The Munk Debates Podcast - Be it resolved: The GameStop frenzy is good for investors and good for financial markets

Episode Date: February 24, 2021

By now most people are familiar with the GameStop saga: how a small video game retailer worth less than $1 billion, fuelled by day trader investors and Reddit message boards, went on the ride of its life – rocketing its share price from $20 to $400 dollars in the span of a few days. The company's meteoric rise wiped out billions of dollars from institutional investors who had bet against GameStop. And then, as quickly as it rose, it began to fall again. The company's shares lost three quarters of their value in just 85 minutes wiping out many retail investors. Professional traders argue that platforms like Robinhood – no fee stock trading apps of fractional shares – are to blame for this market volatility. These platforms are encouraging average people to gamble with their life savings in exceedingly risky ways that destabilize financial markets for everyone. Retail investors see the GameStop frenzy as a long overdue populist pushback against Wall Street hedge funds and their predatory short-selling practices. The new platforms are a welcome innovation in financial markets. They level the playing field by allowing anyone to trade the markets at minimal cost, in real time, using options and leverage just like any large market participant.    Arguing for the motion is Tom Sosnoff, founder and Co-CEO of the electronic trading platforms tastytrade and thinkorswim. Arguing against the motion is Danny Moses, a private investor and hedge fund veteran profiled in Michael Lewis's global bestsellers The Big Short and Flash Boys. Sources: NBC, CNN, NBC, CNBC, C-SPAN, www.charlierose.com, Fortune Magazine The host of the Munk Debates is Rudyard Griffiths - @rudyardg.   Tweet your comments about this episode to @munkdebate or comment on our Facebook page https://www.facebook.com/munkdebates/ To sign up for a weekly email reminder for this podcast, send an email to [e-mail].   To support civil and substantive debate on the big questions of the day, consider becoming a Munk Member at https://munkdebates.com/membership Members receive access to our 10+ year library of great debates in HD video, a free Munk Debates book, newsletter and ticketing privileges at our live events. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue - https://munkdebates.com/ The Munk Debates podcast is produced by Antica, Canada's largest private audio production company - https://www.anticaproductions.com/   Executive Producer: Stuart Coxe, CEO Antica Productions Senior Producers: Ricki Gurwitz, Christina Campbell Editor: Kieran Lynch Associate Producer: Abhi RahejaBecome a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

There are options, and that's why we need to take this opportunity seriously. There's no way you can prevent global warming unless China is part of the solution. This is not normal male behavior. This is predatory behavior. We don't know how bad this bug is. We don't know what this bug does. All of that was thrown away in those eight minutes and 46 seconds, and that's the moment that I became an abolitionist. Extraordinary claims require extraordinary evidence. Hello and welcome to the Monk Debates. Every episode we provide you with a civil and substantive debate on the big issues of the day

to arm you the listener with enough information to make up your own mind. Today's debate, be it resolved. The GameStop frenzy is good for investors and good for financial markets. Now to a wild ride on Wall Street that seems to have just come right out of the blue this morning. All right, GameStop. We've got to talk about this today. Outrage erupting. This GameStop situation is the craziest I think I've ever seen. We have some breaking news right now on what has turned into the soap opera and saga of the markets right now, and that is the story of GameStop. Hi there, Rudyard Griffiths, your moderator.

While now, most people are familiar with this story, how a small video game retailer worth less than a billion dollars went on the ride of its life. Amateur day traders on Reddit banded together. using the no-fee trading app Robin Hood to boost GameStop share price from $20 to $400 in the span of just a few days. Hedge fund short sellers that had bet against GameStop lost billions, while day traders saw their fortunes rise by untold amounts in just a matter of a few hours. And then, just as they were counting their spoils, the stock plummeted. It shares losing three quarters of their value in just 85 minutes. GameStop's roller coaster ride has investors on edge.

This is not going to end well when it ends. And the bigger question is when does it end? I don't think it ends soon, but I think it will end and it will end very badly for the public. That's billionaire investor Leon Cooperman, arguing that no-feet trading apps like Robin Hood encourage retail investors to make uneducated and risky bets that destabilize the markets for everyone. Robin Hood's CEO, however, sees the GameStop frenzy and his trading platform as a positive step towards democratizing the stock market and pushing back against a system that favors Wall Street insiders. We've been the spokesperson of the individual investor and our whole goal as an institution is to enable those customers empower them and give them access to the markets because for the longest time, markets have been only accessible to,

the wealthy. On this installment of the Monk debates, we challenge the essence of these arguments by debating the motion. Be it resolved, the GameStop frenzy is good for investors and good for financial markets. Speaking for the motion is Tom Sosnoff. He's a serial entrepreneur and the founder and co-CEO of two fintech firms, Tasty Trade and Think or Swim. These are electronic trading platforms used to trade financial assets.

Tom recently sold Tasty Trade to UK. based IG group for $1 billion. Arguing against the motion is Danny Moses, private investor and hedge funder best known for his role as a trader navigating the global financial crisis as chronicled in a famous book and movie The Big Short. He also figured in Michael Lewis's other international bestseller, Flash Boys. Tom, Danny, welcome to the Monk Debates. Thanks for having us.

This is going to be awesome. Thank you, Rod. You're looking forward to it. Well, likewise, this whole game stock saga really has been one of the big news stories out of financial markets in the last few weeks. And for someone like myself who's kind of interested in markets but by no means an expert, the opportunity to talk to two of you, two kind of storied investors who have really thought long and hard about how markets work, the role of investors in markets. This is just a real privilege for me personally and for our Monk Debates audience. Our motion today, a simple one, concise to the point, be it resolved. The GameStop frenzy is good for investors and good for financial markets.

Tom, you're speaking in favor of the motion. I'm going to put two minutes on the clock and turn the program over to you. So I've been in this business now going on four decades. So actually, I'm into the late part of my fourth decade. And for the last two decades, we have really been focused on the transition from, or at least enforcing the transition from passive investing to active investing. I believe strongly and as an advocate for the active investor, I build technology for active investors, I build content for active investors, and everything our companies do just focuses

on the retail investor and turning them into an active participant in the markets. I think what we saw in the GameStop situation over the course of the last, you know, couple of weeks was actually a transformational moment, was the defining moment in kind of the evolution of the marketplace going from passive to active. And what's so important about that is that in the big picture, when you look at all the advantages that come with active investing, being able to make decisions quicker, being able to actually assess risk. being able to understand financial markets and financial products, being engaged in something that's a transitional type product in the sense that it changes the way you act in every part of entrepreneurship and business, regardless of who you work for. What was so important to this is to introduce an entire generation, which is tens of millions of people to a marketplace, which can open up so many doors for them in the future instead of waiting until they're 40, 50, or 60,

they actually get to appreciate this when they're 20 or 30. It's pretty exceptional. And it doesn't matter the reason. I mean, the fact that it was GameStop, that's just the, that in effect is or was the binary event that just push the door open a little bit and let everybody through. So the level of engagement and the aftermath of that engagement, which you're continuing to see now in things like digital assets and things like just participation in the markets. I think it's so important to the evolution of really a strong economy and an understanding of free markets and market structure. So, yes, I'm incredibly bullish on what just happened over the last couple of weeks. Hey, thanks, Tom.

I sense your enthusiasm coming through in those opening remarks. So thank you for setting up the pro side of this debate. Danny Moses, we're going to turn to you for the con, the contrary take on our motion today, be it resolved. The game stock frenzy is good for investors. and good for financial markets. Take us away. You got it. Well, Tom, thanks for that opening statement. Roger, thanks again. Great to be here. Let me just say that I think it is great that people have more access to trading. The problem I have with this is that I think many of these people are going to a gunfight with a knife. And I think this really highlights what's been happening over the last several years,

which is kind of the gamification of the stock market. And I think there's a lot of traders out there for better for worse, that associate a draft king's account, a coin base account, and a Robin Hood account kind of all the same. And whether it's a parlay on a basketball game or taking a shot at some game stop options, unfortunately, I think it's going to be a very hard lesson to learn and it's going to be costly. And what's really scares me is that I love people getting into the market. I mean, my background being on Wall Street since 1991, I've seen iterations of fits and starts, the dot-com bubble, the mortgage crisis, obviously global financial crisis that follow that. What scares me is that people get turned off from the market.

So if the average age of the Robin Hood investor is 31 years old, and that means that they were, you know, 16, 17 years old during the global financial crisis. And this is their, they've only seen really a bull market. They've only seen the Federal Reserve and central banks pumping liquidity. They've only seen bailouts happen every time someone gets hurt. They've only seen Federal Reserve start programs with different acronyms to bail everybody out. So I feel like they don't know what a bear market looks like and don't confuse brains with a bear market. But more important, with the bull market, sorry, more importantly, I don't think that they understand the underbelly.

And the whole idea of setting up an app and being able to trade and funding it with a credit card advance to me isn't giving the full picture. The ability to trade options, that's not an easy thing to do. I think there needs to be more qualifications in order to do that. You should certainly pass a lot more tests before you can get in there, at least some type of qualifications to do that. And this free commissions or no commission thing that's been going out there is, it's just not true. because you're paying for it one way or another. So I have a big problem with the underbelly of the trading world and the high frequency

traders and the payment for order flow that goes on and the argument that there's price improvement out there, which we can talk about, which I don't believe is the case. So at the end of the day, I'm worried that this will actually backfire and hurt the confidence of investors and turn people off, turn potentially off a large group of this generation of traders that end up not trusting the market and not trusting what's on the other side. Hey, thanks, Danny. Really concise on the point opening statement. debate is off to a terrific start. Now, an opportunity for both of you to kind of rebut what you've

heard from each other. So Tom, I'm going to put another two minutes on the clock. Have you react to Danny's opening words. Here's the thing. I couldn't disagree more with everything that Danny just said. And it was beautifully articulated, but I couldn't disagree more. I think, again, this is a transformational moment that needed to happen. We have an expression in this business, which is, you know, one day you're just, you're humming along and you're 25 years old and you're, you know, you're whistling a tune and then you close your eyes. And next thing you know, you wake up and you're 52 years old and 27 years later and you said, where the hell did my life go and how come I don't know anything about finance? I personally love everything about the

gamification of finance. I love everything about the engagement of what's happening now. I love the fact that my 27-year-old, my 28-year-olds are just trading and all their friends are trading. And I love the complexity that they're getting involved in, you know, in using futures and using alternative assets. They're using option strategies that they don't even understand. And I couldn't care less. I think it's the most valuable thing that an entire generation has ever done. I think that the level of engagement, the complexity of the products, understanding stuff that they might not have understood in a more traditional time letting traditional money managers who know absolutely nothing, by the way, manage their money

for 20, 30 years of their life until they get the NERP to do it themselves when they're in their 50s is ridiculous. And it's old school. I love the fact that we are engaging 18-year-olds, 21-year-olds, 25-year-olds, who are doing everything from complex option spreads because they're capital-efficient to using small futures products because they're capital-efficient because stocks have become so crazy priced and are able to do it because in a world of high-frequency market making now, everything is efficiently priced. And customers, it's not about price improvement, but it is about efficient markets. And the marketplace today allows basically anybody to do anything they want with virtually any amount of money. And I think it's invaluable. And so the experience that people are

getting and the level of know-how that people are building within the world of finance, again, you can't put a number on it. It's generational in the sense that this generation is going to be so far ahead of the last generation that I just think this is an important moment in kind of the way we look at our economic future. Hey, thanks, Tom. Your enthusiasm coming through loud and clear in this debate. So, Danny, your chance now for a rebuttal to both Tom's opening statements and what you've just heard. Yeah, listen, I think it's great for people to learn how to trade.

I think this is going to and has been a very expensive lesson. I completely disagree that there's not professional money managers that know what they're doing. They went to school for this. They're educated in it. They set up strategies to hedge their portfolios. This is really a one-way street. And there's a saying if you look around the table and you can't see who the sucker is, it's a poker table.

It's you. And unfortunately, I feel like a lot of these retail investors are the sucker. And I think it's not fair. I think that's an irresponsible attitude to have to allow people to go into these markets to navigate what is a very sophisticated market in the options world. These people have these people don't even understand what a call option to put option is or if they sell a call that it's unlimited loss possibilities. And that's just not right. And there needs to be better protection and education for these investors before they go in and do this. And I know a lot of professional investors that lose money. I know a lot of professional investors that make money that charge fees of two and 20. And Tom, I'm not going to argue against it that some of these fees are a little bit egregious and too high. But that being said, at least they're following protocols and know what they're doing, hiring analysts that have the experience. And, I just don't think that this should be as easy as betting on a basketball game to buy call options. If you want to make it that easy, then send these people in with a lot more knowledge and a lot more experience to do it.

So as far as democratization of finance and access to trading, I think that's great. But when Robin Hood set up their business, their tech guys that didn't understand the markets. How do we know this? Because when they tried to open up a checking and savings account and wanted to offer people 3%, the SIPC said, what are you doing? We can't insuring your accounts. We don't do that. You can't offer 3%. That just tells you the level of lack of sophistication.

And to not come clean with their investors and their clients about how much money that they make for payment for order flow and what it is was disingenuous. And they just paid a $65 million fine. Robin Hood will pay $65 million to settle with the SEC on two key issues. The first, regulators say Robin Hood didn't tell customers the whole story when it came to free trading, namely payment for order flow or getting paid to send trades to high-frequency firms. There's been several outages of many of these platforms because of the level of access this market has given in the level of volumes. Now, Tom, I think what's important, and you kind of brought up and

alluded to is the power of the retail investor. And I think the institutional market has underappreciated that. And we're now over 20% of volume is now coming from retail. That is very powerful. It needs to be looked at and needs to be totally appreciated. I just hope that these retail investors can stay on board, keep learning, but I just feel like it's too expensive of a process for them right now. Excellent opening to this debate, guys. Let's dive in here to some questions that are probably top of mind for our audience listening to you both now. And Tom, let me come to you first. You know, there's that old tourism that knowledge is power. And Danny brings up a point here about the, you know, the distribution of knowledge across financial markets. I mean, surely,

these professional traders working at these hedge funds have education, experience, insights that just far away any one of the small retail investors coming in through these platforms. So how is it fair to, as Danny kind of conjectures here, to expose those retail investors very limited levels of knowledge and information to the full force of a market with participants that have such incumbent advantages over them. And didn't we see that? And in terms of how the GameStop saga played it. Again, I couldn't disagree more. I'd been in this business now. I spent 20 years as a market maker and my first 20 years as a market maker on the floor of the CBO in my last 20 years building two of the most complex pieces of software on the retail side, think or swim and and tasty

works. I've dealt with everybody from professional traders to were partners with plenty of high-frequency making firms, and then we also deal with hundreds of thousands, if not, at this point, millions of retail customers. I will put the retail customer group up against any group of professionals as far as know-how goes, and any day of the week and bet my entire everything I've ever made in my life on that. I don't believe for one second that an institutional investor, again, this is not about, you know, doing a ridiculous amount of research on some company and then waiting 25 years for that company or five years or two years or six months, whatever it is. Bull markets can make fools out of a lot of people. And it's disturbing to me that people still

believe that the retail investor is not as smart, as sophisticated, or as capable as any money manager, professional institution. Do you know, there are no floors anymore. There's no traders on the exchange floors or anything like that anymore because the retail investor, clicking on their home software and home computers, has replaced their. everybody. Essentially, there's market makers and there's retail investors now, and then there's institutional customers and money managed out there. I don't believe that anybody has an advantage over anybody else. I think the markets are truly random. And I think strategically now, people with less capital have more advantages because they can trade more underlines and they can

do things that their smaller size allows them to do when the big institutional investors have to have scale so they really can't do it. So I think the advantage right now, because of the virtually no commissions, access to markets, far, far better technology on the retail side. Like the retail investor today has way better technology than the institutional trader does. And so I have to disagree with you. I think that the average mom and pop sitting at home, the average myself, the average Tom Sazanov, who trades as a retail investor, has all the advantages today.

So, Danny, let's get your view on that. I mean, Tom's painting a picture here of a technological transformation that is really leveled the playing field. You got a lot of experience in hedge funds. You know that industry like few others. What's your take on that? Well, I couldn't disagree more to take the words out of Tom's mouth. The institutional investor has a lot more technology, a lot more information, a lot more research, access to capital to commit trades, access to leverage, access to every research report from every major firm, better access to management, so I just don't agree with that at all. Now, from a technology perspective and the ability to trade quickly and do those things, sure,

maybe it's a level playing field. Maybe it's even easier at this point for the retail investor. But it doesn't seem like anyone really cares that the retail investor is making or losing money. They just care that they have access. And I have a problem with that because I feel bad for them. And there are riskless trades going on out there. What are the riskless trades?

The riskless trades are the high frequency trading firms that are able to buy order flow in aggregate from a lot of these large brokers and then go and either internalize that flow or make a very large spread on the flow, which guarantees a profit at the same time go what's called make or take or what these exchanges are offering and find the arbitrage. This idea of high frequency trading, which has been there, is exploiting, putting out millions of trades, hundreds of thousands of trades through milliseconds to exploit minute movements. There's technology and algorithms exploiting this. If you throw enough money at it, if you throw enough volume at it, you can make a ton of money

in theory. I don't believe that anybody should be involved in, quote, riskless trading, which is what the underbelly is. So for every time these retail investors, it's a zero-sum game, right? Someone's buying and someone's selling a stock. But the person that's guaranteed to make money here are some of these market makers, which are out there. Now, it's not illegal.

I find it unethical and unfair. So the advantage lies to me right now with the people that are providing the technology and the access to markets, not with the traders themselves. So I just don't think it's a fair. I don't think to say money managers know, not. Nothing is just not an accurate statement. And it's not fair at all. Hi there, Rudyard Griffiths, the moderator of the Monk Debates.

Look, this we know. Our society is becoming dangerously polarized. We don't listen to each other. We don't search out opposing views. Instead, too many of us live in tribes, convinced that we are right and they are wrong. It's time to put a stop to polarization before it wrecks our democracy. This is what the Monk Debates charity is all about. Ending polarization.

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30% off when you use the promoting. promotional code, Monk, 2021, at our website, monkdebates.com. Again, that promotional code, Munk, MUNK, 2021 at Monk Debates.com. Join now and help fight the polarization of our democracy. Now back to our program. Tom, let's talk a little bit about this idea of like order flow. I mean, you, you just sold your company, Tasty Treat for a cool billion dollars to the IG group. So, you've got a lot of understanding about how the plumbing of this system works. I mean, again, to a layperson like me with a pretty limited understanding here, this whole idea that these big hedge funds like Citadel and others had access to the trading orders coming out of Robin Hood

and then could make their own trading decisions based on that order flow. It just, again, it seems unfair. It seems like the playing field isn't level. In fact, it seems like these platforms are purposely distorting the playing field to empower the very entities, these incumbent Wall Street players, Tom, that you've taken a big shot at over the course of your business career

with the businesses that you've started. Yeah, and that's not the way it works. I don't, what Danny just said is not the way it works. So, and at least I don't believe it. I shouldn't say that. It's just not the way. I've been in this side of the business from the get-go,

and I've watched these firms start from day one. I remember when Citadel wasn't even Citadel, and Interactive Brokers wasn't even Interactive Brokers and Susquehanna, the guys that started were still trading on the floor. So I've watched this transformation, and I've watched the development of payment for water flow from day one. Here's the problem.

The exchanges are inefficient. Their technology stinks. They have no incentive to go out and build better technology. And there was no competition among exchanges to price-improve customers or to create a competitive environment for orders. And so you had wide markets. lousy fills. So what happened? Well, a group of market-making firms, whether it's 10, 20, or 150, it doesn't matter how many, because there's a competitive market in cyberspace that is just massive.

They're led by the Citadel, Susquehontas of the world, but the marketplace is massive. What happens now is that a customer, like you or me or anybody else, routes in order through any system. It doesn't matter whether it's tasty works or its fidelity or it's TD Ameritrade or Schwab or anybody else or E-Trade, everything goes the same way. And it gets competitively marketed in about one or two, one, two or three milliseconds. It gets competitively marketed for the best price. Now, the reason it gets competitively marketed for best price is because these market-making firms have to match the best price or improve upon price in order to participate in that particular order. And so theoretically, we're talking about probably in most cases,

less than a quarter to a half a cent in theoretical edge. And then that order gets matched up and then goes to an exchange floor, gets filled and comes back to us. Because of that efficiency, we're able to, A, improve the technology, B, offer customers virtually no commissions because it's being picked up by the high frequency firms. And then we're able to offer much better front-end technology because now we have the ability to connect to a network in cyberspace rather than have to maintain all these incredibly, complicated and not very efficient exchange connections. So what happens is the retail investor today, and I know Danny before was talking about Robin and stuff like that, and I understand

the mistakes that Robin had made and things like that. But firms like Tasty and most of the firms in the industry have a huge advantage now that we can route to a series of market making firms connect to them so we don't have to worry about the damn exchanges. And we have better technology, lower prices, much quicker fills and much better pricing. Everybody wins. The retail customer pays a lot less for trading. Their fees go way down and they get way better front end technology. And the brokerage firms get to avoid all the bad fills and they also have some responsibility because now these market making firms, they actually can go back to them and say, hey, listen, you know what? Your fills today weren't very good or your fills were slow. Or we should be improving on the level of

and therefore you have a way to go back and just say, hey, if fills aren't better, we're going to switch to a different firm. So we actually have the ability to remove a lot of the conflicts now. So the system works. And I really hope that they don't mess with it or change it because payment for order flow has enabled the individual investor to participate in almost all marketplaces. Okay. Well, this is why we're so excited to have both of you on this program because you both have this deep kind of muscle memory and knowledge around how this whole financial system and the underbelly of it works. And Danny, to go to you, I mean, you were featured in a prominent way. You were kind of the inspiration from Michael Lewis's other bestselling book, Flashboys,

which is kind of all about high frequency trading. So I'd love to hear a bit more from you about why you disagree with what Tom's painting here, which is a picture of growing market efficiency, of investors accessing stocks, you know, it spreads that are tighter and tighter and therefore, you know, more attractive to those retail investors. You've got a different view. Give it to us. Well, one is that the exchanges are very tech savvy. That's how they make their money now, more than trading, because you're right, Tom,

stuff is not trading on the exchanges as much anymore. But the stuff that is because the market makers, now the cream has risen to the top, if you want to say it that way. And the Citadel's and two sigmas of the world have now, dominating the market because of the inability of the other high-frequency trading people out there to pay the high fees that these exchanges are charging for access to their market. So why is it that the more you pay, the faster access that you get? That should not be that way.

And Michael Lewis detailed that, obviously, in Flash Boys. The public stock exchanges, the New York Stock Exchange, NASDAQ, a significant source of their revenues since the Speed War has started has been selling, specialized. lacks a speed to the high frequency traders. The public sees one, prices at one speed. The high frequency traders see them, get a feed from the exchange directly for which they pay a lot of money. That's still going on today.

But the biggest problem with all of this is that because so much is trading off of exchange, the ability to prove that you have price improvement is just not accurate. So if I'm an options market maker and I'm making my own market and the call option, you know, the 20 strike calls are $1 by $1.6. I can see what I'm the one making the market. So to say that there's price improvement is just not accurate. So if I fill it a dollar five and I say, oh look, the exchanges were showing a dollar to a dollar 10. I improved you by five cents.

It's not accurate because you actually, the market makers are the ones that are trading and setting the price. So the measurement of how price improvement is gauge is not accurate at all. And so the exchanges know what they're doing. The exchanges are kind of the gatekeepers of all of this. And why is it that every time the post-flash crash, when we try to just read We do the cat, the consolidated audit trail, it's fought. Why are there so many letters contesting any type of regulation that makes it, quote, fairer? Why is it that IEX is the one market?

Now, granted, they haven't grown market share a ton, but they are gaining market share there, has been unable to penetrate the markets because they have, quote, a fair market where there is no speed advantage. So what IEX has done is we've created a speed bump, although the speed bump is only 350 millionths of a second. which is irrelevant for a normal investor, but it's the amount of time certain high-speed traders need to see and react to information and essentially at times trade ahead of other people. So that's a significant issue.

And when the exchanges are the ones that enable it, the only way to really fix it is to be in exchange, a different kind of exchange. Speed should never be an advantage for trading, ever. This is not a game show. This is not hitting Jeopardy button. Certainly if you were trading off fundamentals and I had some type of information before you did that was public knowledge.

Certainly I should have an advantage. But using creating data, these investors, the retail investors on these platforms are the ones that are creating the data that is then being manipulated by these market makers and fed back to them and then optically presenting itself as price improvement or good fills. And it's just not accurate. And the retail clients are so powerful now in aggregate that if you take all that flow in one shot and see it, that is feed for these market makers. and they salivate on that.

So of course, it's riskless trading for them. So disagree with that assessment. Tom, do you want to come back on that point quickly? I do want to move on to two other aspects of this debate. I'm just conscious of our time. I mean, listen, we, this has been a debate that's been going a long time, you know, the pros and cons of order flow. I mean, I can tell you from we route, you know, whatever it is,

close to a million orders a day. I'm very clear of the concept. You know, we route a million orders a day, just pure customer. customer orders, I get how the system works. And the advantages to the retail customer today, because of the nature of how far we've come, how far the system has matured with respect to, you know, how orders are routed and how the brokerage firms themselves, you know, like we've all created these, you know, Best X type of wheels where orders go to different places based on, you know, quality of fills and stuff like that. Like the idea that we're not monitoring

of virtually every single fill and the speed of those fills. Like, again, I couldn't disagree more how important speed is for our customers. I couldn't disagree more. Tasty is the only platform in the world that's built on high-frequency middleware for retail investors. And where we come from 20 years ago to where we are today offering retail investors high-frequency middleware so that they're getting 20 to 30- millisecond fills, it's just remarkable.

And the ability to do that on kind of classic legacy exchange technology never existed before, I never will. The exchange has never cared about the retail investor. And all of a sudden now, there's a subgroup out there, which lives in the middle, which actually does care about retail investors because they built a model around it. It's pretty special right now. And it's really, it's misunderstood, but it's pretty special. And it allows for this massive growth. Thanks, Tom. I want to go to the second part of our resolution today, which is the GameStop frenzy is good for financial markets. I think we've done an excellent job, you know, having the debate about the effect of GameStop on the retail investor.

But I want to hear a bit more from you, Danny, about your critique as to how GameStop to you is doing something negative to the broader financial market. Give us that analysis. I don't know if it's doing something negative to the broader financial market. I think it is highlighting some of the ignorance that's out there with how markets work.

What makes me nervous is, to Tom's point, is we don't want more regulation. we also don't want people aimlessly accusing short sellers of being the evil ones here, right? Short sellers are, I believe, good for the market. There's nothing bad about them. Certainly if they try to manipulate stocks, it's bad and force the stocks down. But, you know, they're taking as much risk as the other person. And short sellers actually provide a lot of information to the market.

And if you're bullish on a stock and someone short it, you know, read the short report. And if you disagree with it, buy more. That's what we used to do. So I think that the problem with GameStop, and by the, By the way, there's hundreds of game stops, right? There's stocks that are being moved. We go back to the Yahoo chat rooms from 1998, 1999. This stuff was going on a long time ago. We saw it with the dot-com craze at the time. I don't think it's bad to have stocks being talked about, stocks being traded. But when stocks are trading completely on momentum and not fundamentals, that never ends well. You can maintain momentum for a period of time. But none of these investors are arming themselves with fundamental information. They're arming themselves with technology. And that is not how stocks should be traded over a long period of time. So I'm concerned. What's bad for the market is that it's going to turn off an entire generation of people that feel like it's an unfair. No one thought it was unfair when they were all making money every single day in these chat rooms. But now it's unfair.

They want someone else to blame. And I think a lot of the blame lies with themselves of being uneducated when it comes down to the stocks that they're trading. Do you think they even know what a price earnings multiple is or cash flow? And maybe that doesn't matter to a lot of people. Maybe it doesn't matter to Tom because the end of the day, if you buy a stock and it goes up, great for you. If you buy a stock and it goes down, well, you still had fun. You had great access to the market. So I'm worried about turning off a whole generation of people that are out there, but it doesn't bother me that people are able to trade it. I don't know if that answers your question. No, that's an interesting take. So Tom, just to understand your argument here a little bit,

you're, you're kind of, I don't know, I'm hearing like almost like a creative destruction here. You're thinking, you know, okay, if these people go in and they're buying game stock and they're, you know, losing thousands of dollars, well, you know, they're learning, I guess, and whether they're losing and learning at the same time, you're totally agnostic about that. Am I characterizing your position accurately? Yeah, that's fair. I mean, I agree with Danny in the sense on short selling. You know, listen, I'm 100% in agreement with him. I disagree that it was, that it's bad. I mean, I don't like, I'm like a casino owner. I don't want people to come into our casino and lose

money. I don't like when people lose money. I like, I wish every customer made money. but I also want people to come in and play. And I think ultimately the fact that, you know, there's no question. There was way more losers in the whole game stop situation than there was winners. And there's also no question that that was, it was the perfect storm. I also agree with Danny that there's a lot of other kind of game stops out there just hidden below the weeds. But this was the perfect storm. And this was an event that in the end when we assess the damage, yeah, there's going to be a lot.

The numbers of losers compared to winners, it's going to be extraordinary. I'm not a person that believes in fundamental or technical analysis, so I couldn't give a crap about those on the pure quant and probabilistic strategies, let's call it that. So I couldn't care less about fundamental or technical analysis. But, you know, that said, I do think in the end that if it was 100,000 people or 200,000 people or a million people that lost money in GameStop, even if it's a small amount of money, if it was one share or two shares, or if it was a Robin Hood trader trading, you know,

five shares or a fractional share. I don't even care what it is. Yes, I do think that the end result for that is not that it's going to turn people off. In fact, I think it's exactly the opposite. I think it's going to turn people on. And we're actually seeing that. We're seeing the impact where the after effect of what happened in GameStop was that people didn't close down their accounts.

They didn't run away and, you know, and take their ball and go home. What they've done is just say, hey, you know what? Yeah, I think I was a little stupid. I was a little naive. But now I'm getting into other stuff and they're actually engaged. So I think the takeaway from this was extremely positive. I hear Tom's point about it being a type of casino, if you want to call it that. And if you're running a casino and you want your patrons to have a good time, the house always wins. We know that. But makes the house win even more is when you sit down and play blackjack and I'm a gaming guy. So I know every odds in every casino in the world. But if I sit down and play blackjack and I play by the book, because I've studied the statistics. It's a very small house advantage. It's something like 50.3 to 49.7. If I play incorrectly at all, if I don't hit that 14 against a dealer's tennis show,

I don't do it. The house odds go up dramatically. And I would actually equate what a lot of these traders are doing on Robin Hood as playing blackjack incorrectly without the knowledge of the finite odds that exist. And whether it's craps or whatever it's blackjack, the casino makes a living of people playing incorrectly. Now, I will say this, it's in Robin Hood's best interest. to have all their clients make money all the time because the assets will grow, the trading will grow,

the dollar volume will grow, and that's great for everybody. It's just not the case. And I feel like they're playing a bad hand here. The one thing this has done, and I agree with Tom, it's not bad for the markets, but the problem now is it's woken up the institutional investor. And when I say that, you know, the big Wall Street investors only start caring when they have to. And I think this scared the crap out of them. And they realized they were underappreciating the power that the retail trader has now. But now I think what we're already seeing is fits and starts in various stocks and various sectors where you have many game stops happening every day. And I think Tom would agree, you see stocks run, they're coming back down much quicker now. I think that the bad news for the

retail investor here is that the institutional investor has woken up. Maybe that's great for the markets. And I think the market, to Tom's point, is efficient and has a way of becoming efficient, but I think that's now going to come at the cost of the retail investor as well. So before we go to closing statements, let's just talk a little bit about what, if anything, we should do about this. I mean, governments are starting to look at it. There's hearings that will be ongoing. So, Tom, is there anything that you'd want to see in terms of the regulator doing something here? Or are you just saying, you know, let this thing run. This is an experimentation in a petri dish, and let's see where it goes. There's always things we can do to make the markets better

and to make the markets more tradable and to make situations like this less likely to happen. I'm going to agree with almost everything Danny just said, but I think that given what's just transpired, I like the fact that we're addressing it head on. I think that there is a need to look at the settlement process. It makes no sense how we can settle futures and options virtually instantly, but for stocks it takes days. It makes no sense that we can't clean up the whole short stock locate, and that should be a much better process. It makes no sense that the exchanges have taken a step back and have essentially left the retail investor out there to dry, and they have not supported them by trying to change regulatory limitations that make no sense, for example, like the pattern day

trading rule. And it makes no sense that the regulators are still living two decades behind what today's technology allows people to do, both from a, from a strategic, side and from a trading side. So I think that, listen, did Robin Hood screw up in the sense that they weren't ready for the moment? And the answer is, yes, of course. They had a, just like Danny said earlier, they had a lack of know-how. They weren't ready for the moment. Reputationally, they took a hit. But the real cause of what we just experienced was the regulators not being ready for the moment, the exchanges being scared of the moment because they're all public now and they just didn't want to deal with it and then putting the burden onto individual brokerage firms and then eventually

trickling down to retail investors. And I don't think that part of it's fair. Thanks, Tom. So, Danny, do you have a prescription here? Is there something you want to see that you think could equip retail investors with, you've mentioned possibly, you know, needing some kind of certification to trade options? I mean, give us an idea of how we come out of this debate with something positive to take away. Well, certainly the government. I will never account on them for being ahead of the game on anything, pretty much anything. But certainly as it goes to trading, they were behind the curve for the global financial crisis. They didn't appreciate the risk that was inherent in the system.

They was sitting on the balance sheets of some of these large banks. When the flash crash occurred, they, you know, were late to the game and understanding the plumbing of the market. They were getting information from some of the wrong places. They blamed it on a trader out of London, basically the flash crash. That obviously it's a lot deeper than that. It goes deep into the plumbing. what I'm concerned about is that we get something like a trading tax or a transaction tax or something that, to Tom's point, would inhibit or make it, you know, trading more expensive for the retail investor or for anyone for that matter. That's not going to help the case.

What they need to really take a step back here and understand is to go back through the plumbing of trading in and of itself. To Tom's point, there are many efficiencies that can still be improved with technology, but at the same time, I think we need a lot more transparency than what's out there. So there's something called an SRO, right? And SROs in trading really refer to the exchanges and to FINRA self-regulated organizations here. And I think they have too much power. And I think that it's too much of an oligopoly there. There's not enough regulation in that particular area. So I think we need more transparency.

I'm not for taking away the ability to trade. I wish there was a better way. You know, the KYC requirements, know your customer requirements type things. When you check the box, you check the box. It's really up to every single invest. to understand the risk that they're taking. And even if you can check a box that you probably shouldn't so that it vindicates any of these platforms and you're okay to trade, you're doing yourself a disservice. So I do think actually when it comes to options, I do think there should be an

additional requirement of some kind, even if you made someone watch a 30 minute tutorial on options to be able to trade it for their own benefit, they should be watching something like that. So I'm always concerned we get too much regulation as an overreach on the other end and we'll see what happens here. Thanks, Danny. Well, let's go to closing statements. Really a terrific debate, guys. So, Tom, we're going to put two minutes on the clock. This is your opportunity to kind of wrap up this debate. What key arguments do you want to leave our listeners with? Which of any of Danny's points do you want to take your pencil out and put a line through? This is your opportunity. Well, I mean, it was a fun debate, and it was a great discussion. And I, you know, it's funny, we're not that far off on

different sides of the spectrum here because we're both very supportive of, you know, obviously the industry that we're in. So I think what we saw with GameStop was a situation that we probably needed to have happen in order to, A, wake everybody up, but it also show everybody how fast the markets can normalize and how really efficient they are. It generally woke everybody in the industry up. There was a lot of complacent shorts out there. They got spanked, and they got a little bit of a lesson. And now not only did the institutional side of the business wake up, but the retail side woke up and an entire generation is now engaged.

And I keep going back to that because that is the single most important takeaway of this. I know some people lost money and I know we shook up a complacent market. But in the end, did we just build the foundation for a new layer of free markets, for improved market structure, and potentially for an entire blast off? of a generation from an entrepreneurial side, you took one of the most risk-averse generations, one of the least participating generations, and almost overnight, engaged the entire generation.

I think it's fascinating. I also think it's great. Thanks, Tom. Great summing up. Danny, we're going to give you the last word in this debate. Two minutes on the clock. This is your opportunity to bring us home. Yeah, listen, it's been completely fascinating.

I agree with Tom. This has been something to behold. like I said before, I think the underappreciation of the retail investor was key to all of this. And I think the institutions that underappreciated paid the price. And I think there's a group of investors out there that want their voice to be heard on the retail side. I totally get it. I'm concerned that this experience will be very expensive for them. I'm concerned that they'll lay blame on areas other than looking at themselves on taking these type of risks.

I think there is going to be a middle ground here where once the dust settles here, Hopefully we don't get too much regulation and we get a more democratized sharing of information out there. I hope there's a day where the retail investor can have access to all the research and technology that the institutional investor has. And I think the institutional investor can learn a lot from retail. I think the retail investor can a lot from the institutions. And I think if you go back and look on who made the money here, there was mostly losers

here. I would say if you had 100 people in a room, there was 96 losers if you aggregate retail and institutional. The four winners, I think it's easy to see. It was the Citadels. It was the Virtues. It was a two-sing business. It was people that were providing money market-making capabilities in a very volatile environment. And yes, they were there to provide liquidity and to make markets, but I believe at the expense of the retail investor. So, you know, I think this is a wake-up call. I really hope that the retail investor is not completely turned off. This average age, like I said, being 31 years old, has lived through as a kid. The global financial crisis, it makes them

not want to own a home. I think being home with COVID has given them the ability, like I said, to have a draft King's account, a Coinbase account, and a Robin Hood account. And I really am worried about the gamification of when it comes to the stock market, because over a long period of time, you may have some winners, but at the end of the day, you're going to lose to the house, certainly as it relates to the stock market and trying to game it. Well, Danny, Tom, we're all the winners for this conversation. You guys have brought just a lifetime of experience and insight. you've explained these complex issues and ways that, hey, even I could understand. So I know on behalf of the Monk Debates community, I want to thank you both for coming on the show today and having this debate with us.

Roger, thank you. And Tom was great meeting. You really enjoyed the debate. Yes, same, Danny. Nice to meet you. And thanks, Roger. That was great. Well, that wraps up today's debate.

I want to thank our participants, Tom Sosnoff and Danny Moses. They certainly gave me a lot to think about. I hope they did the same for you too. If you have any questions or reflections on what you've just heard, send us an email to podcast at monkdebates.com and MUNK DebateswithanS.com. Here's some listener comments that have come in over the last week or so. Pauline writes, I look forward to your upcoming debate on nuclear energy. There's so much knee-jerk, unwarranted fear around nuclear power.

I can't see getting greenhouse gases under control without nuclear in the mix. Many thanks. Enjoy these debates. Well, thank you, Pauline, and stay tuned for that debate, which features the former chair of the U.S. Nuclear Regulatory Commission. It's coming up soon. Alina writes us with some feedback on my recent podcast interview with Barry Weiss. That's part of our ongoing Monk Dialogue series. Alina comments, I came away from the interview with Barry Weiss disappointed. The problems we face, including on campuses and immediate outlets, that Barry Weiss disparages, represent deep fissures and rifts that could destroy us in worse ways than your discussion suggested.

You had an opportunity and the platform to discuss these larger issues that are at play, both on the left and the right. Instead, you contented yourself with sniping at one side and feeding into the worst of our times. It's always great to have criticism as well as praise. It helps make our work better here at the Monk Debates. And finally, we have a great debate idea from Dillop. He says, I would love to see a debate revisiting the old-aged controversy on free will, but through the modern lens of neuroscience and artificial intelligence. This might cast a new shade on this perennial question.

Hey, thanks, that's a great debate idea. We'll get working on it. Hopefully bring you something in the next couple of months. As always, we love to hear your opinions on the monk debates and how they've affected your thinking about the big issues of our time. send us an email at podcast at monkdebates.com. The monk debates is that special place for civil and substantive discussion on the big issues of the day. To listen to more debates on everything from climate change to religion to geopolitics to the

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