A Deep Dive on new ATSs OneChronos and PureStream

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PETER HAYNES: Welcome to episode 52 of TD Securities' podcast series Bid Out, a market structure perspective from north of 49. I'm your host Peter Haynes, and today we're back at it after a short hiatus. And I'm very excited to speak with two thought leaders and innovators in US equity market structure circles. Vlad Khandros is Chief Executive Officer at OneChronos, which is a new ATS that launched in 2022 and is a so-called smart market, and we're going to learn all about what that means. Essentially that means using machine learning and mathematics to optimize when to match buyers and sellers periodically. Also joining us today is Armando Diaz, who is Chief Executive Officer at PureStream, which is a marketplace that launched in 2021 and aims to separate price discovery from liquidity discovery by matching scheduled based trades on opposite sides of the market. I'm excited to learn more about these initiatives in the next 40 minutes or so, and I would be remiss, given that I have two market structure experts on this call, if I didn't ask a few questions about Gary Gensler's 1,650 pages of equity market structure reforms that are being pushed through the system right now and debated ad nauseam. I certainly want to hear from both Vlad and Armando on that. But just before we get started, I want to thank both of you for joining us today.

VLAD KHANDROS: Thank you.

ARMANDO DIAZ: Thank you as well.

PETER HAYNES: Here we are coming from north of the border talking to a couple of market structure experts from the US. We're going to learn a little bit more about those venues today. Just before we get started, I do want to remind our audience that this is a podcast that is for informational purposes, and the views described in today's podcasts are of the individuals and may or may not represent the views of their firm. Of course, the content of this podcast should not be relied upon as investment, tax, or other advice. In order to lead a new marketplace offering, it's really important that the management has credibility in understanding the market ecosystem in which they are dealing with, and in your case, that's the equity market. Before we get started here, I'd like to ask each of you to provide our listeners with your backgrounds prior to running an ATS. Vlad, I'll start with you.

VLAD KHANDROS: Thanks for having me. This is great, and you've done some really great podcast work. I think you've gone viral, as far as I'm concerned. So I feel thrilled and I'm pinching myself that I get to be here, so thank you. Yeah, so I don't know-- tell me if I'm being too long winded for the audience, but I guess I've always had a passion for a combination of finance, technology, and policy, or what were the regulations, kind of since I was a little kid, believe it or not. And so I've always focused on a career that triangulated those three things to be a bit more tangible. I started out, I guess in fintech, before fintech was a category or a thing-- before we knew that was a category. And so I've always been in a hybrid role of electronic trading businesses that were client facing and principal investing or fintech investing. And so I've always had the hybrid role working with some founders and have had the opportunity to found or co-found some companies and been on some exciting boards and run some businesses. And so to your point, I know we'll talk more about what we're doing in a bit, but right now, for OneChronos, what we're doing today is specifically focused on US equities and that's certainly been a real big part of my career. So happy to elaborate more, but I'll try my best not to bore your audience right at the very start.

PETER HAYNES: Armando? All I know is when I was a child I was reading baseball box scores. Sounds to me like Vlad might have been reading Forum ATSes when he was a child. That kind of scares me, actually. But obviously we do respect your views, Vlad. We all know you're a thought leader in this space. Armando, why don't you tell us a little bit about your background?

ARMANDO DIAZ: Yeah. Thank you as well. I appreciate the opportunity. I would highlight three things. First I've spent my entire career trading equities. Second thing I'd highlight is I've had the good fortune of working for three great firms. I started my career at Goldman Sachs right out of college. I was ultimately promoted to a partner and ran trading there. I was also a partner at Millennium, and I also spent time at Citigroup. So definitely understand the standards under which both the buy side and sell side hold themselves to in institutional trading. The third thing that I would highlight is my experience predates the electronification of markets. And I think that this is one of those things that I'm hardly unique, but I think I'm somewhat unique in highlighting it. There's no substitute for when you can visualize and viscerally experience what the smart order router is experiencing, what it means to execute a VWAP order or have somebody that's benchmarked at VWAP manually. There's literally no substitute to understanding electronic markets than actually having done it as a person yourself. So thank you again.

PETER HAYNES: You mentioned that you predate electronic trading and you spent time at Goldman Sachs, and it reminds me of a story that Duncan Niederauer has told a few times and was in the book. So of course, prior to taking over the New York Stock Exchange when Duncan was with you, I'm sure, at Goldman, he was talking about the trading floor, wanting to get rid of it. And it was the old, why do I need five guys named Vinny working my order? And of course, he shows up at the New York Stock Exchange as president working for John Thain and has to go to the floor and become friends with all these guys. And here we are, what? 15, 16 years later from the time Duncan ran the exchange, and we still have a trading floor-- albeit in a bit of a limited fashion. So I'm going to start actually with your venue, Armando, as I do think it is slightly simpler to understand. And maybe that doesn't matter about complexity, but I'll start with PureStream. So when you're talking about your venue PureStream and you write on the white board what your mission statement is, what is the primary problem that your marketplace is trying to solve?

ARMANDO DIAZ: Well, that liquidity hasn't scaled with the electrification of markets. And I guess the best way of expressing that spatially is the shape of liquidity has changed. Most people are very familiar talking about a dimension of depth as it relates to liquidity, but as the markets have become electronified, it's actually length, not depth, that is the key for liquidity discovery, and I think the algo epitomizes it. If you think of the average algo order has 50,000 shares in it that it's executing, but its contribution to liquidity at any venue at any one moment in time may only be 200 shares. Right? So we need a new way to be able to have institutions match directly for that 50,000 shares that respects whatever the strategy that algorithm is executing and that's what we believe we've solved through streaming. All algos, all algo strategies are now matchable vis-a-vis the streaming. Now, to tie it back together and give the problem even more gravity, the shape of liquidity has changed. Institutions responded by trading less, trading slower, trading in smaller size. And not surprisingly, they've started to underperform their alpha, and it became harder and more difficult, more challenging for the sell side algorithms to differentiate themselves at the rates that they're trading at. So ultimately, we're trying to increase the bandwidth of liquidity transfer in the marketplace. But the real personal connection as to why people would care is we're helping people outperform-- again, whether that's a portfolio manager or a trading desk or an electronic trading desk-- by giving them new strategies and new ways of being able to transfer that liquidity.

PETER HAYNES: So let's actually just walk through how a user-- you've used the term matching stream a couple times. Obviously it's important as we try to understand how you end up with matches. So let's first walk through how a user accesses your marketplace. And I'd like to understand, is there any information that gets sent out to the market to indicate that there may be somebody interested in a streaming match on one side of the market?

ARMANDO DIAZ: Well, let's start with the second. Unequivocally, no. There is no messages that go out in terms of there's interest or anything. It is people entering in what liquidity rate they seek or the conventional, meeting at mid spread. So we operate two protocols. Let me go through streaming because the audience is and you know midpoint matching quite well. So streaming has three unique components to it. The first is that price discovery is achieved through actual trades occurring in the marketplace, and we take all of the information. So if a thousand shares trades at $36, all of that information is used. Now, the discovery or the matching is done through something that we call a liquidity transfer rate. So Peter, you could be bidding for, let's say, 10%, and I may be offering 10%. You and I are matched at 10%. That's the formation of the stream. The stream has an LTR, liquidity transfer rate, of 10%. When that 1,000 shares trades at $36-- let's just say it's the bid side-- you and I exchange a hundred shares. So first difference is we're using all the trades that occur for price discovery. The second is that we were matched at an LTR. And then the third difference is we stay matched. We discover each other and we stay matched. No quantity or anything is revealed, but as long as you have limit, I have limit, we both have quantity, and neither of us cancels, we can stream all day long. So one match can equal literally thousands of fills. Now, the other thing that it does is if there is someone internalizing at a quarter spread or three quarter spread, you and I both have the same challenge. That's inaccessible to both of us. But once it's on the tape, it's accessible on PureStream. So let's just say the next trade is 50 shares at the quarter spread, 36 and 1/4 of a penny, you and I would both exchange five shares at 36 and 1/4 of a penny. Literally even if there were 800 trades in a second, you and I are going to reference each of those trades as long as those trades took place within the MBBO. Now, last thing I'll say about streaming is that we are not constrained to 10%, 1%. It could be a multiple. It could be 500%, in which case when that thousand share traded you and I would exchange 5,000 shares. When, I think I said 10 shares traded, we would exchange 50 shares at the quarter spread.

PETER HAYNES: OK, so there's lots to unpack there. First question, just a clarification. A traded price occurs on the better offer, not at midpoint, and your follow on transaction will take place at that same traded price, not the midpoint of the MBBO when the trade took place. Is that correct?

ARMANDO DIAZ: That's exactly right.

PETER HAYNES: So your trades hit the tape with I believe what is called condition code four, and they occur every time a trade takes place in the market. How do you manage for the potential for information leakage and have you found, to date, that that information leakage is in fact tradable by third parties who may be trying to game the process here?

ARMANDO DIAZ: Right. So information leakage is hugely important to us. We spend a lot of time talking about it, and I would make a big distinction between human eyes, the ones that we see with, and APIs, which is what machines see with. And, too, this is one of those things, if you pulled up Bloomberg and you saw a bunch of dot four trades, would you be able to surmise that there was a PureStream stream going on? Of course. Yes. No question about it. Now, even before PureStream existed, there were roughly half a million dot four trades before PureStream ever existed. So some of them aren't ours, but if you associate a dot four trade with us, we're happy. Now, the second part of that is the what machines see and what is scalable in terms of information leakage. And there's nothing that leaks more information than sending 20 orders when you only intend on executing one of them. There's nothing more information leaking than executing on a lit exchange that is broadcasting the play by play of your order. So is there information leakage? Yes. It's to humans. There isn't a single high frequency trader in the world trading the US that is getting their volume data off of the SIP or even the stated trade. They can infer what has traded just based on how the bid size changed and the reason code. So they're not waiting around to watch that trade and see our shadow trade. And the key thing about that mirroring trade is they can't break that match up. What they're witnessing is a pair off, and a pair off that will continue. So what they're witnessing is a stock that's an equilibrium, potentially between two parties, potentially multiple parties. That's very, very difficult to decipher. We have a lot of fun clients. Oftentimes we tell them stocks that we streamed in and said, tell us which ones are our prints, and they generally have a pretty difficult time.

PETER HAYNES: And, OK, on that same test, can anyone actually figure out which side of the trade is larger? Because that would be the information that would obviously both be most valuable. And in that same vein, you mentioned that there's oftentimes more than just the two parties streaming. My understanding is you can come in with an actionable order that may be able to help out the one side of the trade that isn't being completed because chances are those two sides aren't going to be the same streaming percentage. Can you just talk us through that?

ARMANDO DIAZ: Yes. Definitely. So we accept orders in ranges of LTR. So typically someone might say 10% to 20%, 1% to 5%. So yes, as you indicated, often someone is achieving the rate that they want through multiple contras. An order can be in multiple streams, but all streams are bilateral, and there's an information protection that's involved with that so that I may be streaming at 5%. Well, that's all I know the other side is providing. For all I know, they could want 20-- they're offering 20%, but I'm just streaming at 5%. That's all I know. And there's a key concept to this to get to the beginning of your question, which is, can you infer size? There's this concept. What I've just described is concurrent streams occurring. That's very, very, very difficult to unpack when you look at the dot fours that are involved. And then there's serial streaming where let's say, Peter, you want 10%. Seller one is offering 10%, but it's only 25% of your size. There was someone else in the book behind them. As soon as the first order for 25% of your size is done, the next person starts streaming. That is impossible for the contra to know that we've switched over to another stream. It just happens seamlessly. And we've had many people who said, wow, the other side was just as big as we were. We bought 400,000. And what they didn't realize is, no, there were actually six or seven unique contras on the other side and they just streamed in serial fashion. So size is one thing that is definitely protected.

PETER HAYNES: And Vlad, I haven't forgotten about you. I'm going to get to you, but I want to run through PureStream to its conclusion here and then get to OneChronos.

VLAD KHANDROS: I never thought you forgot about that.

PETER HAYNES: I know. I know. And you're not on mute here. OK, so Armando, just carrying on. The other side of your transactions, is it typically to what I might think of as naturals on each side, or do you have typically an intermediary on one side? I'm interested to understand, unpack a little bit for the type of users on your system.

ARMANDO DIAZ: I pause because what exists today may not be what exists a month or what the system was designed to do. But today what I would characterize is you're getting as close to institutional algo buyer matching with institutional algo seller and no intermediary in between. Now, what the system is designed to do is avoid that adverse disintermediation that's taking place in a continuous auction-- a periodic auction where you have a lot of market makers sending a lot of orders and they adversely disintermediate the two natural participants. So countless times today a stock is actually in technical equilibrium. You have huge institution one buying. You have huge institution two selling, and they may only trade 1% of the shares with each other. And that's because the market makers, liquidity providers, whatever you want to call them, are sending 10 orders of a hundred shares, not a thousand shares, and effectively those two institutions can't match with each other. So our flow is overwhelmingly institutional. 25,000 shares, 15 basis points, marketable. That's kind of getting at the-- not the parent level, but the adolescent level at the very least. And then secondarily, there is a lot of trajectory order flow. So the broker has a schedule and they're sending in a thousand shares every so much volume or so many minutes trying to, as you correctly said, manage to a schedule. Now, what that all distills down to in our pool is about 70% of our volume is streaming. 30% of the volume is classic block or meeting at mid spread.

PETER HAYNES: I had a number of about 15 million shares a day trading in your ATS. I want to make sure that's not dated. Is that's still an accurate calculation, Armando, approximately?

ARMANDO DIAZ: That's accurate because the ATS end limits what we can reveal. So as of two weeks ago, that's right. But the trend has been we've been growing about 10% ish every other week, and we're on pace to grow. So it is actually a little bit higher than that.

PETER HAYNES: Let's just use my number of 50 million shares a day. Are you saying that 70% of that is streamed and the other 30% is-- other three or four million shares is just traditional block activities? Is that the best way to think of it?

ARMANDO DIAZ: I think that's the best way of thinking about it. Yeah. And I pointed that out so that nobody's under any kind of mis-- impression that we've got this great innovation that we talk about but the volume is all occurring at mid spread. It isn't. The vast majority of our volume is occurring vis-a-vis streaming, and we view it as highly complementary to block trading. In many ways, the need for higher rates of streaming or higher liquidity transfer rates stems from block seeking. The block seeker. If you think about a block in stream terms, it's infinite. They're not buying or selling in any relationship to the last trade. They have a quantity that they want to do. What we have found is there are a lot of people that like to rest looking for blocks on PureStream because they can match up with all the streams because a conditional basically puts all block participants ubiquitous. PureStream will find that block, but if they're matched up at-- let's just make the math easy for me-- 50% in streams, that 10,000 share block that they do in PureStream is actually 15,000 shares, right? We put the 10,000 that's price forming, and then the streams reference it and they get another 5,000. So it creates a lot of unique liquidity that's resting at PureStream, and that surface area of matching at liquidity transfer rates is just a lot larger than it is two people finding each other for a block.

PETER HAYNES: OK. So Vlad, back to you. I mentioned in the intro that your market model is a little more complicated than Armando's. Can you walk through your auction logic at OneChronos, and have you run into that complexity question as a challenge to adoption?

VLAD KHANDROS: Our model is actually super simple. We're super transparent about it so I think people are just-- might be really, really aware of it. But it's super standard integration. It's like copy-paste of a bunch of other venues. Super standard order types. We're pretty thrilled by the fact that we've got dozens of major brokers live, including yourselves, which are great for-- been great help making use of the functionality and having a highly differentiated execution quality. One way to answer your question, or a different angle, is to say, like a lot of folks, ultimately for them just what matters most is having best execution, and it's great to get under the hood and understand the mechanics. But ultimately, irrespective of the functionality, most important is just how much better does my order perform because of this venue or not. And so fortunately, a whole-- a number of brokers have come out with really, really flattering TCA on us showing that for metrics like mark outs and quote stability and price improvement, we've outranked just about every US equity venue. So that's super cool, and so that's a way to say it, which is like the most important is the output. I sort of have to remind ourselves at times that not everyone necessarily has the bandwidth or the desire to really get under the hood of every venue, but just about everybody needs to be sure that their orders are performing even better because they've included a venue. And so that's where we're pretty thrilled that we're crushing it in terms of across the board a whole bunch of metrics according to quite a few brokers that have enough data to have a high conviction view. So that's part of the way to answer your question. Different way to answer it in terms of just what do we do today. So today we trade US equities. We run fully hooded at paid in, time randomized auctions. We do it roughly 10 times a second, so roughly every 100 milliseconds. And when we're doing it, we're running the entire US equity market. And sometimes people kind of compare it to kind of an exchange open or closing print. It's the entire market running roughly every 100 milliseconds. What's pretty fascinating is that just about every venue in the entire world across asset classes is price-time priority. And that means latency, your timing is super important. And just about every buy side, sell side trader you talk to knows that they are almost never first in line, or if they are first in line, it's almost never when they want to be. And so what we're working to achieve here at OneChronos is helping people get better execution quality without having to keep spending more and more and more money on their infrastructure. Or said differently, for us, it doesn't matter really when your order arrives. You're in the auction or you're not, and we don't have a concept of a time priority in that auction. And so there's really two factors that matter to determine your allocation when you're in the auction. It's your price and it's your quantity. And that's because the goal of the auction is to maximize the notional price improvement. So here's what's super empowering about it. Just about any buy side or sell side trader we talk to, they can almost always control their pricing. They can always choose to be a more aggressive peg on their order, for example. Just about everyone can control their sizing. They can choose to send a larger slice to the ATS. And in fact, we've got a growing list of buy siders that are resting their blocks exclusively at OneChronos through their brokers, so that's been really cool. And so that's really, really interesting to note that it's, as I said, standard integration, standard order types, highly differentiated execution quality. You know, when people want to get into the mechanics-- just to make sure I answer your question fully, when people want to get into the mechanics, we're thrilled to do it. We're very conscious that people have a ton on their plate. Some people are thrilled to spend a lot of time understanding all the different details, far more than we'll have time for on this podcast, and some people ultimately need to just have conviction that their data, the quality is going to be there, and that's what drives it for them. And there's a whole bunch of diverse workflows and diverse clients, and from our standpoint, our clients are the brokers. You've got to be a broker to access us. And fortunately, a whole-- a number of our clients' clients, the buy side, are choosing to leverage customized algorithms that brokers have built to better leverage our liquidity. A number of our clients' clients are resting blocks here, as I mentioned, through their brokers. So that's been really, really cool to see that change.

PETER HAYNES: And I want to come back to one part of the discussion, and that is how the sausage is made. As I did the rounds asking a few people, what do you think of OneChronos? What do you think of PureStream? How important is it that you understand how various aspects of the venue work, and what's expressive bidding? Which we'll talk about in a little bit. And it was a mixed response, Vlad. Some people said, you know what? If the performance is good, then I'm not going to question it. That's going to be-- brokers are obviously the intermediaries here, as you say. And then there is that category of buy side traders, many of whom I'm sure you've been speaking to, who do want to press on the performance issues and understand and unpack a little bit more why the performance numbers are as good and the markets are as good as you suggested. And one had mentioned to me the issue of missed trades that oftentimes doesn't get factored into typical TCA analysis. How do you respond to the question that mark outs are good but it doesn't factor in missed trades when people are looking at those calculations?

VLAD KHANDROS: Totally agree that there's a number of metrics to look at. The mark outs are just one of them. The code stability is just one of them. Price improvement is just one of them. Uniqueness of liquidity is just one of them. We're thrilled that we're polled by quite a few brokers that were ranking number and US equities, or nearly number one in a whole bunch of those. So that's pretty awesome. And I would say on the opportunity cost, what's been cool to see is that people often ask us, like, what's our symbol coverage? As a way to help understand the probability of fill and so depending on when the people you spoke with took a look at our performance, we've ramped a fair amount. Now we're trading about 2,500, executing about 2,500 symbols daily, so that's pretty cool. We launched full tickers late last summer in terms of going live, and so we're pretty happy of the fact that we're executing, on any given day, well over 2,000 tickers and growing. So that's pretty cool. And so for sure, if somebody tried to rest blocks exclusively at OneChronos through their broker on the buy side even a couple of months ago, the experience today, fortunately, looks even better. So that's definitely one way to answer it. The other way is a big thing is really how somebody works with us and uses-- kind of leverages us. So somebody's workflow is quite important. So let me give you an example, and this is where someone's listening on the buy side I'd say it's-- I encourage you to talk to your brokers and hear their experience and get their TCA and get a sense of potential customizations they're offering. And obviously-- not just saying because of the podcast, but obviously would obviously encourage speaking to the TD Cowen team for sure, and the team's been really great to work with. I feel like Jenny and Jason, Jack, and others on the team-- and I know I-- I always get nervous when I mention names because I know I'm going to accidentally leave off a few people and wake up middle of night tonight and realize that. But lots of great people at the firm have been leveraging and offering customized algos, and I mention that because the fill rate, depending on how the algo rests the order, makes an order of magnitude difference. So for example, if there is even a brief period of exclusivity in the rest of the algo, the fill rates could be well into the double digits. And so that could be a pretty significant difference in experience for somebody to have to encounter. I'd also say, super excited to talk about some future functionality. I think you mentioned expressive bidding. That's something that we're really excited to talk more about as we roll out in the future. We've got so many brokers, fortunately, that have just gone live and are collecting data that for the immediate near term we'd like for them to just keep collecting data with our current offering before we start rolling out the new functionality. We're super excited to push it out. Effectively it almost allows for optional algorithmic-like functionality a broker could choose to use if they'd like in the matching engine. And a number of brokers, I think, would like to use it more for market data conditions that just require a big infrastructure build and don't work very well in an upstream process. So expressive bidding is, again--

PETER HAYNES: Yeah, I'm going to get to expressive bidding in a second. Just before I get there, I want to address a question that I asked-- or Armando answered on about 75% of the users in their system are algo buyer or algo seller. On one side of your trade is a natural, let's say. Who is on the other side of your trades in your system, Vlad? Is it typically natural to natural or short term intermediary? What type of participant is on the other side of that natural trade?

VLAD KHANDROS: Yeah. Currently the vast majority of the order flow that we're trading today are really institutional algorithmic routers and buy side firms resting orders and using customized algos through their brokers. At this point we've got a couple of dozen brokers live. A number of brokers are live day one-- day one is probably closer to two dozen or so. Now we're probably closer to three dozen or so. But we're pretty thrilled not just by the number of brokers, but also the fact that, at this point, probably nearly every major institutional broker is alive, or if they're not, they've probably done nearly all the work to go live and probably go live is imminent. So we're pretty thrilled because being live less than a year, not being a protected quote, meaning folks don't-- we're not a Stock Exchange. Folks don't legally have to connect to us.

PETER HAYNES: Being a protected quote. I won't ask you if you're going to apply to be a protected quote. We'll leave that to others who are doing the bidding for you right now with respect to that topic for periodic auctions. It's obviously one that I know a lot of people are following very, very closely, and I'm referring to IntelligentCross's application through FINRA to heat up the FINRA ADF in order to provide quotes that are protected on that venue. So we'll have to wait and see how the SEC resolves that matter. So let's get on to that technical discussion where I think complexity work comes in with your venue, and that is what is known as expressive bidding. And I'll ask you to explain expressive bidding as simply as you can, but I just want to understand if I'm really thinking of this as really just customized algos or really extreme customization in terms of tuning up models. Is that how you would best describe express bidding? So walk us through that.

VLAD KHANDROS: You're spot on. It's well said. So this is functionality that we're really excited to rollout. People often ask us if we rolled it out because people often assume-- we've had quite a few brokers-- here's a quote that we've gotten from quite a few brokers. I think it goes something like this. This is almost word for word. I'm sure a few of the people who've said this are laughing that I'm saying it, but I'm keeping anonymous. It's, your execution quality is off the charts. How much of that is because of expressive bidding? So one, we're thrilled that we get that call so many times that people see us having such a differential execution quality. But two, right now we haven't pushed it out yet to folks because we're intentionally waiting. Probably super important to say that it's optional functionality and it's leveraged through just standard fixed functionality. It's just like a standard fixed tag that would just wake up the code base that's optional to you. So that's probably a couple of big things worth noting there. I could see why-- in our side we're super excited. I can give you maybe a use case that people-- one of many use cases for day one would be people have sometimes their own proprietary view of what's a stable quote and some people want to choose to trade far more aggressively when they deem the quote stable. They want to be much more passive and expose less of the order when they feel that or they determine the quote is less stable. And so that's example of very straightforward day one use case with expressive bidding for us among a whole menu of other options. And so for us, it's almost like if you could describe it as a market data condition. It typically becomes super easy to configure on our side, and so really, if people could put words around it, we could just implement it in the matching engine and they would just wake it up with a standard fixed code-- fixed stack. So what's super cool for us is it starts to be really pie expanding. It starts to let people do a whole bunch of trades that they cannot do on any trading venue today. It starts to let people of all different types of workflows and benchmarks achieve a whole bunch of things that they just literally can't do. And we hear the comment pretty often, whether it's from somebody just trading ETFs or somebody trading big blocks or somebody doing all day VWAPs. There's a bunch of pretty cool day one use cases that we're pretty excited to unleash and work with our clients on.

PETER HAYNES: Well, this leads to a group question as we move into that part of the discussion, and that has to do with domain. And arguably expressive bidding, which is essentially customizing an algo, or if something like this happens then do that, or executing an algo trade, or trade with volume. These are all things that historically were managed by the sell side, and now we have marketplaces. And even you can think of IEX being one of the leaders with respect to its crumbling quote indicator which has moved the market if the market's going to move. The brokers would say, well, that's what I do. I sit there. I watch the S&P. I see it's about to fall, and I'm going to fade the bid for my client. So you've got marketplaces that are faster at doing this than the broker dealers, and there's almost like an infringement on territory where marketplaces are infringing on traditional broker territory and brokers are very restricted-- certainly in Canada, maybe more so than the US-- from infringing on what are known as exchange areas of domain. Given that both of you had spent a lot of time on the sell side, I think you can appreciate where I'm coming from in that question. I'm asking-- I'll start with you, Armando. Do you think there's a legitimate beef that the sell side might have or some people might have on the sell side, or is this just evolution?

ARMANDO DIAZ: Well, I guess it is evolution. It's occurring. It's happening. I think that when I go back and think about the time that I had on the sell side, had I created something like this at one of the other places that I worked, it would have been dead on arrival at all my competitors. No one would seed that market. Right? So I do think that there's this natural need for a neutral party to create something that everyone can avail themselves of. And the way I would lay this out is PureStream has created a new lens that goes into the broker's camera that helps the buy side pick a better picture. But it's always important to keep the hierarchy of value add in mind. Right? When you think about the hierarchy of execution outcomes, unequivocally, by far, the most important thing is the strategy selected at the moment in time given the environment that that order is going to be executed in. That, by far, is the most important thing. Now whether that's a Quant programming an algo or that's a buy side selecting what strategy under what environment, that is exclusively the area of the broker to invest in advisement, in Quant resources, to guide the answer to that question. What strategy do I use in what environment? Even so fundamentally as, do I go to the high touch desk or do I go to the electronic trading desk? That's critical. So that's the first, most important thing. The second thing is the quality of the algorithm. We're not challenging any of that. We're giving the sell side the ability to build better algorithms to achieve the benchmark over an interval under which they are targeting. By far the lowest in that hierarchy is where that algo executes. Now, how do I reconcile PureStream and PureStream's role in all of this and get back to your question is PureStream is a unique venue. PureStream is a very unique venue. It's actually not a venue. It's not a place. It's a new way. Streaming is a new way to trade. So new strategies are possible. There isn't another way of getting price discovery and being five times what every trade that occurs in the market. There isn't currently a way to reference every trade that takes place in the marketplace, so new strategies are possible. I'll give you one that an account is working on. The typical VWAP order, all day VWAP, amounts to 2% to 3% of the day's volume. Well, they're working on selectively being 6% of the volume for half the day and selecting what half of the day to be 6% of the volume in. Lower footprint, more opportunistic price, beat VWAP. And particularly focus on the fact that the volume weighted average price, volatility, diminishes as the day goes on because more and more of it's anchored to the previous volume, but the volatility of the stock is no different at 3:30. In fact, it might even be higher than it is throughout the day. And this gives them the ability to create a new algorithm.

PETER HAYNES: We've heard the word algo probably 30 times on this podcast, and algos are obviously a big part of the market today. Why are schedule based algos still the most popular algos out there? I'll ask you that, Vlad.

VLAD KHANDROS: Algo wheels have grown tremendously across workflows. More and more of the workflow is getting automated so that traders can work on even more difficult trades and be even bigger part of the alpha generation process, work even more with PMs, and other parts of the investment process. That continues for sure, and we definitely see a number of folks finding ways to better automate things and finding ways to get even more opportunistic in their trading styles so that they can not just reduce the cost of trading, but also unlock trading opportunities that just could have never occurred ever. And so I think that the more we can help people take their parent level intention and make it reality, the better off everyone is in that process. And so I think that's helping us a bunch.

PETER HAYNES: And so let's just-- before I wrap up with my Gensler question, what are the trading costs on your venue? I'll start with you, Armando. What's it cost to trade on your system?

ARMANDO DIAZ: About 15 mills per share, which is conveniently in between the 30 mills access fee. The one thing that I would point out is we don't change the pricing regardless of what rate you're accessing the liquidity. So a really good apples to apples comparison would be what is the cost for an algo participating somewhere above 15% in the marketplace, and that would be solidly in the 20 mills range. An order that is more credit earning, like VWAP, would be less than the 15 mills that we charge. The key component is there's zero slippage to the interval. Whatever rate you're matched at, you're getting whatever the volume weighted average price is for that participation rate, which is very aspirational for the brokers. My time on the buy side, my time on the sell side, there was never a quarter where a broker didn't miss the benchmark. So being able to deliver it for a subset of instances is very performance enhancing.

PETER HAYNES: Armando, I go back literally 20 years ago as you talk about slippage and I remember a meeting. We were interviewing someone who-- a female who had come into the office and was working in another firm, and I remember we got talking about what she did. And she said, well, they call me Mrs. VWAP because I never miss on the desk, and I was just thinking to myself, how is this person able to get VWAP 20 years ago or beat VWAP regularly? So anyways, with that, let's get into 1,650 pages. I saw you at NOIP, Vlad. You heard a lot of different views expressed at the recent NOIP meeting. The SEC proposals from Gary Gensler's Commit Trading and Markets group have been widely panned in the industry. We don't need to relitigate the proposal. I think everybody knows what those proposals are. Now we're waiting to see what the SEC is actually going to do. Let me start with you, Vlad. What do you think they'll do on both the NMS questions, and then alternatively, on order competition and best execution?

VLAD KHANDROS: Yeah. I mean, the first rule-- I feel like NOIP's like Fight Club. It's like we can't talk about it. It doesn't exist. It might be a great group we're thrilled to be part of, but nothing-- everything said there is--

PETER HAYNES: Yes, I get that. No, I wasn't asking you to refer to specific comments made there. I was being more general.

VLAD KHANDROS: Yeah, totally. I tried to get a laugh out of you. I'll do better next time.

PETER HAYNES: No, you're good.

VLAD KHANDROS: So for the SEC proposals there's a tremendous amount of support for aspects of the proposals. A lot of folks are in favor of and it seems more and more likely like tick constrains and tick constrained names will go down a half a penny. It seems like the 30 mill fee cap will come down, at least for some names. It seems like there's a significant amount of support for those things conceptually. The order competition rule or the retail auction proposal is an interesting one. We've had some really, really big retail brokers reach out to us on it who feel like we are the closest model that is live today to what that proposal is pushing for, so that's been a really interesting one for us as we work more with retail brokers because we-- well, while no one does exactly like what that proposal requires, it's been pretty cool to have some big retail brokers reach out and say that we look at an awful lot like that proposal. So that's an interesting component and part of the rule proposals for us in particular that comes up a fair amount

PETER HAYNES: Vlad, I forgot to ask you, what are the fees on OneChronos? I don't want to miss that question.

VLAD KHANDROS: Yeah, we keep them real simple and transparent. It's 10 mills is the base rate, and then there's tiered pricing that goes down to 5 mills. We're charging the brokers and who are our clients and then sometimes their clients may not be cost plus and that can have some impact on how their folks trade as well. We kept the pricing real simple, especially in our early days. We've got some really creative ideas we've sort of brainstormed with with some clients on that we may roll out down the road. But, yeah, for now we're keeping it super simple, and we always like it when we get calls from some clients who say, given how much money they're saving with us, we should increase our rates. So those are fun calls to receive.

PETER HAYNES: Yeah, you're not getting that call from us, I can-- I know Jenny Hadiaris did not make that phone call to you. I can guarantee you that. She just wants you to--

VLAD KHANDROS: No comment. No comment.

PETER HAYNES: I'm sure she wants you just to continue to do-- for your ATS to continue to perform well. I'm sure that's the most important thing.

VLAD KHANDROS: We are grateful for Jenny's help.

PETER HAYNES: Armando, let me ask you your thoughts on what the SEC will ultimately do. What will move to final in terms of the various proposals that are out there? And Armando, do any of the proposals have any impact on the day to day operations of your ATS?

ARMANDO DIAZ: Yeah, I'll make a general comment that, in reading the letters, many people commented on the process or the SEC's process and a substantial the burden is. And I think the industry is missing a little bit of context, particularly when it goes back and indicates that these are the biggest changes since NMS. What would one expect given how the markets have evolved over the last 15 years? I think nothing short of something significant is what's due or what everybody should have expected. So that's one just general comment. The costs, yes, it's going to be expensive regardless of what comes down the pipe, and everybody should be prepared for that. Now, I'm going to start off with one that I think has been maligned and questioned that I like quite a bit, and that is the SEC best execution rule. And everybody cites the fact that FINRA has one, but I think lost in that somewhat is that FINRA regulates broker dealers. And having been on both sides, I thoroughly believe that the buy side plays a huge role in best execution. In fact, I would say they own best execution. It's important that broker dealers have it as well, but I think that this is sorely needed and I think makes a lot of sense. So I started with that one. Tick size, tick constraint. Look, I think there's a very simple solution today, which is display more or don't let anybody have multiple orders at the same price. That will relieve a lot of the congestion, and I think it's very revealing that there aren't a lot of people saying just display more. The reason that markets cite as to their value added, just display more. Now the second question that you asked in terms of impacting our model, I think anybody that's matching over an interval, interval of volume, interval of time, will benefit materially to the degree that tick size is reduced. The ability to discover institutional sized liquidity, the number of orders, the number-- or just cite the sheer amount of information leakage required to buy institutional size is such that people will certainly look for an alternative to trading on a diminishingly important MBBO and look to be able to match with like minded investors over an interval of time or volume. So I think it's not a good idea from a market structure point of view, and we've indicated to regulators as such, but it would be very, very positive for our business model.

PETER HAYNES: Well, just going back to your comment on best exe, I do know there is some support from certain parts of the buy side for essentially FINRA to be taken out of the process if the SEC is going to take over best exe. We don't need two rules. I don't know how exactly that would work, but we really only need one rule. And where you're seeing the biggest pushback is in major bulge bracket broker dealer letters that were received by the SEC on that topic where clearly they're thinking through other asset classes, namely municipals and fixed income, as to what the end implications are of that rule. So yeah, that's going to be a really interesting one to watch. Vlad mentioned order competition. That one is going to be very interesting, given the vitriol coming out, particularly from retail on that space, and then NMS. Something's going to happen there. I agree. So, look, guys, we covered a ton of material while I had you today. I think everybody will now have a better understanding of two new innovations in the US equity market, and I really do appreciate both you, Vlad, and Armando for helping educate our audience on your new marketplaces. Thank you on behalf of TD Cowen for coming on the show today, and best of luck with your offerings.

ARMANDO DIAZ: Yeah. Thanks so much, Peter.

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