of people got on sold a lot that you know, that would would explain a lot of the big dips and reallocate their portfolios. Then I think, you know, the economy started shutting down

in mid March. People were stuck at home, there was no sports, there was no there was no nothing um and you still had a lot of volatility. And then I think you start getting into this whole you know, I'm stuck at home. What do I do? And then you've got also a lot of professionals that are also stuck at home with nothing going on and a lot of volatility. And then you start seeing things like Amazon. Oh, you know, I'm gonna go. I'm gonna go buy everything

from Amazon. It's going to come the next day. So you've got logistics pops, You've got you online pops, and you've got the hotels you know, and entertainment sector shutting down, so you have a lot of interesting plays and thoughts around, hey, look, this sector may actually do really well, but the sector might actually do very poorly. So you've got some real directional bets. Whereas over the last decade it's really, you know, the secret to life has mostly been throw everything in

the sp five and just let it grow. So now you actually have directional bets that you can play, and so I think you've got to You've got a whole bunch of factors. Plus, of course, you know, commission free brokers. We started to see the you know, in December, when we started to see Schwab and the other guys kind of throwing the talent commissions. You start to actually see the retail participation tick off. Actually, then it didn't just

happen in February March. It really started December when when folks brought their commissions down to zero. Actually, I want to back up for a second. So we introduced you as the head of market structure research at Bloomberg Intelligence. But UM, talk to us a little bit about your background, but also market structure What does that mean? I don't know if like that term is a particular one that

people have a grasp on when they hear it. And why is it something that itself should needs to be understood? Why why you should people know more about the sort of vague, big picture concept of market structure and why is it worth researching? Well, certainly my wife doesn't understand it, but market structure researches is basically not necessarily what people are buying and selling and whether IBM is expensive or cheap.

It's how all of the infrastructure fits together. So it used to be, you know, we used to have a New York Stock Exchange floor and people wandered around and negotiated and we're specialists and floor brokers. Um. And then NASTAC was over the counter, mostly traded on traders desks. But over the last twenty years, basically all of this has been electronified. And so we now have thirteen fourteen exchanges soon to be sixteen exchanges. In US equities, we

have sixteen options exchanges. And the pricing structure and how all this fits together and how do they connect and who do you route to first, and what types of orders do you put where? And how do you measure whether you're you're getting a good fill or not. That's all it has to do with all the rules and mechanisms the markets are engaged to actually match fib consellers together. And this occurs not just in U S dequities, but

fixed income. You're starting to see electronification of the fixed income markets, and that's much more complicated and fragmented than equities, UM and foreign exchange and and so you're seeing the movement and the electronification of all of these markets, and it has tremendous ramifications in terms of how your orders are executed. And so that's that's basically what market structure researches.

So it starts with the rules and regulations and then translates into how all of these rules from regulations are adopted through exchanges and and the market infrastructure. I gotta say I used to call Larry up quite a bit when I was writing market structure stories over at the FT, and he was always very generous with his time and insightful. So thank you, Larry. Um, let's connect the market structure argument to what's going on with the commission free brokerages

or trading offers I mentioned in the intro. There's this weird thing. You're offering someone the ability to trade for free, but obviously that trade is generating a cost somewhere in the system. So how exactly are those trades being funded? Yes, so this is really an interesting topic, and so at the very highest level it sounds really fishy. Um, you mean that market makers and wholesalers are actually paying to execute against my trades as a retail broker there as

a retail investor. How can that be good? They must know something that I don't know. They must be ripping me off, They must be giving, you know, getting me a horrible execution. Um, this can't be right. Actually, though, it's not necessarily as nefarious as it all sounds. And first of all, there are two different payment for order flow screens. First there's equities, which which works one way, and then there's options, which actually is a whole different

way that's a little more challenging. What we can talk a little bit that about that if we have time, um the equity side, So think about equities and think about an electronic platform. So at the heart of an electronic matching platform that works in microseconds, and all of these exchanges now execute in microseconds, if not quicker than microseconds, basically hundreds of nanoseconds, which is an unfathomably fast amount of time. So me, as a market maker, what what

am I doing? I'm putting out a bid the buy or sell Apple, okay, And and so all of these really smart, really high frequency trading firms are looking at my quote to buy or sell Apple and trying to determine if that's the appropriate price for this nanosecond basically for this microsect and if it's wrong, it's either not going to trade if I'm too high or too low. But if I'm too aggressive, I'm gonna get taken out

in that in a heartbeat, in in the microsection. So me as a market maker, I have to you know, if I'm trading on lad exchanges. I have to ensure that I'm really confident in my quote, and confident in that my quote not just in terms of trace here Joe or Larry trading against that quote, but confident in that quote for a big, huge mutual funds, high frequency traders, and the smartest hedge funds in the world to trade

against that quote. Um, because the second that i'm you know, are the microseconds that I'm wrong, I'm gonna get taken out. So the quote that I provide really has to be an institutional quote, a quote that that you know, hedge funds and mutual funds need to think, Okay, you know that's a fair quote, not too aggressive, not to to lose. That said, the reason why, um, they're thinking that is because they're trying to buy thousands of not hundreds of thousands,

if not millions, of shares. You and I are are trying to buy a hundred shares are increasingly less than a hundred shares. But that's a whole another topic about AUTI loots to promote the title of this podcast, in effect, because you're in my order is for a fraction of the shares of Fidelity or Capital Group or Bridgewater or whoever's trying to buy, I can price you're in my order tighter because you know, because I don't have you know, because Larry doesn't have a million shares after that first

hundred share share order behind it. So if you think about supply and demand, what does the market do? E gauges supply and demand, And if there's not a whole lot of supply or demand, then the price should not change that much um Whereas if there's a lot of supplying demand that the price will change a fair amount. But theoretically, actually retail trades should actually price more aggressively

than than the larger orders. And that's kind of the theory behind aiming for order flow, that a market maker could actually priced mire your shares better then they can price a large mutual funder heads fund. And the savings that gets split three ways. It gets split up into price improvement, which basically means that they're gonna they're gonna give me the customer a better price. They're going to pay a few cents to the broker that the retail broker who were outed that water flow to them, and

that's the payment for water flow part. And then the third part of course, is the wholesaler's profit. And so that is if you think about it, that that's that's the philosophy behind internalization and equity payment for water flow. All right, there's a lot there, So let's try to

unpack it a little bit further. So you've made this distinction between say, if if me or Tracy you want to buy ten shares of apple Um, then the market maker at the other end can price you, said, I think more aggressively or give a so a narrower spread because they feel more confident. Yeah, because because you're not going to come on the back of that with another

hundred another hundred an ad shares. So when Schwab last year announced that they were going to go commission free, everyone's like, yeah, well they can do it because they have this huge float of other assets and they make money in a bunch of ways. But that's obviously not the case with robin Hood, which doesn't have you know, which doesn't have nearly the asset base, that has a very different business model, that doesn't have the bank attached to it like Schwab does. It doesn't have all the

R I, A, S, etcetera. So just let's walk through specifically the innovation on say the robin Hood side a little bit further and how payment for order flow works there. I opened up my robin Hood app. I make an order to buy ten shares of Apple. Explain to me

specifically how robin hood makes money after that transaction without commissions. Well, they make them their their money pretty much the same way that swab are a merry trade or each trade you know, doing that trade, get is going to get routed to most likely Citadel, Virtue or Susquehanna through the city har E tr And just just to stop you real quickly when you those are the market makers when you were talking about Okay, so these entities like Virtue, Citadel,

uh and so forth their market Suscohana their market makers, their market makers. Yeah, and so they're going to route that order flow to generally one of those three players. They're the three largest, and there are a couple of other auxiliary players there too, like six, like two sigma. So they're gonna wrote that order flow to those guys.

The wholesalers are going to execute that equity order at we're better than the best price in the mark because that's how the SEC demands that those those orders get executed and they're gonna pay. They're going to probably give a little bit of price improvement to the order so that you'll get a price that it's actually better than what you see in the marketplace, and then they're going to pay robin Hood a few cents for that order.

And it could be you know, it could be anywhere from the average payment for order flow is about fourteen cents per hundred shares, but actually in robin Hood it's it's more. Yeah, I wanted to I wanted to ask you about exactly this, and I think maybe it will help us understand the process more. But one of the criticisms of robin Hood especially is that it tends to get more for every dollar in you know, customer order

flow versus someone like Schwab. Why is that? What's the difference there, because presumably everyone is sort of executing at at similar prices, or at least execut eoting with with the same intent of achieving best price. Yeah, that that gets a little square me. So, So if you think about, you know, the three sections of profit, you know, the price improvement, the payment for water flow, and the market

maker profit. So if you think about it, the spread is going to be the same whether it's you know, whether you know it's you or me, are coming from Schwab or robin Hood or each free. So the bigger question is how much am I going to make on

that trade? And how is that what I make going to be split between what I keep, what I send to the client and what I send to the broker and what I what I keep will probably be somewhat consistent because it's very competitive, and so the real differences between what I what I give to the client and

what I give to to the broker. And and while they don't have, um the execution quality stats, that's where there could be different you know, um that robin Hood may keep a larger percentage or a smaller percentage, or give you a larger percentage back to the client or not. And that's where there can be some variability. How do

you measure execution quality? Execution qualities usually measured by the spread and the percentage of the spread that goes to the market maker versus the percentage of spread that goes to the client. And and we've seen those numbers actually very significantly over the last twenty years from basically the broker or the market maker keeping the full spread, the only keeping roughly about of half the spread, actually keeping half the spread because everything is measured on half to

spread between the midpoint and the execution price. So it's gone over the last twenty years from the market maker keeping basically the whole half spread versus they're only keeping about half the spread. And so it's all measured between the execution price and versus the displayed price. And it's a measurement called e Q effective over quoted ratio and that's part of the SEC's reporting requirements for retail execution.

So we're seeing, you know, we're seeing much better execution quality. Now. That execution quality differs, you know, can differ really depending upon what the broker's priority is. Do they want to get paid or do they want to give that money to the client. So you can look at let's just say Fidelity. Fidelity doesn't take payment for water cloth from retail clients. So all of that, all of that money that comes back in effect from the wholesaler um goes

directly to the client. Whereas folks like Robin Hood probably take a little bit more, Shub takes a little less, but you know, it really is a dialog most depending upon what what the pretail brooke will wants. So I want to press you a little bit on best execution and best price as well, because one of the criticisms of commission free trading or payment for order flow is that even though you're trading for free, you might not

necessarily be getting the best price. And that's you know, even though you're dealing in smaller retail orders, um that market makers can execute at tighter spread. So can you can you sort of walk us through that argument? And what is what is the opportunity that retail investors are missing out on when their trade goes to a payment

for order flow provider versus a different system. You're you're starting to get into a little complicated areas here, So let's let's make it a little let's make it a little simpler, and then we'll add some complexity to Generally what happens is since the wholesaler receives the order and executes it off exchange, they then can manage the risk and execute it and executed at a tighter price than you know what can happen on the exchange. So without

the without the whole, without the wholesaler. In effect, what would happen is that order would go to an exchange and that would trade on the bid or on the offer, okay, or you know, if it traded in the dark, it might be executed at a mid price, but by and large, if it goes to an exchange, it's going to be traded at the bid or the offer. The whole saler is going to give you uh an inside price, a price that's better than the bid of the offer. So the whole idea that that the wholesaler is kind of

ripping you off. That doesn't really fly, especially when you start seeing prices that are tighter than the best bid offer, because you wouldn't necessarily get that. If you routed to an exchange, you would generally get the bitter offer. Now, adding a little bit of complexity to this is that in most cases, odd lot orders are not displayed, and and that's part of the new SEC Market Data Infrastructure proposal. If they want to start seeing more odd lots, be

part of the bit of the offer. So there may be odd lots sitting more aggressively in the market. Then then you actually see when you get on your robin Hood screen or your schwob screen, and so they're actually may be more aggressively priced orders out there that you

can't see. But hopefully under the new UM proposal, if that ever goes through UM, you know you'll see a tighter price and a little different So I wish I could say that you were always when you've got price improvement, you are always getting UM the most aggressive price that you can get into an exchange. But that may not necessarily be true, depending upon the numbers share you're executing and what you actually can't see that's more aggressively priced

because of the way that consolidated Tabeork. So I'm curious. So obviously, payment for order flow is UM available and widely used in the United States, but over in the UK the Financial Services Authority cracked down on it many many years ago. I think it was they banned it in Europe, Yeah, I think it was two thousand twelve. So what is it that they're seeing? What's their concern with it that, you know, the US isn't necessarily seeing. Well.

First of all, retail trading in Europe tends to trading in Europe tends to be not as retail focused. A lot of the equity trading and shares trading in Europe, it was really done by more institutions, so that's that's one thing. Share trading in Europe in the UK by retail tends to be more around spread betting, which is illegal here, so so there are different types of retail

brands actions that occur. The priority in the US has really been to get the retail investor the best price, and the SEC has structured those rules to really focus

more on price then price transparency within the exchanges. Europe has been a little bit more focused on the whole idea that we're community and the exchanges are really the central point of price formation, and that that we want a larger proportion of orders and trades to go through the exchange infrastructure now and that was a part of what the MIFED to the Market and Financial Instruments Directive.

Their second cut at that tried to do with with reducing the amount of flow that could be traded in dark pools and things like that. They were not successful there, so they'll probably be a MIFED three, but they try to push order flow into the exchanges. The US really cares more about the price that investors get then UM basically ensuring that the orders trade on exchange M. Can

you explain a little bit further. You mentioned that, Uh, Fidelity, I think you said, didn't do payment for order flow, which broker? Yeah? For equities? Which ones uh do and don't? And what is the alternative model? Why not engaging it? Well, first of all, Fidelity has the large mutual fun complex FUM. I don't know for sure, but you can assume that

fidelities you want payment for order club. If you think about it, if the retail orders did not go to the sellers, they would come into the market and overall they would be accessible to the institutions to trade against. So so if you look at Fidelity over over, you know its entirety, they want access to that order float

into their mutual funds, which they're really not getting. The contra argument to that is that you know Fidelity, and I'm not just picking up Fidelity, but you know every mutual fund or every institutional trader, they hire traders, professional traders who use algorithms to study um you know, execution quality, who really focused on how they execute their waterflow, and

that's what they get paid for. That's what you can pay your fees to cover UM, but who represents your order at Schwab, who represents your order you know, at each trade you can argue that that is the wholesale of the wholesaler you know, gives you that best price in effect, because they are the guy that's guaranteeing that best execution. And SWAB and those guys, they don't have those teams of traders studying every fill, every order UM

and every nuance of transaction. So it's a it's a difference of philosophy that it's it's really it'd be great to say the payment for order flow is good or bad or this to that it's very nuanced and it's general life fall on that it's been. It's it's a good thing. We'll put it this way. The whole sailing process. Whether the firm like Fidelity gives all that money back

to the client, I think that's a great thing. UM. I would much rather see um price improvement go to the client rather than the brokerags take a portion of it. But on the other hand, you know that payment for water flow along with securities lending, which is the other way that these guys make money. You know that that's you know what funds the ability to have pre commissions, so it's not like they're going to town on your

order flow. It's a very competitive market and generally execution quality has just been getting better and better, so it's really this whole pros This has actually been good for individual investors um so. In addition to the big boom in retail trading, one of the recent trends that we've seen is all the banks reporting their results and a lot of them posting better than expected trading results. You

mentioned internalization towards the beginning of our conversation. Could you maybe give us an overview of what internalization actually means at banks and how it it might be I guess how the business might be doing at the moment given that retail trading boom. There's been actually major shifts in terms of food trades and why if you look at

our food trades and who profits. If you look at market share of you know, the over the counter business, it has shifted really dramatically to you know, to the wholesalers. Citadel Is trading like you know alone of all the overcount over the counter trades, and they have gained share over the last couple of months. Virtue um is less than them. I think they're in the you know or something range. And so you're seeing a tremendous shift of

word flow to these wholesalers. The folks who are actually losing ground are, you know, the traditional brokers, the government's access, the Morgan Stanley's, the city groups, the Bank of American

merrell Inches. They are losing, they have been losing ground in terms of equities, and and that's because a certain extent, it's very difficult for them to keep up with the technological race, the technology race, you know, compared to the Citadels, the virtues, the two stigmas, the Susquehannas, Because to certain extent you think about it, it's all about agility. If I can find a faster way, a faster server, a

better way to calculate this stuff. If there were fewer levels of bureaucracy and technology layers between me and the ability to get you know, changed, I can adapt quicker and I can be more competitive. And if you look at the big banks, they've gotten so big and so

large and and so so massive. So if so, if I'm in the equity trading side of big bank, a um, I'm competing for resources, not just with the fixed income side, and not just with the institutional side, but I'm competing for resources with retail banking, credit cards, mortgages, you know,

wealth management, all sorts of different players. And so whereas if I am Citadel or Virture or Susquehanna, I just need to go across the floor and say, hey, body, I need I need a new server, you know, right, and you check, you see, and you've seen that play out as well as the regulatory infrastructure has not been particularly favorable over the last decade. That's the big banks

in terms of taking risks. Now, on the other hand, you know, you look at the fixed income side, and you look at the earnings that the big banks have turned out on the fixed income side, you're probably looking at this quarter alone then making something like twenty to thirty billion dollars on their trading business. Now that twenty to thirty billion dollars is coming out of investors pockets, they are not making that kind of money on the

equity side. And that has a lot to do with the market structure and the efficiency and the way that these orders are internalized in how they trade, and so over the time I think you're going to see the fixed income side become more efficient, probably will never be as efficient as the equity side, mostly because there's if it depending on if you include mortgages over a million queues of some million individual securities that need to be priced,

but it's going to become more efficient and cheaper. Do you see these entities like Susquehanna and Citadel continuing to ex spanned their lines of businesses and just continue you know, I don't know if cannibalization isn't the right word, but find more areas where they can win market share against

these legacy players, no question, no question. And so uh, you know, if you look at the you know, the markets that look closest to equities tend to be much more easily able to be you know, aligned to electronic trading type type strategies. So certainly options have gone that way. If you look at an exchange, it's it's starting to move in that direction. Some of the fixed income is starting to move in that direction. And it may not

necessarily be the same players. Some folks have different you know, there are other players that focus in other markets, but the electronic guys are just they have lower overhead unless regulatory burdens. So it's a combination of agility focus and regulatory headwinds. And the banks over the last decade have certainly had tremendous amounts of regulatory headwinds in the size of the business. Before we go, I want to just

go back to the robin Hood phenomenon. So you know, people hear this stuff like Citadel is paying for order flow, and they don't really understand what that means, and they're like, oh, you're you're being a front run, and that's really what's happening, And as you described, that's really not and in fact, actually pricing is pretty good and it just keeps getting better and better, and so forth, should be sec or

regulators be more concerned about the gamification aspect. Of the gamification aspect, the idea that, uh, you know, these entities are sort of turning trading into a video game, and not so much whether people are getting bad prices are being front run, but whether this is just sort of like a risky, reckless way to introduced investors to the

stock market. Now, now your ring on politics, um, you know, without oppinting on politics, but is this more the is this more the issue when people are like, something feels a little bit wrong about this, or I'm a little uncomfortable with this whole robin Hood thing. Is it more that side than the sort of more conspiratorial citadel stuff

stuff like that? There there are there are significant issues there because if if now you can compare this pulls to the dot com crisis, when you started to see investors, you know, piling the pets dot com and things like that. This is different. Back then, it was really more about I p O s and buying and holding, and you wound up, you know, with kind of plaky companies being valued and wait too much and and people holding um all these overvalued assets and then all of a sudden

the rug being pulled out. This seems to be a bit different and that this is more about trading. And I think one of the big things about robin Hood is the transparency of their platform enables you to kind of see what other people are trading and joined the

momentum train. And the problem with that is that that you know, because you're dealing with a handheld device, do you have enough information to really understand if if you're in the beginning stages of this momentum train or if you're in the middle, or if you're really you know, buying at the peak. The benefit is that are they really investing a lot in each of these trades and are they how long are they sticking in with it?

But there are certainly evaluation questions. But on the other hand, of the SEC doesn't look at itself because I'm trying to say, yes, we should allow you know, Larry or Joe or Tracy to buy Tesla whatever. They want to make sure that you know, when you buy a Tesla at whatever, is whatever the right price um and and

it is there transparency around that. And so I don't see the SEC sticking their nose and the valuation issues that said people should be worried about the you know, the value of what they're buying because it's an effective that they're not really worried about it. Then you know, you're into the strategy of who's the next sucker who is going to buy this for me at a higher price? And I'm not sure that's great investing strategy right Well, uh, Larry,

this is a great conversation. This cleared up a lot of questions that I've had for a while and sort of I think for me and Tracy gives us a lot of new avenues to explore. So I really appreciate you coming on and explaining it. I hope to play didn't confuse everybody too much, but it's it's not that. That's see, that's why we need market structure research because it is complicated. Thanks so much. It feels like we just scratched the service, but this was it was really great.

Thank you, Thank you. Yeah. I have to admit tracing this area it does sort of hurt my head a lot, and I do have like a million more things I want to explore now. But that was a really helpful sort of overview of what is it kind of extraordinary moment in financial markets. Yeah, I mean I've read I've read the criticism, and I've read some of Larry's research which kind of argues that payment for order flow isn't

as nefarious as it seems. And it's very hard for me, as a non expert to con you know, to come out on either side of that. But what I did find very interesting and something that I think we can all agree with was Larry's point about this idea of commission free trading sort of turning the market into a

very momentum driven one. You know, people aren't necessarily holding for the long term because it doesn't cost them anything to make these trades, and so everything does really become about momentum or flows, you know, just guessing where the money is going to go in in next and one of our Bloomberg colleagues, Luke Kaw, did a really good story on robin Hood and this dynamic recently, and it was sort of around people kind of agreeing what stocks to buy and then pushing for them in online forums

and then the stock would go up and they would make a lot of money on robin Hood through options trading and things like that. Anyway, That's that's the dynamic that that I think is very new and important for markets overall. Yeah, tell the right. I also like, um,

we should have Chris White on again soon. I mean, I know we've had them on like nine times, but thinking about again revisiting this topic in light of just this massive quarter that the Wall Street banks had trading UH fixed income, we should definitely have them back on talking about market structure on that side too, because obviously there's a huge pot of gold there for anyone who is in a good position to, uh, you know, continue to disrupt that space like they've done with the equities. Hey,

I am always up for a market's ructure episode. Great, well let's do more. So do we leave it there? Yeah? You know what I forgot to ask Larry. I wonder like, will we ever break the zero lower bound with brokerages? Like? Can I get someone will pay us? Yeah? Yeah, maybe that's the Maybe that's the next frontier. That'd be fun. You could you know, maybe make more money than you could on on interest rates by doing that? Yeah? Okay, I I meant to ask that, but next time, Okay,

next time. All right, Well, this has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You could follow me on Twitter at the Stalwart, And you should follow our guests on Twitter Larry tab He's at el Tab with two Bees. Follow our producer on Twitter, Laura Carlson at Laura M. Carlson.

Follow the Bloomberg head of podcast, Francesca Leave at Francesca Today, and check out all of our podcasts under the handle at podcast. Thanks for listening to