Market Mover Read online

  Copyright

  Copyright © 2019 by Robert Greifeld

  Cover design by Karl Spurzem. Cover copyright © 2019 by Hachette Book Group, Inc.

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  First Edition: October 2019

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  Library of Congress Cataloging-in-Publication Data

  Names: Greifeld, Robert, author.

  Title: Market mover : lessons from a decade of change at Nasdaq / Robert Greifeld.

  Description: First edition. | New York : Grand Central Publishing, [2019] | Includes index.

  Identifiers: LCCN 2019000524 | ISBN 9781538745137 (hardcover) | ISBN 9781538700983 (ebook) | ISBN 9781478995470 (audio download)

  Subjects: LCSH: Nasdaq Stock Market. | Stock exchanges—United States.

  Classification: LCC HG4574.2 .G74 2019 | DDC 332.64/30973—dc23

  LC record available at https://lccn.loc.gov/2019000524

  ISBNs: 978-1-5387-4513-7 (hardcover), 978-1-5387-0098-3 (ebook)

  E3-20190711-JV-NF-ORI

  Contents

  Cover

  Title Page

  Copyright

  Dedication

  Chapter One

  Nasdaq Comes Calling

  Chapter Two

  People First

  Chapter Three

  Triage

  Chapter Four

  Buy the Winners

  Chapter Five

  From Apple to Zillow

  Chapter Six

  A Political Education

  Chapter Seven

  The Global Imperative

  Chapter Eight

  Grappling with Growth

  Chapter Nine

  Blood on the Tracks

  Chapter Ten

  The One That Got Away

  Chapter Eleven

  The Facebook Fiasco

  Chapter Twelve

  Institutionalizing Innovation

  Chapter Thirteen

  Don’t Look Back

  Acknowledgments

  Discover More

  About the Author

  Notes

  For Julia.

  She has made everything possible.

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  Chapter One

  Nasdaq Comes Calling

  Nasdaq Names Greifeld CEO

  Wall Street Journal, April 16, 2003

  I’m six months too late.

  That’s the phrase that kept popping into my head as I started my job as CEO at Nasdaq in May 2003. I’d been hired to engineer a turnaround at this storied financial institution, which was struggling through perhaps the most precarious period of its three-decade history. It was not a position I’d sought out; I’d initially been hesitant to even take the interview. I knew enough about Nasdaq and its problems to question whether it was really where I wanted to be. But I’m not one to turn away from a challenge. When I got inside, however, I began to wonder if the window of opportunity had already closed.

  Earlier that year, I had been happily employed at SunGard Data Systems, a large software and services provider for the financial industry. Prior to that, I’d been a software entrepreneur, co-owner of ASC, which had been sold to SunGard—the second largest acquisition they had ever done. I was promoted quickly, becoming an Executive Vice President responsible for a collection of subsidiaries with annual revenue of more than $1 billion and thousands of employees. It was a fast-moving, stimulating field, and I loved my job. Building new technologies is a deeply creative and satisfying activity. In my heart, I have always loved software—it seems like you have the freedom to create anything. So when the recruiter first called me and told me Nasdaq was seeking a new CEO, I was flattered but hesitant. Did I really want to leave all of this behind for a highly regulated organization that I knew had some serious issues, even one as prestigious as Nasdaq?

  “Oh, I don’t know, that’s not really my thing. I’m a technology guy, not an exchange guy,” I told him. “Plus, Nasdaq has so many problems.”

  That was an understatement. In 2003, Nasdaq was reeling. The dot-com bust had dried up the IPO (initial public offering) market. The tech stars that had lit up the financial firmament only a few years before had lost their luster—and their lofty valuations. The organization was bogged down in transitioning from regulated nonprofit entity to for-profit company. Nasdaq was losing money. The ever-increasing trading volume (and the revenue that goes with it) that had made the platform a favorite of traders during the market expansion of the 1990s was a thing of the past.

  Nasdaq’s predicament was a classic tale of the disruptor becoming the disrupted. The three-decades-old exchange had once been a technological leap forward: the world’s first virtual stock market. Traditionally, exchanges used the “trading floor” model. You’ve seen it in the movies—traders negotiating, yelling, and gesticulating in the financial world’s equivalent of the mosh pit. There were other venues for trading stocks of small companies, like the telephone-based over-the-counter (OTC) market, but these were insignificant and lightly regulated. Nasdaq* was founded in 1971 to bring order and fairness to the OTC market. It was a kind of virtual floor, a centralized system for showing prices. Dealers and traders across the country no longer had to read the daily “pink sheets” or pick up the phone to get prices; they could now see stock quotations in one place, in real time. Instead of making constant calls to keep quotes current, Nasdaq dealers, known as “market makers,”† only had to use a telephone when they wanted to actually execute a trade.

  In the excitement that accompanied the long boom of the nineties, Nasdaq found its stride. There had been a time when all America’s stock markets played second fiddle to the New York Stock Exchange (NYSE). But in the final decade of the twentieth century, Nasdaq had facilitated and nurtured the rise of a new generation of technology companies, firms like Cisco, Microsoft, Dell, Apple, and Intel. Most of these started small, raising money with Nasdaq back when significant venture capital was hard to come by and NYSE wouldn’t list such unproven startups. Nasdaq was their only option, and so it became the public-market parent to hundreds of promising children. Not all of them survived, of course, but the ones that did changed the world. And as they grew ever stronger, becoming national and global leaders, their loyalty to Nasdaq persisted. Indeed, as the center of American business began to shift west, away from the industrial factories of the East and Midwest to the sunbaked streets of Silicon Valley, Nasdaq was a primary beneficiary. Its brand became a global signifier of success, technology, and globalization.

  In the late nineties, when the boom became a bubble, Nasdaq continued to thrive. In those heady gold-rush days
of “irrational exuberance,” the promise of internet riches inspired thousands of startups to create online business models. All you needed were enough “eyeballs,” and it seemed that investors were smitten. A few such companies, like Amazon, were successful beyond all expectations and became pillars of the global economy. Many more are now remembered only for their sky-high valuations and disastrous flameouts—like eToys or Pets.com. Nasdaq was at the center of all of it—opening the door to a new world of global online trading, stock speculation, and wealth creation that would have been unimaginable a decade earlier. In fact, it would not be unreasonable to claim that there could not have been a dot-com boom at all without Nasdaq. In 1999 alone, the Nasdaq Composite—a weighted index of several thousand stocks listed on the exchange—increased almost 86 percent. But even as its brand reached new heights of prominence, Nasdaq was under threat from a new wave of innovators.

  I was one of them. As an entrepreneur in what is now known as the “fintech” (financial technology) industry, I created one of the early Electronic Communications Networks (ECNs) for ASC. ECNs were computer-based trading systems that not only posted quotes but electronically matched and executed orders. On Nasdaq’s system, you could see the bid and the offer right there on the screen—close enough to kiss, as I like to say—but the trade could not be consummated without a middleman. Customers still had to pick up the telephone to complete the deal. Indeed, a Nasdaq trading desk at opening bell was almost as loud as the NYSE floor—the phones ringing constantly, the traders yelling into headsets. ECNs came along and automated the last step, empowering customers with direct access, cheaper costs, and greater speed. The future was here and it was digital. And while it might not have been evenly distributed yet (to borrow a phrase from author William Gibson), it was coming soon to a stock exchange near you. Little by little, ECNs were gaining influence and market share, in a market that was exploding with activity.

  Indeed, the rise of online brokerages, day-trading, and other nontraditional market activity created massive amounts of new order volume that had to go somewhere. Like a flood of water heading downhill, all of this order flow demanded new methods of trading. It overwhelmed traditional venues and cut new pathways in the extended Nasdaq trading landscape. ECNs rose in tandem with this flash flood of new volume, providing real-time execution in fast and flexible trading forums. The new platforms were online, always on, and global. A massive decentralization and democratization of stock trading was underway. Anyone could do it, and ECNs were facilitating the revolution.

  ASC had sold for a good price in 1999, but as the boom persisted and I watched valuations continue to skyrocket over the following year, I sometimes lamented that we’d sold so soon, or hadn’t decided to do an IPO in that once-in-a-lifetime bull market. By 2003, however, such thoughts were long gone. The party was over, and the hangover was not pretty. It’s always better to sell a year early than a year late.

  Over at Nasdaq, the market’s tumble was initially not a problem. Volatility and high trading volume are good things for stock markets, and in the immediate aftermath of the dot-com bust, there were plenty of both. But as the IPO market dried up and the economy struggled to recover, Nasdaq’s deeper issues became starkly visible. As legendary investor Warren Buffett once said, “It’s only when the tide goes out that you learn who’s been swimming naked.”1 Ironically, Nasdaq’s problems centered on its signature area of focus—technology. The new and more nimble ECNs had surpassed Nasdaq’s once-innovative systems. More and more of the buying and selling activity was deserting the traditional dealer marketplace. Nasdaq was uncompetitive, and in danger of becoming an irrelevant sideshow in the new century. Like a large and imposing battleship, it was solid, resilient, and designed for stability. It still commanded all the attention, but it had been built for a different war. Every day, it was being outmaneuvered by a smaller, lighter, faster armada of experimental new watercraft. Sooner or later, the battleship was going to sink.

  The Marketplace of the Future?

  You can learn a lot about a civilization from its marketplaces: who they were, what they were good at, what innovations they fostered and delivered into society. In the ancient world, marketplaces were hubs for traders in goods and services, cultures and ideas. In the modern world, marketplaces evolved and expanded to be public and private, real and virtual. Now, as ever, when we want to find out what’s happened and what will happen next, we look to the marketplace. The marketplace is a reflection of how a culture is changing and evolving. Often, historic events and innovations get their start there. The canon of history’s most influential marketplaces includes such names as the Rialto in Venice (fourteenth century), the Grand Bazaar in Turkey (seventeenth century), the Amsterdam Bourse in Holland (seventeenth century), and the New York Stock Exchange (twentieth century). As the twenty-first century dawned, Nasdaq had looked ready to join these ranks as the market that would define the information age. But by 2003, all such aspirations were in doubt.

  I hadn’t just read about Nasdaq’s problems in the papers. I had firsthand experience of dealing with them, often on a daily basis. The main product of ASC was a trade order management system designed for integration with Nasdaq trading desks, and my job involved a constant relationship with many individuals who worked there. It was a frustrating process, to say the least. It took forever to get things done. Nasdaq was unresponsive, slow, and monopolistic. Staff seemed unmotivated and disengaged. From my perspective, it had all the hallmarks of a dysfunctional bureaucracy. It reminded me of my dad’s tales of working at the post office. Clearly, whoever took the CEO job would need to do a lot more than update Nasdaq’s technology and make it competitive. A cultural transformation was also desperately needed.

  When the recruiter called, all of this was going through my mind. It was an honor to be considered, but my enthusiasm for the opportunity was tempered by my knowledge of the organizational dynamics at play. I had no illusions about what the job entailed. Was this the right next move for me? Did I really want to trade in an exciting role at the forefront of a growth industry for a grueling turnaround? I certainly didn’t intend to be at SunGard for life, but I had imagined moving on to a new entrepreneurial challenge, possibly leading a startup, not diving into a struggling legacy company. Moreover, Nasdaq was actually a smaller operation than the one I was running. Nevertheless, its brand stature and relevance to the global economy far eclipsed its head count. I had a personal connection to it too: I’d actually written my graduate thesis on Nasdaq, exploring how technology was changing the people dynamics in the equity-trading world. Was this a moment of destiny? I was torn.

  Whatever its problems, Nasdaq was a global icon. An organization like that doesn’t come calling every day. When the recruiter reached out a second time, I agreed to take an interview. It was a unique opportunity, and I was intrigued by the challenge of turning Nasdaq into the defining market of the twenty-first century.

  The next morning my name appeared in the Wall Street Journal. This was before we all held the internet in the palm of our hand, and I think I heard the news over breakfast when my phone started ringing. Apparently, there was a story about Nasdaq interviewing me as a candidate for their CEO position. It was the first time I’d ever been mentioned in the Journal. It was also my first glimpse of the new world I was entering—fast, furious, and very public.

  I talked to Cris Conde, my boss at SunGard. I didn’t want to leave him hanging, but I asked him to give me a week to consider the opportunity. I had great respect for Cris and felt loyal to him, and also appreciated that he had seen the value of ASC and paid well for it. He generously agreed to my request. Nasdaq called me in for a video interview with the Board. We didn’t have that technology in our pockets in 2003, either, so I was invited to an office in Midtown. On the screen in front of me were several of Nasdaq’s Directors, including Arthur Rock, one of Silicon Valley’s original venture capitalists; Warren Hellman, whose private equity firm owned 27 percent of Nasdaq at the tim
e; and Frank Baxter, CEO of global investment bank and institutional securities firm Jefferies and Company. In the room with me was H. Furlong “Baldy” Baldwin, a Baltimore banker, former CEO of Mercantile Bank, and highly respected elder in the financial world.

  The composition of the Nasdaq Board was notable for its ties to the technology industry. In particular, Hellman and Rock both had deep roots in Silicon Valley. Rock is a legendary investor who helped found the tech pioneer Fairchild Semiconductor, was a founding investor and Chairman at Intel, and was a key player in the early days of Apple. Hellman, a former President of Lehman Brothers, had gone on to become a major player in West Coast venture capital and private equity. (In San Francisco, Hellman is fondly remembered as the banjo-playing patron of the popular music festival Hardly Strictly Bluegrass, which he endowed generously in his will.)

  The presence of these two men on the search committee signaled Nasdaq’s commitment to embracing tech as its future. While its listed companies included numerous tech brands, Nasdaq itself was not considered to be a technology company as of yet. It used technology, of course, but the information revolution had not yet rewritten the DNA of Wall Street. Quants, high frequency traders, and algorithmic trading systems had yet to appear on the scene in any significant way. In fact, the old guard—the traders, brokers, and bankers who ran the financial institutions—were not natural technologists. Nasdaq, NYSE, and many other exchanges around the world were undergoing—and in some cases resisting—a generational transition from the nonprofit, cloistered “brokerage clubs” of yesteryear to the more transparent, public, fast-moving, technology-driven, global trading platforms they would become.