Michael Stumm: Renegade Engineer

Unabridged Q&A

FM: 8–The right to learn on your own?

MS: This has to do with transparency. We have a forum that is totally uncensored. If you go to our forum you will see every complaint that our customers ever have had. In some ways it is a gutsy move but we have found out that it has been beneficial.

FM: 9–The right to pay and receive interest?

MS: You would be surprised [at] how many brokers have you put in margin capital and it is sitting in an account and you don't get interest for it. Why not? That money is effectively sitting in some bank and that broker is getting interest for it. It is ok, but make it transparent. Let the broker say, 'We are making money from your deposit but we are not giving it to you.' If you want to be fair about it then provide interest.

If somebody has a position open for five minutes and it happens to cross over the end of day period they're effectively subsidizing all the day traders who traded intraday without crossing that time boundary; most of the trades are intraday and closed before end of day and it is not right.

The continuous interest is an interesting example. If you have a legacy system and want to introduce continuous interest it is very difficult. You have to go in and do surgery on all parts of your system, but if you are building a system from scratch it costs you nothing. It is very easy. That is one of the nice things [about] starting with a clean sheet of paper, you can just do it right.

FM: Is the Bill of Rights something unique to forex or is it something that could be applied across the board to exchanges and brokers?

MS: I think [it is universal]. It goes back to our engineering roots. The management is engineering and most of the employees are engineers. [They] are weird people, but one of their traits is they have high ethical standards and they just want to do it right. The Forex Trader's Bill of Rights is something we firmly believe in; we want to do the right thing. From a business point of view, if you don't do the right thing, you are not going to be as disruptive and you are not going to have a very good long-term outlook and we do think it applies to the wider industry in a much wider way.

FM: What is your view of co-location and high-frequency trading? Do you think there are people getting an unfair advantage?

MS: This is a topic we get asked about a lot. My short answer is 'yes and no.' The incorrect word is 'unfair.' People who apply technology get an advantage. People who are aggressive in applying technology have an advantage. If you look at Wal-Mart, [it] applies technology aggressively. They have very sophisticated logistics programs. They predict the weather to decide when to start shipping certain products to certain regions. Because of that they get an unfair advantage? No. Google has good technology, they have an advantage because of that but it is certainly not unfair. Strangely in the finance world when people apply technology and are successful, all of a sudden [others] say 'this is unfair, it should be forbidden'. That just is not correct, it is not unfair. They have an advantage, everybody has a right to compete and the people who are good in technology will have an advantage, people who are good in math have an advantage and people who have the right algos have an advantage… with trading, high-frequency trading and co-location are just technological advantages I don't view that as unfair, everybody has a chance to co-locate if they think that is important. We certainly use technology to our advantage and that is a fair practice; that is how businesses compete on that level and they compete on many other levels but that is one important component. … The million dollar question is, when is it unfair and when is it fair? If a particular broker goes and pays an exchange to get inside information earlier, it is probably unfair, everyone should have equal access. If you have a better algorithm or have a lot of traders, a bigger piece of the pie and therefore see more [trades] or [see them] faster, that is just [business]. I don't see anything wrong with [high-frequency trading]. One could argue that it adds efficiencies. Now I have heard arguments that when the markets go bad like with [flash crash] they take advantage of it but that is partly their role, it is why they are in the markets. What would be good is to have certain circuit breakers in there, I am not opposed to having circuit breakers to help the market out but high-frequency traders serve a purpose and as long as they can make money that is fine. Believe me they are not all making money, a lot of them lose money. It is not unfair. It is not what it is made out to be.

Page 7 of 9
About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board