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Duncan Niederauer and “5 Guys Named Vinny”

Posted by Larry Doyle on January 9, 2012 10:09 PM |

I had to chuckle yesterday morning when reading a comment that came in regarding my recent commentary on high frequency trading.

Eddie wrote,

Plain and simple for years I was taught it was not only unethical but illegal to intentionally manipulate stock prices. The only intention of HFT is to do just this.

Joe and Sal are correct when they say the people that are supposed to regulate this behavior are now in their pocket. For years the NYSE protected the Specialists and the public was assured that orders were being handled properly and the SEC audited the exchange and all of these firms quarterly. 

Then poof all of sudden as the music is slowing down and electronic trading is about to take over the government comes in and declares they heve detected frontrunning.

So gone are the evil specialists and in are the noble supercomputers known as HFT.

Duncan Niederhauer when he was at Goldman Sachs said he didn’t want 5 guys named Vinny trading his orderflow……well Duncan I didn’t like getting scalped by Vinny but I but it does not feel as bad as getting raped by the HFT’S.

Eddie refers to the fact that prior to the development of a lot of the modern technology on Wall Street, the order flow on both the equity and bond side of the business was handled by a lot of people who lived or grew up in any one of the five boroughs of New York City.

A large percentage of these people had the equivalent of a PhD when it came to street smarts. Not that everyone executing order flow was a total paragon of virtue, but the business environment was less a casino and more service oriented.

I fondly recall doing business with Ronny K., Vince C., Jerry G., Vinny B., Alfie K., Timmy O and Eddie C. (may you both rest in peace!), Susan, Murph, Gary J., Jimmy Mac, Tommy S., Michele, and others whom I apologize for overlooking here. These guys and gals were great!!

I personally think Wall Street and our nation would be better off with more of my former colleagues providing service executing business than the zero sum game that currently dominates much of the activity on the street and with customers.

I said as much last summer when I wrote, Where and When Did Wall Street Go Wrong?:

I love capitalism, the markets, and the Wall Street game within the context of free and fair markets. The competition, relationships, market instincts, the pace, many truly great people . . . Wall Street embodies all of these characteristics like no other industry I know. What happened then?

In my opinion, the financial services industry redirected its focus from the “service” element to the “financial” component at a rapid rate starting in the mid-1990s.

Many within the industry would make the case that the growth in derivatives, new products, and electronic trading were simple outgrowths of innovation. I disagree. I strongly believe Wall Street ‘went wrong’ due to the fact that it did not and has not implemented real quality control in its product and systems development over the last fifteen years.

I broached this topic recently with a young Wall Street executive. I shared with him that I viewed these lack of quality controls as a failure of senior management on Wall Street and the regulators charged with protecting investors.

I ask you, would you rather have our equity capital markets dominated by high frequency trading that is nothing short of glorified front running or would you prefer markets in which the business emphasized service and relationships . . . even if the guys were named Vinny?

I don’t know what Mr. Niederauer had against guys named Vinny. He obviously must have had no appreciation for this classic…

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

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