Conference Preview: Inside The Mind Of Seth Merrin

Liquidnet Founder and CEO Seth Merrin is a serial entrepreneur who requires little introduction to those in the securities industry. So we decided to dig a bit deeper and find out more about his thoughts on low latency, raising capital and social responsibility.

Seth will be presenting the opening keynote on Tuesday afternoon, from 2pm.

Q: Can you explain briefly what Liquidnet is, and how it’s different from other electronic trading facilities?

Seth Merrin: Liquidnet is a global institutional marketplace providing electronic block trading in 29 countries for institutional firms around the world. We focus on fixing the market structures around the world to make institutional trading more efficient and less costly to the customers of those institutions. Liquidnet provides the largest quantity discovery mechanism providing better executions to institutions while complementing the price discovery mechanism that the exchanges provide. Liquidnet H2O improves market structure by solving the market’s largest problem of huge institutional demand swamping the exchange’s limited supply. H2O is the largest liquidity aggregator bringing 3 billion shares a day of liquidity to execute against the Liquidnet institutional pool.

Q: Today there are a myriad of liquidity pools – exchanges, ECNs, Dark Pools. Do you see opportunity for new players, or do you expect consolidation?

Seth: Unique liquidity pools are the new value propositions for exchanges, ECNs and brokers. Creating a new liquidity pool from scratch and providing all the protection and anti-gaming controls is proving to be extremely difficult today.

Q: The technical buzzword of the last year has been “low latency” – do you think the significant sums being invested in this area are justified?

Seth: For algorithmic trading firms who specialise in stat arb, speed can be the difference between making $100m or losing it. So for them, investment in low latency solutions will not stop for the foreseeable future. Our members, however, use Liquidnet as the search engine for liquidity to find size and bring liquidity to them. It is the quantity discovery that is much more important than small fills in milliseconds.

Q: How important have standards, such as FIX, been to Liquidnet in building its marketplace?

Seth: Industry standards promote efficiency so they have been very helpful to us and our members.

Q: How is Liquidnet addressing ever increasing trading volumes and data rates? What kind of technical investment is required to stay ahead?

Seth: In the US Liquidnet has seen its third consecutive quarter of double-digit volume growth and we have to plan for future growth. We are making commensurate investments in technology and architecture to support our growth around the globe. It is a never-ending process.

Q: You’re a serial entrepreneur … VIE Systems, Merrin Financial and currently Liquidnet. In today’s challenging fund raising climate, what’s needed to raise capital?

Seth: I think that if you have a good model – a business model that actually solves a large problem you can always raise money.

Q: Liquidnet gives one percent of its revenues to global social engagement efforts. What’s the philosophy of that, and what’s been done to date?

Seth: We’re trying to re-imagine a company’s role in the broader society. Instead of a traditional corporate grant-making program, with disperse and diluted giving that doesn’t always achieve real impact, we’ve decided to focus our social engagement efforts on one primary global challenge at a time, and devote a range of resources to addressing it.

Our first significant partnership is with the Agahozo Shalom Youth Village, a residential community for orphans of the Rwandan genocide that will shelter, educate and provide medical treatment for kids of high school age. In a country of nine million people where there are 1.2 million orphans and extreme poverty, the Agahozo Shalom Youth Village is breaking the cycle of living to survive and providing a foundation for creating future leaders for Rwanda. Beyond our financial commitment of over $3 million so far – we have formed the Liquidnet Family where our employees and their spouses are volunteering their time and skills to add bandwidth to the project.

Q: Can you say just a little about what subjects you’re going to be addressing at the SIFMA conference?

Seth: The title of my presentation is “Re-thinking the Relationships Between ATSs and Exchanges.” Basically I am going to address the need for ATS and exchanges to work together to create an efficient marketplace. In effect, an exchange is good at price discovery (the market determines a price based on the many trades in an equity during the day) and ATSs like Liquidnet are good at quantity discovery (providing deep liquidity away from the eyes of potentially predatory traders in the open market who would like to front run a big order), together they form a marketplace which accommodates the wholesale and retail equally and fairly.