Hayley McDowell: What was your mission when you started out with Liquidnet?
Seth Merrin: From the very start, we said we wanted to be the intersection between Wall Street and Silicon Valley, although much closer to Silicon Valley. Our offices all over the world look the same, with the same openness and transparency. We want our employees to have a lot fun here and we don’t want them to feel like a cog in a wheel. We have a mission and vision that is much more than ‘let’s just make money’ and I see it as an example of how Wall Street can be.
Our mission is to make markets more efficient. When we entered Wall Street, it was to sort out a massive problem. Institutional assets under management had grown by a multiple of 40 over 30 years. We had massive players in the wholesale stock market, but they all essentially had to go to a retail store to trade their goods, which just doesn’t make sense. Prior to Liquidnet, the only way these firms could trade a large block of stock was through a human being, which is simply not efficient. We linked all of those institutions together through technology and grew our member network broadly to 44 equity markets around the world.
Liquidnet has since used its network, technology and expertise to centralise corporate bond liquidity in Europe and the US—by far the two largest markets. The only reason we can do that today is because we have established ourselves with 900 of the world’s largest asset managers and those are the people who own the bonds and the stocks.
HM: Do you feel as though you’ve truly achieved your mission?
SM: Yes, absolutely and every one of our members would acknowledge that. Before us, not only was trading a block of stock manual, but the execution price would suffer. With Liquidnet, you split the spread and when you do that in such a large block of stock, that’s huge price improvement.
HM: You recently wrote a book called ‘The Power of Positive Destruction’. What’s it about and why did you write it?
SM: It’s a book for anybody looking to start a company, but also for anybody who wants to really create a positive destructive force in their company or industry. It’s based on all of my experiences, mistakes and lessons learned over the last 30 years in business and it’s the book I wish that I had read when I started my first company, at 24 years old.
Positive destruction is about removing all of the constraints and starting with a blank slate. Most people are constrained by what they know and what has been done before. If the constraints are removed, you can build something of value; positive destruction is about tearing down those walls and creating something entirely new. With Liquidnet, we looked at the inefficient institutional trading problem and said ‘let’s agree that this is not just the cost of doing business’. This is something which should be solved and we solved it in a way that nobody had considered before. If you can identify your customers’ problem and you can resolve it and deliver a solution in a way that creates an unfair competitive advantage, that stacks the deck in your favour. I will add that it’s important that you don’t stop there—you have to continue to innovate.
HM: Would you say Liquidnet Labs is your way of continuing to innovate?
SM: One thing we believe has made us successful – and this is always a work in progress – is that we focus on this idea of continuous innovation. Our ability to quickly transition from concept to deployment with Liquidnet Labs is a competitive advantage for us. And we do that by validating new ideas with our members first.
Liquidnet Labs is about collaborating around blue sky ideas, knowing that not everything is going to make it to market. It gives our members an opportunity to take a look at what we’re thinking about, to submit their own ideas, demo concepts, play with prototypes and provide their feedback online. We’ve taken that one step further with “Liquidnet Labs Live” by hosting groups of traders and letting them get their hands on our latest products and technology. This has been very effective in helping us to find out if the idea is easy to understand, use and implement, and whether it’s intuitive or not. The products coming out of Liquidnet Labs have been the fastest growing products that we’ve ever had and it makes a lot of sense because it’s been through extensive trader input, a data program and pilot testing. We’ve taken the time to vet and improve it before we released it to the community.
HM: What feedback do you get back from your clients on those initiatives?
SM: It’s truly amazing. We get such incredible participation from traders who come to see us after their work day. They spend a couple of hours hitting the keys, testing the product and at the end, they thank us for inviting them! It might not be for everyone, but those who do attend are pleased to be involved in the process.
SM: Absolutely. We are exploring both artificial intelligence and blockchain at the moment, and engaging the industry in discussions about how it will impact the future of institutional performance. Our job is to stay very close to any new technology that we think would be helpful to our members. They all sound very promising and we’re excited to be working on that.
One of the issues with FinTech is that everyone seems to get very excited about one thing and lots of money is invested into it; similar to what we’re seeing with blockchain right now. Most blockchain companies will not succeed, but I believe blockchain is a wonderful technology and architecture. Although usually you start out with a problem and you create a solution, you don’t start with a great technology and look for a problem. That’s how I see blockchain, but there’s no doubt it will be groundbreaking.