A Conversation With Robert Greifeld

Robert Greifeld discusses how the recent and upcoming elections in France, Germany, and the United States might affect trade, markets, and the future of globalization.

The Bernard L. Schwartz Lecture on Business and Foreign Policy was established in 2002 and is funded by Bernard L. Schwartz, retired chairman and chief executive officer of Loral Space and Communications. The lecture focuses on the relationship between business and government in foreign policy.

The CEO Speaker Series is one way that CFR seeks to integrate perspectives from the business community into ongoing dialogues on pressing policy issues.

MICKLETHWAIT: Thank you. Thank you all very much for coming. I’m John Micklethwait from Bloomberg, and welcome to today’s Council on Foreign Relations Bernard L. Schwartz Lecture on Business and Foreign Policy with Bob Greifeld, CEO of Nasdaq.

The first person we have to thank particularly is Bernard Schwartz, who we’ve both just been having cups of coffee with, who’s the retired chairman and chief executive officer of Loral Space & Communications. And it’s thanks to his generous support that this happens.

And this meeting is part of the CFR’s CEO Speaker Series, which hosts leading global CEOs, like Bob, to share their insights on issues on things that are right at the center of commerce and foreign policy, and to speak to the world and the international community.

I’m not going to give a long intro for Bob Greifeld. I will simply say that his history before becoming head of Nasdaq was largely as a geek, I think—(laughter)—a software entrepreneur. He took it over in 2003, and since then I think it’s appropriate that he came from that background and that actually he’s being succeeded by a woman who’s also from that background, because the story of Nasdaq over that period has been really ones of both technology and globalization, with streams of things—people being changes in many, many different ways, and him having to make quite a lot of takeovers during it. And Nasdaq, for the record, now owns and operates 26 markets, one clearinghouse, and five central securities depositories—and that doesn’t include the 80 ones who also run the software that he makes.

So we’re going to begin with Nasdaq. I should probably declare that, because I work for Bloomberg, in some points the company I work for is a customer of Nasdaq, in other times a competitor. All I can say: that, very fortunately for Mike Bloomberg, I’m not in charge of the bits that compete. (Laughter.) Which might explain why they sometimes do reasonably well.

Let’s begin with technology, because actually we were talking about it earlier. You know, you have sat and watched this. You’ve worked in this industry where you probably have seen more technology change things more rapidly. When you look at the world coming up, you look at all this talk about automation, you look at all these ways in which jobs are being pushed out, you know, what can we learn from what you’ve seen at Nasdaq over that period?

GREIFELD: Well, that’s a great question.

So, one, thank you, Bernard, and thank you, everybody, for allowing me to be here today.

So, when you think about Nasdaq’s heritage, you know, we used technology—computers and communication technology—to basically obviate the need for a trading floor and those who came to work on a trading floor every day. Now, those jobs were displaced, but they surfaced in other areas away from the floor. And that’s been the history of technology, right? Technology has disrupted, but then the world has moved on and figured out whole new professions that became, I think, more valuable.

But to many of us, it seems like we’re on the cusp of an era where the pace of technology change, it’ll be so rapid and so pervasive it’s hard for us to imagine the ability for new industries—for jobs, new jobs to spring up in that short a period of time. So—

MICKLETHWAIT: But do you think there’s a—do you think the problem is there’s a delay, basically—the magic of capitalism is working, that technology in the end will create jobs, but—

GREIFELD: That has been the case. And then, as you get older, sometimes you become less optimistic, so maybe it’s a function of me getting older. But when you think about it, the simple example is, you know, self-driving cars are essentially a reality—a reality whether it’s one, two, three, four, five years from now. They’re here. And if you look at the trucking industry and the people associated with that, there’s about 10 million jobs, right? So, to the extent that this changes in the next five years, that’s a lot of displacement in a short period of time.

You also have, and somewhat more interesting, you have computing technology evolving to the point where you’re seeing robots developing manual dexterity equal to what we have. And when that happens, then there’s a whole nother class of jobs that are threatened by the coming advances in, you know, machine learning, AI, big data, and automation.

So I always found it interesting that I think, you know, President-elect Trump was onto a proper issue with respect to some of the downside of the trade deals and the fact that jobs, you know, have somewhat left the country. That’s an issue. But the larger issue, to me, by far is what technology will do in the next decade.

MICKLETHWAIT: Can I press you on technology and finance? We live in an era of blockchain, of dark pools, of all these strange new things. People worry that technology, rather than making it safer, is actually making it more risky. Where do you stand on that?

GREIFELD: Well, you can tell that it’s not marketing people coming up with the names, such as blockchain or dark pools. They sound somewhat ominous. But you’re going to see fundamental change.

You know, blockchain technology, to me, allows us to get back to a bilateral world. And what we have in the exchange world is the myth that all exchanges were founded in coffee houses, and back where you come from—

MICKLETHWAIT: Yes, by British people. Yeah.

GREIFELD: Yeah, from—and it has an element of truth. The London Stock Exchange was formed in coffee houses. And what happened is, if I was doing a deal with you in the coffee house, we had trust between each other. But once the exchange got beyond the coffee house, we had to introduce trusted third parties in the middle—clearance, settlement, CSD-type infrastructure—so I could trade with you without knowing you and without having to trust you directly, but have trust in the clearinghouse.

The blockchain allows us to get back to those coffee house days through technology, where you and I can trade with each other without a trusted intermediary. And this trusted intermediary is a huge infrastructure in the world today. So that can basically go away in time, and technology—through blockchain and the security associated with that—will allow me to trust you.

MICKLETHWAIT: Where does that leave the exchange? Because under—if originally exchanges came up to answer that problem of the coffee house, if you’re now—if we’re now back to dealing directly, where does that leave places like—

GREIFELD: Well, I think you’re going to see for the next several decades the focus will be on the post-trade environment. So, today, blockchain has limitations in transactions per second it can handle. But that—what I equated here is the settlement and clearance in the U.S. takes three days. So the blockchain maybe can handle six transactions a second. That can easily compete with three days, and is ready to do that today.

In the equity trading world today, we operate in microseconds. I remember now probably eight years ago when we broke the millisecond barrier. So now we’re down to 30 microseconds. So the blockchain is, you know, decades away from thinking in those kind of terms.

But on the trading side, you’ll see the blockchain, I think, within a decade be quite effective with replacing the over-the-counter, low-volume trading that happens in the fixed-income or the derivatives market. But if you have things like Apple, which trades, you know, so actively, that would not be kind of, you know, something the blockchain will think about for a long period of time.

MICKLETHWAIT: Back to my sort of general question, though, is that for people—the sort of layman looking at it—we live in the era of flash boys, of this sort of change, and often in fiction and things it’s depicted as much more risky. Do you think that’s true, or not? I mean, you’ve sat through all these regulations and seen all this technology. Do you think it’s ended up as a safer industry than when—back in 2003?

GREIFELD: Well, it’s night and day in terms of what’s transpired.

MICKLETHWAIT: Night may not be a good—

GREIFELD: (Chuckles.) No.

MICKLETHWAIT: Might not be a good place to be. (Laughter.)

GREIFELD: No, no, no.

So I think what you see is, you know, one, for the investor, the cost of trading has come down by over 90 percent, and that’s the explicit cost of the commission, included the implicit cost of the bid-offer spread involved with the trade. So we feel very good about that.

I think you could make the general statement that the future of the way the equity world should work here in the U.S. was envisioned by economists and lawyers sitting in conference rooms in Washington, D.C. And whether you like the structure or not, you know, it was—represents an advance. But what was missing there is the infrastructure to support it.

So when you look at the flash crash, there were no rules of the road with respect to—in this distributed competing world, where it had all these different execution venues, there was no rules of the road of who played what cop, when, and where, and how. So that’s been put in place since then. And, you know, that’s one example, but there’s been a number of examples where there’s not enough time spent on the what I used to call design to manufacturability.

So we had the lawyers design the system, the economists to design the system, but the people actually having to build the car in the plant weren’t in the room. So now the technologists and the infrastructure people had their say, so we’ve got a high degree of resiliency left with a quite hyper-efficient marketplace today.

MICKLETHWAIT: Is there any things you’d like to change in that? I mean, now you’re, as I said, come to the end of your term. If you looked at—if you looked at the way—particularly the way that technology has been speeding things up, are there are areas where you’d like to put speed bumps in? Are there areas where you would try to slow it down? Or do you think that speed is a route to cheapness and to value for people?

GREIFELD: Well, of course there’s things we want to change. And what I always like to say is the right answer today is not the right answer tomorrow.

So, getting into the details, Reg NMS has been in place for over a decade without any major revision, so I think it’s certainly time for us to think about where we need to move forward with that.

In terms of the question of speed, it has, I think, reached somewhat of a natural end as a relative competitive advantage. Our job is—running the exchange is to make sure we provide fair access. So, in our data center, we have our customers co-located with us. And if you are five meters from the central matching engine, you get a long cable. If you are 100 meters from the central matching engine, then you get a short cable. So we have fairness of access down to two-billionths of a second, and that’s faster than, you know, we need in terms of ultimate fairness.

Now, the people on the other side of that wall, five or six years ago, there was a big difference in their technological capability. So it was a capitalistic arms race, and some spent more than others. What’s interesting is that advantage that was quite pronounced from what we could tell five or seven years ago has essentially been competed out of existence, where if you wanted to be in that game today you could go to a vendor and buy solutions for fast access to the market. So, seven years ago, you had a bunch of whiz kids from MIT in the room developing this, and they only had it. And I think that was fair, and that’s, you know, capitalism, but now it’s been quite commoditized. You know, so the speed has been commoditized in the market.

MICKLETHWAIT: Is America still at the forefront of this, or is it—or is it—in terms of—particularly on the speed angle, is it quicker in America than anywhere else, or is it—

GREIFELD: Yeah. Yeah, it’s a whole different world here in the States. We have the largest, deepest liquidity marketplace today. You have variations of it. So we run, obviously, markets in Europe, and it matters but not to the same extent.

But what—getting back to your question, I think there should be other dimensions of competition besides speed. And Reg NMS said that you had to be electronically accessible, and you ranked orders by price/time. And we had come out with an exchange where you ranked them by price/size, and I thought it was brilliant, absolutely brilliant. And we went around to the buy side, who was complaining about speed, and we said, OK, now all you have to do is come in with a larger order and you can be slower by a millisecond, a day, a week, a month, you go to the front of the queue. And we spent a good bit of time, effort, and money putting that system out there, and then nobody came to the party. It’s only when you think you have a brilliant concept, you know, you’re, ah, it’s not going to work there. So as much as should—there should be other dimensions than speed, the customers have to go along with it.

Now we’re back at it, and we just filed with the SEC last week what we call ELO, and this is Extended Life Order. So it says that if you are willing to commit your order to be in the market for a second—for one second, which in our world today is a long period of time—you will also go to the front of the queue. So I think this is brilliant also, that kind of thing. So this is a—

MICKLETHWAIT: And this time will it be the sale side or the buy side who stops it?

GREIFELD: Well, it’s a question of who picks it up. I think our initial target is retail, for them to use this order type because, one, the vast majority, if not all their orders are resting for a second anyway, so they have an added advantage of not having to do anything.

So I think your general question is, you’ve seen a period of time where the exchanges competed on speed as a function of the rule set. I’d like to see other dimensions. We tried it five years ago. We’re back at the well here now with the Extended Life Order. I have high hopes for it, you know, changing the nature of how we go.

MICKLETHWAIT: Getting back to the first thing we talked about, automation and things, will it ultimately end up with very, very few people working in exchanges, and it all being done by computers?

GREIFELD: I think you can say that’s happened already. When you think about the number of people employed per share that got traded—I don’t have those stats available, but I should come up with them. You know, back in the day, when you had trading floors and lots of physical Nasdaq market makers, we were doing, you know, 100 million shares per day. I mean, today, on a slow day, we do 5 billion, and we could do 10 billion shares. So the number of people per share traded has gone down dramatically as the result of automation.

MICKLETHWAIT: That kind of volume is, I suppose, what worries you. Is your panic that something goes wrong with the technology, or is it a rogue person getting in somewhere? What’s the—what’s the—

GREIFELD: I’d put that all together in the same category, so anything related to technology. And we have the special privilege of worrying about 80-something exchanges around the world who use our technology in addition to our own use of it, so there’s no limit to manner of issues that can happen with respect to technology. Cyber is obviously something we’ve spent a lot of time on, and cyber is one where you win 999,000, but then if you lose one—yeah, all we have to do is lose one battle. So we win time and time again, but it still comes.

MICKLETHWAIT: It’s like the IRA to Margaret Thatcher, when they said you’ve been lucky once.

GREIFELD: Exactly.

MICKLETHWAIT: We only have to be lucky.

How does—how does—you now have this—rather unfortunate jump from terrorism to Donald Trump. You now have the arrival of Donald Trump, who’s come in, as you know—you mentioned Reg NMS, which is a particular bit of securities legislation. His main advisor on this seems to be Paul Atkins, who opposed this at the beginning. You know, what—if, in fact—what should finance expect from Donald Trump? You know, first on that, and then we’ll come back to Dodd-Frank and the wider picture.

GREIFELD: Well, I would predict this, and it’s just a prediction, that you’ll see—under the Trump regime you’ll have a period of refinement of regulation, but not wholesale replacement. So, when you think about Reg NMS or you think about Dodd-Frank, there is a myriad of areas where they need to be improved, parts of it dropped. And, you know, hopefully we see that kind of action. But I don’t think you’ll see a wholesale replacement of any of these actions.

MICKLETHWAIT: Is there a particular thing on Reg NMS which you’d want to get rid of if you could?

GREIFELD: Well, I think the ability, you know, to compete on other dimensions besides speed would be the biggest thing. And so the SEC has been moving towards that, but they’re doing it not in a policy way but really kind of as a one-off. So we’d like to have that thought of in a more comprehensive way.

MICKLETHWAIT: What about Dodd-Frank? I mean, here is this law which—I think when I was at The Economist we managed to work out that we thought only two people had ever read it. One was one of our journalists who was a masochist, and the other was, we guessed, someone in Beijing, in the Chinese government. (Laughter.) But nobody—I don’t know anyone who’s read more than about five pages of the way through.

GREIFELD: Well, they—well, there are people who have done that. And the thing is, the criticism of Dodd-Frank—it was 1,200 pages, but that was—

MICKLETHWAIT: Plus footnotes.

GREIFELD: But that was the—that’s the blueprint. That is the blueprint coming out of Congress. The actual rules that are written by the SEC, the CFTC, and others are, you know, multitudes of that, so there’s tens of thousands of pages written on that. So I think that’s where, you know, there needs to be thought-out action. There are major parts of Dodd-Frank that should really go under the scalpel and be replaced, and there’s other parts of it I think are accepted practice right now that I think people in the industry would also find suitable to keep it the way it is.

MICKLETHWAIT: Do you think there’s an element whereby the big banks and big securities houses have just got used—they’ve come round to dealing with it, and actually changing it now would be more of a hassle than it’s worth?

GREIFELD: Well, the answer is yes and no. I mean, you know, what worries us is what is—not so much in the equity market, but when you get into some of the fixed-income and more of the markets where the banks traditionally have used their balance sheets. I think we have to rethink that. And, you know—and we saw some small indication of a fracture with the Treasury market, you know, about a year or so ago. But if you take an honest polling of the banks, and we see it, you just don’t have the balance-sheet support for the fixed-income markets like you had before. So that’s like this latent issue that’s out there. So if Dodd-Frank can be structured where the banks can provide support into those markets and use their balance sheets, that would be a good thing.

MICKLETHWAIT: Do you think, if you were a layman here or laywoman, and you looked—you looked at what happened to finance post the—post the crunch, do you think that overall the regulation has made it—the balance between safety and efficiency has been struck in the right area, or is it—or is it—or is there just too much regulation?

GREIFELD: Well, I would say, coming out of the great credit crisis, we need somebody to speak up for the necessary purpose of large banks, right? They are not inherently evil, and inherently are an important part of our economy. So we’ve lived through the past eight years where this has been—you know, if you’re Wall Street, you’re a big bank, you might as well throw everybody out of the temple. So I’d like to see that tone change under, you know, President-elect Trump. There’s just no doubt about that, and banks are an important cog of everything we do.

And what was your question again? (Laughter.)

MICKLETHWAIT: Whether actually—whether over the course of that period—you know, you’ve now had a reasonable time to look at it. You know, whether actually the consumer, the financial consumer, in the end is worse off because of all the regulation, or better off?

GREIFELD: Well, I would say my direct experience is what I’ve said before. I have great trepidation of the soundness and safety of some of the fixed-income markets that have definitely—are in a more tenuous position than they were before the credit crisis. And that has been, you know, kind of an off-balance sheet liability that we haven’t seen the downside of, except for those of us on the inside. On the consumer side, we don’t get directly involved with that. And obviously the Consumer Financial Protection Bureau is a hot-button topic. And I would definitely be of the position that the person in charge of that agency right now seems to be all powerful and answers to no one. And that is, I think, anathema to our system. So I’d like to see—you know, I would definitely recommend that that agency get in line with more the structure of the SEC or the CFTC.

MICKLETHWAIT: Trump could be the—especially through Mr. Atkins, do you think he could be the end towards ever-faster trading? I mean, Atkins voted against Regulation NMS.

GREIFELD: Well, I think Atkins came out—and I don’t want to speak for him, and it’s a long time ago now—and I’ll say, before I answer your question, I’d say this much. I would hope, again—and I believe this will be the case—that we look not so much to the past, but refinement of what we have today and improvement of what we have today. So for the equity markets to totally walk away from Reg NMS I think would be mistaken. But it’s also a mistake not to improve upon it, that kind of thing. So that would be my hope. You know, that under—and I’m optimistic that under President Trump or, you know, Paul Atkins, we’d be in a positive way there, because the industry has adapted to it and it’s done good things to it.

So I think Paul Atkins, if I could back because it’s now 10 years ago, his objection was that in the Nasdaq market in particular people did not trade through each other, if you were electronically accessible. And we did not have to have the hand of government write this hard and fast rule that would do that, because the markets were taking care of it. The outlier at the time was the New York Stock Exchange, because orders would go to the floor and then it would take—it wasn’t electronically accessible, and people would trade through that. And my position would be that New York would have adopted anyway, because people would start ignoring them more and more. So I think we could have got to a similar situation without the heavy hand of government being involved with it.

So I was probably mostly in agreement with Commissioner Atkins at the time. But the fact is it got passed. It got passed on a 3-2. He voted against it. Cynthia Glassman voted against it. But it’s here now. The world’s moved on. And let’s refine it.

MICKLETHWAIT: What about—the other big thing which struck me about finance throughout the period you’ve been doing it, you’ve had this push of technology, but the issue is of regulation, globalization. At the moment, there’s quite a lot of evidence of finance, having been in one way the most global of industries, is now perhaps becoming less global. I mean, you couldn’t—you have exchanges in America and Europe, but you couldn’t buy one in China. There’s a whole series of things that stand as barriers in your way.

GREIFELD: So, one is I agree with the premise that financial services is the most globalized of our industries. Caveat, the equity markets tend to be more local than other financial markets and the companies tend to list where their domiciled. But it’s important to recognize that if we have one of our companies listed in Sweden and you’re sitting in Boston, you can get to the Swedish market in milliseconds anyway. And if you go to the commodities market, the fixed-income markets, they are essentially global markets at this point in time.

You reference—you know, with respect to trade agreements certainly it’s easier for us to buy—or be involved with Western world mergers and acquisitions than it is in Asia. So there’s not a balanced view with respect to transactional activities.

MICKLETHWAIT: But it’s not just you. It’s banks as well. Banks—you look at what’s happening, say, in Italy at the moment. In another industry, you might expect a big American company to come in and buy the—and tidy up the industry. But that is impossible at the moment.

GREIFELD: And it’s been impossible for a long period of time. So your point is that the financial world itself is globalized, but the owners of the financial assets have some country restrictions in terms of what can happen. And so we acquired the Nordic exchanges. And they properly had a fit and proper test. And the regulator had to sign off on the corporate structure we were setting up. The regulator wanted to make sure that the local exchange board had some degree of autonomy. And we passed those hurdles and we were allowed to do that transaction. And so that was a rational, thought-out process and series of regulations they have. You don’t have that in other parts of the world.

MICKLETHWAIT: That would be my point, is that back then you buying—you buying a Swedish exchange was seen as a sort of normal development in global finance. Now you have the possibility if the London Stock Exchange and Deutsche both merge, even if that goes through, that that might be the last one for some time.

GREIFELD: I don’t see it that way. I see it—in the developed world, I think the transactions are still quite possible. Not without hurdles, for sure, but still quite possible. And I think if you go to other parts of the world, they weren’t possible then and they’re not possible now. So I think, you know, the last eight years hasn’t changed that dynamic too much.

MICKLETHWAIT: If you had to look forward another kind of 10, 15 years, and you looked forward to see how finance looks then, is it—is it—would it be a more globally integrated system? How will it change?

GREIFELD: You should answer that question, you know? (Laughter.) But I—

MICKLETHWAIT: People trust—people trust you.

GREIFELD: Yeah, no, I think—I think there—it’s integrated today. And I believe, in spite of what we talk about, it will become more integrated in the time to come. You know, money moves, especially alternative—you know, digital currencies will become a certain factor of life in the next decade also. And that, you know, will be a stateless affair. So I would definitely be on the side of more integration.

MICKLETHWAIT: Bitcoin and its descendants.

GREIFELD: Yeah.

MICKLETHWAIT: And how will that change your life?

GREIFELD: Well, it’s always opportunity, right? So in terms of—we’ve been successful at Nasdaq because—and you’ve been successful at Bloomberg, by recognizing, as I said, what’s right today is wrong tomorrow. And every time there’s a stimulus you have to have a response and it, you know, represents fundamental opportunity. So we’re focused more on the blockchain than Bitcoin today, but we understand Bitcoin will be—or, as you say, some of its descendants—will be an important part of the world going forward. So we’re not so much thinking about the payments world today, but recognize that that’s going to be real.

MICKLETHWAIT: Could you ever see a series of big global exchanges, maybe two or three around the world, which try and suck everything in, or not?

GREIFELD: Well, I’d say this. You were a transactions processing company. And we spent a lot of money building the plant. And then the marginal costs of processing the next widget in that plant approaches zero. And you know these economics. So we have in our data center in the U.S. the ability to process every single equity trade in the world probably two or three times over. In our data center in Europe, we could process every equity trend in Europe several times over. So you have this massive capacity, and nothing to do with finance, just transaction processing that creates the economic underpinning for thinking about what deals you may want to do.

Now, that theoretical approach then is mitigated by the fact that you have, as you’re getting at, and you’ve always had—so it’s not new recently—but you’ve always had, you know, regulatory issues you had to deal with, you have governmental issues you have to deal with, exchanges—equity exchanges in particular, more so than derivatives, are akin to the flag and an airline, right? So people want in some emotional way to own and control their equity exchange. So I’m saying that the world we’ve lived in has not changed, right? When I went overseas to talk to other exchanges 10 years ago, you had the same issues you have today. And in the developed world, you can work through them, but you have to work through them. So you have to pick your spots.

MICKLETHWAIT: I’m going to end with a parochial question and then throw it open to questions. But Brexit, the sort of big debate in Europe at the moment is if London loses the right to be the kind of clearing center on the euro side. A lot of people now think that business will come to New York, rather than necessarily going to Frankfurt or Paris. What do you—what happens to London?

GREIFELD: Well, I wrote an op-ed soon after the Brexit vote. And to me, it was interesting in that I had been in Australia, New Zealand, and Hong Kong a couple weeks before the Brexit vote. And they were salivating for the ability to, from their point of view, reimagining trading relationships that had been temporarily disrupted by the EU, right, when you think about it, because they had trading relationships going back thousands of years. So I believe that the U.K. and London in particular will continue to thrive in a post-Brexit world, and will find a strong place. And they can reimagine trading partners, but it’s also important to realize that Europe needs the U.K., right? This goes back and forth.

MICKLETHWAIT: What do you see as the main—if you have New York, you still have London, where do you see as the main Asian financial hub? Which one is best placed?

GREIFELD: Well, that will change in time. And so, you know, Singapore has been a great gateway. I think, you know, strategically over, you know, 10 or 20 years. I think that has certain issues associated with it. Hong Kong has been a great financial hub, but people are I think realizing Hong Kong is, in fact, part of China, and that becomes more apparent every day. And that would lead you to think of Shanghai and Shenzhen coming forward. So I think it’s going to be, you know, Shanghai, Shenzhen, Hong Kong, in that kind of order.

MICKLETHWAIT: Thank you.

We throw it open now to questions from the floor. All I ask is that you identify yourself, and you say what the—and you try to keep it to a very brief question. There’s a man there who has his hand up. There, yeah, with the glasses.

Q: Tom Mahoney from Tangent Capital Partners.

Bob, could you tell us a little bit about the Nasdaq Private Market? You’ve confined your remarks here, based on the Q&A, to the public sphere. You’ve bought, you know, SharesPost, SecondMarket, an interesting private company trading platform. Where does it go from here? How do you envision the future? Does it have global implications? Could it be as important as the public aspect of the business at some point?

GREIFELD: I think so. So JOBS Act was passed. And it came like manna from heaven. And it was bipartisan and it was probusiness, the only thing we’ve seen in a while. And it said that you could stay private with up to 2,000 shareholders, and employees did not count towards that number. So before that, if you hit 500 shareholders, you had to go public. And I remember we went to the public ceremony for Google. And they were not excited. They said, we did this because we had to do it. I think it’s worked out well for them, but—(laughter)—that kind of thing.

So we said that’s, you know, stimulus. We should respond to it. And also, you had more companies wanting to stay private longer. But if you stay private longer, that doesn’t mean you don’t need liquidity for early-stage investors or employees. So we set up Nasdaq Private Market and said, one, we’ll count to 2,000 for you, right, cap table management, make sure you don’t go over that number. And then we’ll run liquidity events when you want for employees or early-stage investors, or new investors to come in.

So I think it’s fundamental to the future. We’ve done 144 different liquidity events—for 144 different companies, I should say. More liquidity events than that. And so I think we—you know, from a business goal perspective, if anybody should cannibalize the public market, it should be those who operate it. So I don’t think that we’ll ever do that, but you’ll see companies can stay private longer. And I would say, when you go public, you have to recognize you’re facing an endless series of quarters. And you should have a fairly mature business model to do that.

So the backlog on NPM is extraordinary. It’s only been in place for a couple years. And if you think about the different unicorns, we’re not going to name them, but the vast majority if not all of them have used NPM in some fashion at this point in time. And we’re also attracting great overseas interest. You’ve seen probably 10 percent of the user base has been coming from overseas. So it gives a company the ability to manage their shareholder base, offer liquidity when they want, and they can control who their shareholders are, in a way, which you cannot do in the public market.

And the simple equation to me is that the public market has an equal access standard that gives you the most efficient market, the highest liquidity. Every time you restrict investors, then you are going to suffer some diminishment of liquidity, and some sacrifice in terms of the quality of price discovery. And as long as you recognize that, you pick where you want to be on that curve.

MICKLETHWAIT: Very quickly, as an ancillary one, if you—if you—the time you’ve been the head of Nasdaq has also coincided with this period where people—a lot of people now think it is better to be a private company than a public company.

GREIFELD: That’s not entirely true. I mean, you know, this has been not a great year for IPOs. But we have had 85 companies come public on Nasdaq so far this year. So we’ll probably end up in and around 100 for the year. And what’s good about the companies this year is they’ve been high quality. The average price appreciation since it came is 43 percent. So there is still a strong desire to come public. And it’s just a question of when are you ready to do that.

MICKLETHWAIT: This one here. Gentleman there.

Q: Andrew Gundlach, First Eagle Investment Management.

The Swiss have a court case going on, I think it’s at the constitutional level by now, that would in effect separate the trading of securities from distribution charges and others, put retrocession away. It should pass. The question that comes from that is the trading world is clearly going execution only, which will help you. But what about the research world? How do you see research being distributed and paid for in the—in the world that you see coming, technology-based? The U.S. might end up being behind, say, Switzerland, in the sense that you can still put in a telephone order and, you know, pay for your research and all this other stuff as though it were 20 years ago. So I’m just curious where you see that business going.

GREIFELD: All right. So I’ll take a second and describe another thought we had, which I thought was brilliant that didn’t work out. (Laughter.) So, you know, we have—when you look at the Nasdaq companies today, obviously Apple probably has more research analysts than they need and liquidities outstanding. So the top 100 companies, top 200 companies, it’s a wonderful world for them. But you go down the market cap curve, then you have liquidity issues and coverage issues. And that has certainly been one part of the market I think has regressed over the last 20 years.

So we said, why don’t we—and what we do in the Nordics, to say where we got the thought from. In the Nordics, in our developmental market called First North, the companies can pay for people to cover them. And that works, I think, quite well. So what we did here in the States, we set up a research network where the companies would pay us as the honest broker, they’d have to sign up for three years, and they would get research coverage from known independent research providers. And, you know, we had a lot of happy meetings, the company wanted to do it.

So you’re sitting there, public company, limited liquidity, no research. You write the check, it’s got to go to a third party—such as us, we partnered with Reuters on this for the distribution—and then you have, you know, the ability to create a positive reinforcement cycle. Brilliant, right? (Laughter.) And you know what’s worse than having zero customers? Having, like, five. (Laughter.) So we had, like, five customers. So then it took us a while to work out of it. So everybody wanted it, but then they didn’t want to pay for it.

So research is an enduring issue. You’re getting to a different part of it, which is—I’m not a content expert on that. But how do you have—you know, where do you go from the sixth sense shared bundled services to execution only and direct pay for research? And I think in the—and you can listen to a lot of people say they want to completely separate it out. But then if you go to the banks, you know, they have a lot of different touchpoints with the customers, and somehow it still gets re-bundled.

So I don’t have an answer to your question, but I think at the end of the day different people will chose different options. Some people will have pure execution only and pay for research, you know, separately. And others prefer to have a bundled relationship with their banks. And I think in the U.S., you’ll see that as the dominant way to go. I think the U.K. is also further along with the—than the U.S. in terms of having separated the two out. Is that—

MICKLETHWAIT: Yes. I think people are being pushed to push research out.

GREIFELD: Yes. Was that the Myner Report, I think?

MICKLETHWAIT: Yes.

GREIFELD: Yeah, the Myner Report. So I think—

MICKLETHWAIT: I think. I’m not—

GREIFELD: What’s that?

MICKLETHWAIT: I think. I’m not—

GREIFELD: I think so too. We both think it’s the Myner Report.

So, yes, I agree with you, Europe is further along with the saying we want to be ideologically pure and have execution separate here. I think in the U.S. you’re going to have kind of a choice for a period of time.

Q: John Romeo, Oliver Wyman.

Bob, you touched on some concerns around the fixed income market structure and some of the—you touched on some of the concerns around fixed income market structure and some of the liquidity challenges with players changing. Now Nasdaq’s playing a much more active role in fixed income over the last few years. The buy-side is trying to shape the market structure a little bit more. How do you see that playing out in the coming years?

GREIFELD: Yeah. Well, obviously we don’t know where the regulation will go. But our primary asset in fixed income is in U.S. Treasurys through eSpeed. And there has been, to set the stage, a complete change with respect to the nature of that market and the amount of large bank dealer support for that marketplace. And the capital charges they get for keeping that inventory on the balance sheet is quite high. So it would be our hope that, you know, under President-elect Trump they have that part of the regulation allows the banks to hold the inventory in fixed income, somewhat akin to what they did before, without excessive capital charges.

So to the extent that happens, then I think you will reverse the trendline that we have today. And that goes also for over the counter derivatives and other instruments. So I’m definitely sounding a, you know, concern that the market while it has functioned is quite thin and would not have any buffer to absorb bad news in the way it is today. So direct answer to your question is we hope that there’s regulatory changes that reverse that trendline. And I’m reasonably optimistic that that will happen.

MICKLETHWAIT: You think there’s been a shift of power over the time you’ve been here between the sell-side and the buy-side, is the—perhaps when you started buy-side they were the, you know, masters of the universe. To be a bond salesman was the highest known calling to man. And now the heroes of finance are the fund managers.

GREIFELD: Well, you see on the sell-side that the equity folks now are frequently running fixed income because they think the fixed income world will become more and more equity-like under the current rule structure. But it’s important to recognize that equities in fixed income and the liquidity characteristics are different, right? Outside of U.S. Treasurys you’re not going to have fixed incomes of trade-like equity. And the intermediation is a fundamental requirement in fixed income, which is not as fundamental in equity. So equities went from a market-maker-centric world to an all-for-all market. But these are very liquid instruments. So I don’t think the analogy plays into fixed income. And that would be the cause of my concern there.

So the buy-side obviously is trying to deal with the new world. And certain buy-side firms have been quite aggressive about how do we look after ourselves. But the buy-side is not in the position of taking their investors’ money and putting any part of it at risk based upon the ability to handle a quasi-market-maker-type function. You know, it’s not in their charter. So they can come up with clever ways to try to mitigate their risk, but at the end of the day that intermediation function in fixed income is fundamental. And that’s where we need the new administration to think about it.

MICKLETHWAIT: Lady here.

Q: I’m Pat Cloherty. I’m Delta Private Equity Partners, Russia.

 Anyway, you referenced the flash crash, which seems like so many years ago now, given the acceleration of speeds that you were citing, and expansion of the electronic market. How do you think about the technological downside of failure crashes? I mean, we just had Delta Airlines in a seemingly unlikely situation go down. BA, same thing. But the same can happen with markets. So what are the protections—what are the hazards and the protections?

GREIFELD: Well, it’s guaranteed, right? Technology fails. So you have to plan around it. So with the flash crash there were no plans around it. You know, it was designed, as I said, by lawyers and economists. So now you have—the first thing that was put in was a very blunt instrument, and that’s a circuit breaker, right? If certain things happen, you shut off, right? And so that was fine as a first response. And now we’ve gotten more sophisticated with what’s known as limit up, limit down. So if you see within an individual stock certain movements then you’ll stop, right? And so you have things like that. So I think we have most of the infrastructure in place that creates the shock absorbers for when technology failures happen today.

And I hate to say it with that degree of optimism, because you always will be surprised. But, you know, we spent a long period of time then not talking about, you know, the market structure, but the market infrastructure, right? So industry, leading up to Reg NMS spent five or six years debating what is the proper market structure. And Paul Atkins was involved with that. And then we put that in place. And then we had to spend the last seven years making sure we had the infrastructure in place to support that market structure. So we’re in a better place today, but not perfect. And any technology will fail. And you’ve got plan around that and mitigate the impact.

Q: Maurice Sonnenberg, Guggenheim Partners.

I want to take you back to your very first statement about technology. And tell me where you might advise me and others. I’m concerned that our universities, particularly our techs—MIT, Caltech, RPI—the student body is about a third foreign, mainly Asian. And I’m concerned that around the world they’re turning out these tech—what I call STEM, science, technology, engineering, and math. When you look at the broad picture, are you concerned that maybe we’re not turning out the people we are? And furthermore, with one-third of these students almost all being Asian, none of them can get a visa to stay here and work. And the last point on that is, there’s a reason why Microsoft has its R&D center in Canada and not 70 miles south in Seattle.

GREIFELD: Yeah. So I think this is probably the lowest-hanging fruit for the new administration. And I’m, I think, optimistic that President Trump and the administration will recognize that. Right now there are so many job openings for qualified people in the States that are not capable of being filled by Americans today. And we have to expand the H-1B program, hard stop. Now, this has been logjammed now for a long period of time because they want to tie it into illegal immigration. And so, myself, I think this should be separated out. I’m optimistic that, you know, the administration, President Trump will see it that way.

And it is, to me, insane for us to have foreign-born students educated in the U.S., get their degrees, use our system, and forced to leave the country. I mean, just think about that. And we’re in the unique position still today where these top graduates or top students want to come in the U.S. and want to stay in the U.S. And when you look at the stats of the companies that have come public, and the percent of them founded by foreign-born immigrants, it’s absolutely staggering. And for us not to welcome these folks with open arms is, as I said, insane. So I hope that’s one of the first things that the administration gets to.

MICKLETHWAIT: Just picking up on the gentleman’s other question, to do with universities, do you think there is not enough American focus in the universities on these subjects?

GREIFELD: Is that not enough American focus? No, we have the top universities in the world on these topics. And I guess is your question about what percent of these students are foreign born? Yeah, no, so I have no concerns. I mean, we work at Nasdaq with a number of different universities today. And we get involved with the hack-a-thons that the kids do. We sponsor a number of them. And it’s amazing. I mean, it’s a hotbed of innovation in the American university system today. We just participated in one in MIT a couple weeks ago. And, you know, we come out of it with great programs. And then, intersession, we’ll have groups of these kids—you know, when they’re off for the five weeks—work for us, you know, all from the computer science world.

So, no. I mean, you can go around to any number of universities. It doesn’t have to be the name-brand ones either. The second-tier ones are quite exciting what’s happening there. So, no, I’m very optimistic there. I just want to make sure we keep all the students in the States after they graduate.

MICKLETHWAIT: The lady at the back.

Q: Yeah. Sorry—(off mic)—with CCTV America.

You were mentioning that you see technology as the greater threat to jobs than, say, globalization, and that you understand the rhetoric that we heard from President-elect Trump. But I wanted to know whether you think he’s likely to go through with what he’s been talking about when it comes to NAFTA and other trade agreements, and what impact do you think that would have if there was more trade restrictions on the global economy?

GREIFELD: Well, I certainly can’t speak for the incoming president. But I would say the realities will be that we’ll look at refinement of what’s in place, whether it be NAFTA or Dodd-Frank or Reg NMS, as we go forward in time. And, you know, clearly he got elected because people were not positively impacted by NAFTA and, you know, something will have to be done to address that in future trade agreements. But as I said, the technology—the pace of technology change is going to hit in the next, you know, five years. And that’s something that I would definitely implore, you know, all of us in the room, the administration, to think about.

MICKLETHWAIT: Do you worry about a trade war with China?

GREIFELD: I do. But you know, we’re mutually dependent, the two countries. And I certainly am optimistic that we’ll have reasonable minds sit down and, you know, talk things through. And our ability to sell technology in China, I’d like to have the ability to do that.

Q: Father Andrew from St. Paul’s.

My question has to do with ethics. Aristotle wrote that we can’t legislate virtue, but of course this is exactly what we attempted to do with Dodd-Frank, and it clearly doesn’t work. Do you think that given a deeply heterogenous global banking community we can come up with our own standard of ethics? I mean, is that possible? Is it a pipe dream? How would you see that as a way forward?

GREIFELD: Well, I certainly believe that the tone is set at the top of an organization. And, you know, I’ll talk personally, you know, running Nasdaq for the last 13 ½ years. You have to be on message consistently in terms of who you are and what your values are. And I also couch it in very pragmatic terms. We have a highly successful business, a lot of momentum. There’s no single bad action we could take that would be worth risking our franchise over, our good name over, that kind of thing. So whether you are ethical or not, you can just be pragmatic in acting in that way.

So I think it comes down to individual leadership. It permeates through the organization. And I think people generally have a sense of what’s right and what’s wrong and know what to do. But I agree, you can’t legislate ethics at this point. And if you have an unethical mind, you will take whatever letter of the law exists and find, you know, angles around it, right? There’s always going to be smart people who can say, OK, this is the rule, how do we work around it, whether it’s ethical or not. They’re saying, OK, it’s not legal. So we definitely want to set the standard, whether it’s legal or not, it’s a question of whether it’s ethical or not. And you got to stay within that. And that’s a softer concept but, you know, people kind of recognize that.

MICKLETHWAIT: And you did earlier, the idea that finances, reputation in some ways has come down.

GREIFELD: Dramatically.

MICKLETHWAIT: Do you think that is a retrievable situation?

GREIFELD: Over a longer period of time, yeah. I mean, it’s not instantaneous. But you have to get on message. But you know, I think the—I hate to say average—but, you know, the people not involved with banking or on Wall Street don’t really understand what they do, except people make a lot of money, right? So how do you extend the brand beyond that? There has to be a concerted effort to do that. And this is a different analogy but, you know, in the U.S., we have by far and away the most active single-name options marketplace, right? So no other country in the world has the options market we have. So we acquired out first—we started at options. We got into the business. Made some acquisitions. So why is that the case?

And you basically had a 20-year effort of education of the American investors that the options industry undertook. In a year, it didn’t do anything. Two years it didn’t do anything. But over time, investors came to know it. So people have to know over time, you know, what does the bank do? And how does the bank help, you know, Main Street in some fundamental way? And, you know, we have a major branding issue.

MICKLETHWAIT: So, very quickly, isn’t that as much a problem of complexity? Is that what you’re now dealing with is so complex, so quick, that trying to explain that to anybody is quite difficult?

GREIFELD: I agree with that, yeah.

Q: Bhakti Mirchandani. I work at a hedge fund. Thank you for an interesting discussion.

You mentioned becoming more pessimistic with time. I have a fairly optimistic question. Nasdaq signed on to be a founding member of the U.N. Sustainable Stock Exchange Initiative in 2012. And a number of Nasdaq companies, both in Europe and the United States, are members. What’s your take on how that’s gone in terms of promoting sustainable investing and its impact on Nasdaq broadly?

GREIFELD: Yeah. I think well. You know, it’s interesting. I don’t have the stats in front of me, but I gave a talk not too long ago. And it’s I think impressive to me the percent of Nasdaq companies who are now voluntarily choosing to follow—and there’s like half-a-dozen different frameworks you can follow—but voluntarily following those standards. Seeing that as a good thing to do, not just for society but for their businesses. And I think also, as I manage Nasdaq, this is a great morale boost for the employees, to know that we take this seriously. So you see my actions always are grounded in being pragmatic.

So when, you know, our—especially our Millennials see that we’re serious about trying to be as sustainable as we can, I think that’s a very positive—it’s a positive recruiting tool. And it’s something you can do in a very intelligent way. And so absent pure government regulation, you know, we’re self-selecting along with a lot of other exchanges our listed companies to move along that path. And, you know, we’re benefited by the fact we have some great Nasdaq companies that have some great technology that we can use to help us.

Q: Hello. I’m Peter Feldman (sp) from the Swedish Business Daily (sp). So we have you there.

GREIFELD: Yes.

Q: But I have another question. First, your comment about the surging market after the election here. And secondly, what is the thing—after these elections we have had here and Brexit and the upcoming in France and Germany—the thing that worries you the most. And what is the thing that you are most positive about?

GREIFELD: Right. So let me start by complimenting the Swedish and the Nordic economy. So we run the exchanges there, and it’s quite remarkable. When you look at the IPO performance in the Nordics, they have had more IPOs in the Nordics than in the London market this year. I could have won a bet.

MICKLETHWAIT: I wouldn’t have guess that, yeah.

GREIFELD: Yeah. So it’s staggering, the success in that marketplace. I compliment you and the folks back there.

So with respect to, you know, the markets, I was in Portugal during election night, and the Europeans weren’t too excited about what was happening with the Trump victory, I have to say. And we were up all night, and first the markets were down 800 points. And, you know, the wisdom of the markets is really remarkable, because it didn’t take too long for the markets to realize, wait a minute, forget all the other issues—which are real—but forget the other issues; you just elected a very pro-business president, right, who’s going to have expansionary, possibly inflationary policies. And the market understood that. And the markets then were smart enough to say, OK, very quickly, who are the winners in that marketplace—right, the defense stocks, the pharmaceutical stocks, you know, who’s going to—the banks are winning. So you know, the markets don’t listen always to the media, right? So you never—

MICKLETHWAIT: Just been very nice about the Swedish media, so. (Laughter.)

GREIFELD: Yeah, but you could not have understood from just reading the media how the markets would see the election, right? And everybody was saying, this is going to be a horrible thing. But they focused on what they had the focus on there.

Now, with respect to Europe, we obviously had concerns. And I think that’s the news that we’re going to see in 2017—in the end of ’16 going to ’17 in terms of what happens. And there’s a number of different theories of what can happen with the far right in different jurisdictions. So I watch it with great interest, but I don’t have any particular insight there. But obviously globalization has not helped everybody in a uniform way. And, you know, in a democracy are people allowed to vote?

MICKLETHWAIT: Time for one more question, please. Gentleman there.

Q: Gordon Bell, Legacy Growth Partners and Bed Stuy Restoration.

In terms of some of the social issues that came up today, I’m curious, you have an ability to manage so many transactions, yet we suffer in this country supposedly a strong democracy with the ability to process an election, both from the information and media standpoint, which I guess Bloomberg might care about because they deliver lots of good information to my desktop all the time, and with your transactional capability—

MICKLETHWAIT: You can speak as long as you want. (Laughter.)

Q: I’ll stand up.

My question really is, can you consider offering some of your system’s capabilities to the electoral system, because it might be really clever to be able to electronically have many more Americans vote. And the purpose in that question is to pick up on what this young lady said about young people and sustainability and some other issues about where money is being concentrated. And you’re truly a global player. So my hats off to both you gentlemen. I’m a big fan of both of you. I’ve been around on Wall Street for a while. But how could we use some of the abilities that you have to actually offer them up? And I don’t know if the Trump administration will take them, or any administration, but, you know, what could we do to put these powerful abilities to communicate and process transactions at—lay them at the feet of the American people, and see if we can’t do a better job than we’re doing currently?

GREIFELD: Yes. Well, we like to sit around and talk about these kind of topics. So clearly we have the technology which would allow us to go to a direct democracy as opposed to a representative democracy, if we wanted to do that. So that’s never talked about or debated, but that’s certainly possible. And that would be interesting, right? You could get to vote on every particular issue there, a real direct democracy. That exists today. And why is it not talked about?

In terms of the elections—you know, the general comment is the policymakers have to decide, and we’d be happy to provide our technology to do that. But the policymakers are not talking about this. But there’s many different ways to run the elections that are so much better than how we do it today. There’s just no doubt about it. It is clearly a process from a different time and place. And different jurisdictions do different things. But I certainly like the ability to have, you know, simultaneous running of the elections, where you choose, you know, from five candidates and then first two then get into another automated runoff and, you know, weighted, and do things like that.

So everything you’re saying is possible, but it has nothing to do with technology limitations. It’s all about, you know, what the populace and the elected officials want to do. And there’s no discussion about it right now. So I would not hold your breath. (Laughter.)

MICKLETHWAIT: Very good to end on the suggestion that every voter should have a Bloomberg terminal and the chance—(laughter)—the chance to vote.

GREIFELD: I didn’t hear it that way, but, you know. (Laughter.)

MICKLETHWAIT: The chance to vote perhaps for somebody called Bloomberg. That would be—that would be very easy.

Bob, thank you very much.

GREIFELD: My pleasure.

MICKLETHWAIT: We’ve covered a lot of territory. Thank you.

GREIFELD: Thank you. (Applause.)

MICKLETHWAIT: And can we also think Bernard Schwartz, particularly.

GREIFELD: Yes, thank you. (Applause.)

(END)