February, 2012


Dear Mark Zuckerberg,

Congratulations on your IPO filing. We understand that you are faced with a difficult decision soon on where to list your stock. You have probably heard from your bankers that the NASDAQ exchange is for tech savvy companies like Google and Apple and the NYSE is where the blue chip companies like GE and Caterpillar choose to list. You may think that the NASDAQ market is more of an electronic exchange where dealers place competing bids and offers to help facilitate institutional client trades. You may look at financial television and see scenes from the NYSE and think that the NYSE market is more of a floor based auction model where your stock would trade at a “post” on the exchange. You may be thinking that regardless of which exchange you pick, your stock will help investors create wealth for themselves by investing in your company for the long-term.

We hate to break the bad news to you but the fact is, in today’s market, it doesn’t matter where you list. Your stock is about to become one of the biggest casino chips on Wall Street. Ever hear the terms rebate arbitrage or latency arbitrage? Ever hear of colocation? Do you know what an exchange private data feed is? How about an actionable IOI or a dark pool? We bet you have probably never heard of these terms (maybe you have been too busy coding lately or ducking those Winklevoss twins). These terms are really what stock trading is all about nowadays.

Your stock will now be traded by high frequency traders who have an average holding period of 22 seconds. The majority of them won’t care about your earnings, or your new “likey like” button that you just launched. They won’t care about how many gazillion users you just signed up or how many eyeballs are on your site. They will only care about flipping your stock for a very small profit – millions of times per day. They will only care about getting paid a rebate 1/3 penny per share to “add liquidity” in your stock. They are not looking to invest in Facebook, they are looking at it as a tool to help them make money in their high speed arbitrage world.

Before you make your decision on where to list, also keep in mind that one third of your stock will be traded in dark pools that are off-exchange and away from the public’s eye . Know that even though the spread in your stock will be one penny (most of the time), your stock will not necessarily be liquid. Sure your stock will trade a lot of volume, but this is not the same as liquidity. Know that when your stock starts to move around intraday by 3-5%, there will be no one to call to ask what is going on.

You may be thinking now, how did this happen? How did the stock market get so screwed up? What ever happened to the goals of capital raising and investor protection? Well, it’s a long story. One that is much too long for this letter. Maybe if you have some time, give us a call and we’ll explain what happened.

Best of luck on the IPO. If you pick the NYSE, know that the podium looks much bigger on television.

Themis Trading


Joseph Saluzzi (jsaluzzi-at-ThemisTrading.com) and Sal L. Arnuk (sarnuk-at-ThemisTrading.com) are co-heads of the equity trading desk at Themis Trading LLC (www.themistrading.com), an independent, no conflict agency brokerage firm specializing in trading listed and OTC equities for institutions. Prior to founding Themis, Sal and Joe worked for more than 10 years at Instinet Corporation, pioneers in the field of electronic trading, and at Morgan Stanley.

Category: Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “An Open Letter To Mark Zuckerberg About Why It Doesn’t Matter Where You List Your Stock”

  1. Orange14 says:

    Maybe I’m the only one in America who has never visited a Facebook page and doesn’t intend to but I could care less where they list their stock.

  2. mathman says:

    good read when you get a chance:

    What is a Smart Species Like Us Doing in a Predicament Like This?
    Too Smart for Our Own Good by Craig Dilworth
    Reviewed by George Mobus

    Wow, check out the earthquake uptick:

    Rick Santorum lecturing sick people about the market:


    “Republican presidential candidate Rick Santorum told the mother of a child with a rare genetic disorder on Tuesday that she shouldn’t have a problem paying $1 million a year for drugs because Apple’s iPad can cost around $900.

    Speaking to more than 400 people at Woodland Park, Colorado, the former Pennsylvania senator said that demand should set prices for drugs.”

    “People have no problem paying $900 for an iPad,” the candidate explained. “But paying $900 for a drug they have a problem with — it keeps you alive. Why? Because you’ve been conditioned to think health care is something you can get without having to pay for it.”

    The mother replied that she could not afford her son’s medication, Abilify, which can cost as much as $1 million a year without health insurance.

    “Look, I want your son and everybody to have the opportunity to stay alive on much-needed drugs,” Santorum insisted. “But the bottom line is, we have to give companies the incentive to make those drugs. And if they don’t have the incentive to make those drugs, your son won’t be alive and lots of other people in this country won’t be alive.”

    “He’s alive today because drug companies provide care,” the candidate continued. “And if they didn’t think they could make money providing that drug, that drug wouldn’t be here. I sympathize with these compassionate cases. … I want your son to stay alive on much-needed drugs. Fact is, we need companies to have incentives to make drugs. If they don’t have incentives, they won’t make those drugs. We either believe in markets or we don’t.”

  3. SOP says:

    Kevin Slavin: How algorithms shape our world

    “Kevin Slavin argues that we’re living in a world designed for — and increasingly controlled by — algorithms. In this riveting talk from TEDGlobal, he shows how these complex computer programs determine … stock prices… ”


  4. mathman says:

    This “kid” is remarkable, especially in light of this:

    “One recent exam (results here) put U.S. students 31st in the world in math — just a few points higher than the very bottom among the OECD (i.e., developed) countries. One earlier exam, called TIMSS, had U.S. twelfth-graders at the very bottom of the OECD in math. So the government stopped giving that test to U.S. twelfth-graders.

    Yes, that certainly solves that problem.

    So why is this? Whatever the reason is, it certainly isn’t spending. In education, as in health, the United States spends more per capita than any other country.

    The Economist, a conservative British news magazine, offered this illuminating explanation, from Oxford University:

    “Despite rising attainment levels,” [the Oxford study] concludes, “there has been little narrowing of longstanding and sizeable attainment gaps. Those from disadvantaged backgrounds remain at higher risks of poor outcomes.” American studies confirm the point; Dan Goldhaber of the University of Washington claims that “non-school factors,” such as family income, account for as much as 60% of a child’s performance in school.

    So because America has the fifth most unequal distribution of wealth in the entire world, America also has some of the worst math scores in the entire world. It’s as simple as 2+2=4. No wonder the 99% is angry; it’s getting to the point where a lot of us don’t even know what “99%” means.”

    via note from Alan Grayson.

  5. eliz says:

    Bullseye!! Love it.

  6. riffraff says:

    Maybe it’s changed (or, I’m wrong), but I thought having your stock listed on the NASDAQ allow insiders to sell a greater percentage of their holdings during a given period; thus explaining the preference of tech companies, who traditionally grant their insiders generous stock options, to list on the NASDAQ.

  7. kaleberg says:

    An interesting question is whether all those market short term trading is efficient. If someone is making a constant cash stream by simply short term churning, that money is coming from the pockets of people actually trying to invest or to get investment money. It is a drain on savings and a drain on corporate investment. Day traders aren’t creating liquidity, they are consuming it. That’s how they make money. It’s the kind of thing that keeps the 3rd world poor and will make us poor as well.

  8. Greg0658 says:

    mathman – since I had to sign in to see these 6 posts (strange kwerk on this thread) your 1st one at 5:27 is abit offT .. the 2nd wizkid post and our issues here in America .. umm the point is ? distribution of wealth needs To Be – to pass on common sense smarts – as in gene pool instincts ?

    as far as – To Be or Not To Be on NASDAQ or NYSE (pass) not my forte

  9. mathman says:

    Yeah, Greg – many of my posts are (at best) tangentially related. Sorry, i just find interesting stuff from all over and leave it for those interested.

    i generally read all the comments, no matter what the subject, follow links to explore topics i’m not used to reading about, and gather as much information as i like. Doing this, i’ve learned a smidgen about investing in stocks and bonds (but i’m not a trader, so it’s just info), about the various measures of wealth, (un)employment, cost of living, Fed policy, a LOT about the housing market, etc. But i really like this site because other people point out stuff interesting to them – like the various sciences, environmental issues, weird stuff, the political circus, foreign developments, etc. and i check it out.

    i’ll try to be more on topic when i can, but i saw these items and thought them important enough to at least bring up, since i have no opinion (or knowledge of – until i read the lede) about listing stocks anywhere. i didn’t meant to hi-jack the comments or anything like that. Maybe i should have lead off by disclaiming any idea about the topic at hand and then presented, for the readers’ leisure perusal, the items listed.

    Lastly, i too had to sign in to see the comments, which is odd and unusual.

  10. hi zuckerberg says:

    Latency arb is a transaction tax imposed by HFT against all those unsophisticated chumps who don’t co- locate. Luckily, trading outside the NBBO is prohibited by Reg NMS. So the SEC should be able to nail some bad actors to the wall.

  11. AlexM says:

    If HFT trade millions of shares a day why are the volumes on the exchanges going down in the past few years?

  12. dedalus says:

    This is a dumb post. Tech firms like Microsoft, Google, youtube, and facebook have been competing against hft firms for highly-skilled programmers, engineers, quants and statisticians for years. It’s laughable to think that Zuckerberg would need an introduction to the industry that he’s been competing against for talented employees.

    It’s not Zuckerberg who needs to learn more about hft, but rather the author of this post.