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Okser: We are really here to tell people who we are, what Knight does. A lot of people don't really understand, let's say, the difference between an ECN and a market maker, and why should they use Knight, or preference Knight. We're not really selling our services. Basically, we get our business through our broker contacts. But we'd like people to understand the business. You know, if they have questions about, you know, what should they read, what should they look at, what's most important, based on our own experience. We'd like to help them out. And we like to get comments. People who come by and say, well I use Knight, and I like it, or I used Knight, and I didn't like it, you know, and see what the general feeling is about the company.
RadioWallStreet: You are one of the few publicly traded companies here at the conference. Do you feel you have more of an audience and maybe a base on that sense, or because this all has changed so quickly, is this sort of fair game, public or private?
Okser: Well, we're public. I think what happened, our company is only four years old. Ok, so we've only been around for four years and we've grown substantially. I've been here for three years. We started out with, when I was here, about 90 people, and we're about 1,500 people now. Several hundred market makers. We've moved up to the number one market making position in NASDAQ. We do about 23 percent of the market making business now. We're the largest stock trading company in the world at this point, and we have our own unique philosophy, that's different than other market makers and other firms, and we've been able to capitalize on that philosophy and we've been very successful and the money to go public is really to expand on a worldwide basis, which is our future plan.
RadioWallStreet: When you talk about being the largest here and the largest there, how much do you have to sort of defend then, your type of trading, versus, as you mentioned, an Island ECN or the like.
Okser: Well, we do about, our company in the NASDAQ, we do about 500,000 trades a day, so we're quite large. Every trade is large, about 800 shares, and people ask: Why should I come to Knight, do I need Knight? We say look, if you're a small trader, every company is basically the same. ECN, market maker, we're all required to go to the best bid and offer, and everything is transparent to all customers. You can't really hide any information, so everything is upfront. The difference is, well why go to Knight? What does Knight do that an ECN won't do?
Ususally I give an example. We have what's called an AutoEx for most stocks, in otherwords, let's say you have a stock that's only a hundred shares bid, a hundred shares offer, but you want to do 2,000 shares. Well, the market's not there. Somebody has to put their money up, to take on that inventory, to fill up that trade. Knight, this is what Knight does as a market maker. We invest, we put up our own money to fill customers' orders, where they can't go anywhere else to get it filled. So, for these people, on this level, I think that's where it's important, OK, to understand, at what point can people want to come to Knight, OK?
RadioWallStreet: So it's the value added services that everybody's arguing here, and perhaps some cost competitiveness. So what else, do you think, moving forward, will have to be in it, to sort of lead the game?
Okser: Well as more trades, it's also information, like I say, we're planning new facilities, a year and a half from now. We plan to be basically, a 24 hour, around the world, trade center. OK, that's our plan. We partnered up in Tokyo, we partnered up in Europe, OK, and we plan to offer 24 hour trading in any market in the world, to any investor, at any time.
Secondly, for the larger customers, for institutional customers, who do not go through ECN's, who need professional traders to handle the orders, the two things we do best is:
We provide our own liquidity, in otherwords we're not going to tell you where we're going to fill your orders, at each quarter of a point or eighth of a point, we're not going to depend on the market's liquidity, we're going to give you liquidity at different levels, OK, so it means really, putting our capital at risk. Nobody, almost no other firm is going to put their capital at risk. The reason we're able to do this, is really trading expertise. We believe we're the best traders out there. It takes several years for all our people to become traders. They have to be assistants for several years, so they must understand the market, and this expertise really helps the large trader, the institutional trader, because we can help him get his orders filled. We fill at the best prices.
RadioWallStreet: It's a tough job though. What kind of turnover do you have? What sort of burnout rate?
Okser: Almost none, believe it or not. We've been growing spectacularly. We will have, I would say, we're building a trading floor now. We have plans to move into a new building. We'll have a thousand seat trading floor, OK, 25 foot ceilings, just for our traders. And we will have news booths for probably all the markets around the world, also on a 24 hour basis.
RadioWallStreet: This is big business. So what is, as far as the capital infusion, moving forward, you guys talked about partnering, and being ready, up and running a year and a half. Everything a go?
Okser: Well we're going now. It's really a matter of size. We partnered up with Nikko Securities in Japan, and we partnered up with several other people also, in Europe, to do the market making functions.
What's happening now, is everybody's realizing electronic markets are the wave of the future. Electronic markets basicly level the field for all of the players.
So the the question on most companies' minds is: How do you people manage to make so much money in a business where nobody else seems to make any money, or has abbrogated the field to you, OK, at a certain level? So, what we've done is saying we'll partner up with you, and we're willing to share our expertise to make your people the traders that our traders are.
People. Its a very labor intensive business. Each of our traders has to handle several hundred stocks a day. He must manage all the order flow coming to him, OK, so he's really responding to the order flow as the market moves. A lot of times we're on the wrong side because so many of these markets are momentum driven. So our traders have to be smart enough, understand the market enough to say, well I'm on the wrong side, I don't want to take a loss now, get long, or I think the market is going down, I can hold on to my position. So it's managing positions, understanding risk, understanding the market, OK, and putting those things together, we've been able to train people and build a successful operation, where really, I think, I would guess, over the last few years, maybe we've lost three traders.
RadioWallStreet: So there is not a consensus, over the board, on the analysts camp, on how you'll do looking forward. I had mentioned to you before, that we had some talk on radiowallstreet.com about Knight being downgraded. I think it was Bear Stearns, as you had mentioned. What do you think is the catalyst for that? It's just that, you know, the playing field, it's not determined. There's still a lot of variables out there. Or how do you move forward in that light?
Okser: Well, I think, it's like part of the reason we're here. A lot of people just don't understand our business, even at the analyst's level. OK, an analyst will come in and say, well these people make their money on volume and they're making their money on the spread. But it's absolutely untrue. OK, they never bothered, like this analyst, to come in and talk to us, and see how people make money, what we do to make money.
OK, so that's the difference in philosophy. Understanding that we're a trading company. We're just like everybody else here. OK, no advantage to anybody else. Our traders pay almost the same as these people will, trading through a discount broker. OK, some information is available to us, as is available to them. The difference is, we train our people, we continually train our people. It takes years to train, and they understand that the only place where they'll get their freedom, is really at Knight securities.
So where last year we had, I think, 20 openings for this particular few months, we went out to colleges, we had 2,600 applications for 20 trading seats. So people understand, this is the place to be, this is the future, and that Knight does something that nobody else does, and they know how to do something, that nobody else knows how to do.
RadioWallStreet:And to survive, the name of the game then, is getting the word out to get those customers then on line?
Okser: Well, we offer the services. OK, by improving the services, by giving the customers a better deal. For example, we will guarantee the opening price, up to 250,000 shares, on just about most stocks. So in otherwords, we're giving you the opening price, there's no bids, there's no offers, there's no up and down. You want the opening price, we guarantee you. If there's a bid and offer differential, we will give you a split price. We don't give you the bid or offer to gain any advantage.
We believe the customer should be at a level playing field to us. So we have all these products that we put out to the institutional people, to the public, which are to their advantage. But what we do most, is offer liquidity, where people can get off their trades at the price they want to get it off for, and not be frustrated by paying up too much, and not being able to do the trades when they want to do the trades.
RadioWallStreet: So in your particular position then, what's the greatest challenge that you see moving forward, as these (Online Trading) Expos get bigger, as more and more people jump online and become investors?
Okser: Well, the challenge is really to keep up with the technology. That's really on of the big challenges. This year, I think, we're putting $40 million into upgrading technology. It's a tremendously expensive proposition. OK, you see the size of this room, (at the Online Trading Expo in the Marriot Marquis Hotel in New York City) from one end to the other? That's the size of our computer processing center, and ever growing. OK, it's tremendous overhead, just the professional programs, systems people, online people, web people, needed to support the operation. That's one of the challenges.
Keeping everything going all day long without going down, without having problems, is also a tremendous challenge, and we think we've been able to overcome that problem.
The other problem is really integrating the rest of the world into the technology and getting people to understand our philosophy, and moving into other areas.
For example, we just purchased a company called Arbitrade. Arbitrade is you know, they have about 500 people, a large options trading firm, also understanding that the future of options trading is probably electronic, and we want to partner up with somebody who understands that end of the business.
OK, and that's really our forte. Knowing this end of the business, making money, understanding how to make money trading. OK, not buying and selling for sixteenths, but trading. And that's really the expertise that we offer, OK, to customers coming in to us, and what we do better than anybody else. Why you don't see any other public companies? Because, I think, most of the market makers, if they went public, people would see how much less money they make than we do.
Thank you very much.
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