Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE and indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Back in the office today after a few days with my wife and daughter visiting our son in Annapolis, Maryland, where he's just completed a 43-day grind for the newest midshipman of the United States Naval Academy. It's called Plebe Summer. Through a few online photo streams from the academy and others, parents like us got sort of a voyeur's view of the days on the yard from the 6:00 AM workouts on Rip Miller Field to the 10:00 PM renditions of Taps and the thousand or so plebes singing Navy, Blue and Gold before lights went out. Such is the life of leaders in training in the nation's service academies, which in the Navy's case, stretches 175 years back to 1845 when it was founded by Secretary of the Navy, George Bancroft, on the grounds of the former Fort Severn at the confluence of the Severn River and Chesapeake Bay.
A closer review of the goings-on of the class of 2027 came a few weeks ago when members of the Annapolis class of 1977, their predecessors by 50 years, came for a visit, presenting each plebe with their first challenge coin, a vaunted military tradition for their role as another link in the chain. Now, 215 miles northwest of the Naval Academy sits its arch rival, the United States Military Academy at West Point, where the cadet class of 2027 has endured a similar indoctrination capped off by a similar visit by their 1977 forebears-in-arms, hardening the steel in their swords for what's to come. Army and Navy may be opponents on the athletic field, but they're comrades when it counts, joining forces along with our allies to confront the superpower competition from China and Russia and providing our country a group of leaders that will span the better part of the rest of the 21st century.
In a minute we'll lay down our arms here in the library of the New York Stock Exchange as well, taking up microphones with a certain West Point graduate from the class of '77, one of the great living legends of Wall Street and the founder and chairman emeritus of Virtu Financial, Mr. Vincent Viola. Our conversation with Vinnie Viola on markets, the art and technology of trading, the state of the world and the new era of superpower competition, and yeah, a little thoroughbred racing and some hockey as well. It's all coming up right after this.
Audio:
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Josh King:
Our guest today, Vinnie Viola, is the founder and chairman emeritus of Virtu Financial, an early leader in electronic trading. Vinnie served as CEO and chairman since the company's founding in 2008 until 2013, and prior to Virtu, he founded three financial services companies and began his career after Army service on the floor of the New York Mercantile Exchange. The old NYMEX now part of ICE's rival CME, back in 1982, later serving as vice chairman, then chairman from 2001 to 2004. Vinnie, welcome inside the ICE House.
Vincent Viola:
It's great to be here, Josh. Thank you. Thank you for the invitation.
Josh King:
You and I were talking a bit last week. What was it like for you and your classmates to return to the plane at West Point to inspect the cadets who walked today in your boot prints?
Vincent Viola:
It's quite surreal. I'd like to use the word inspiring. We had 68 of our class. We graduated 695 young officers on June 8th 1977, and 68 of us showed up and of the 68, all but five of us did 12 and a half of the 14-mile walk back. Myself and a couple other classmates waited at the ski slope and we took the overland route. It was about a little bit over two miles, but it was absolutely electric and inspiring to see the class.
Josh King:
You guys, the 68 of you, share stories of what it was like 50 years ago?
Vincent Viola:
Oh, gosh. We did. It's a very almost spiritual connection I think amongst classmates and fellow graduates. Just a quick vignette: Myself and a couple of my classmates were in the last rank of our group, and behind us there were approximately another 250 older graduates and some younger graduates. So it was about 320 graduates that took the march back and the old guys started yelling at us about a mile into our march towards the superintendent's house is where it ends, saying, "If you're not going to keep up, step aside," and it just rang memories of plebe year to me. So I guess the place never changes.
Josh King:
The area in which West Point is situated in Hudson River Valley was recently devastated by flooding. Did you see any of the lingering effects of the area in the Corps of Cadets?
Vincent Viola:
It's very interesting that you mention that, Josh. I met briefly with the superintendent following the march back and he shared with me that they've suffered over a hundred million dollars of damage and they're working real hard. Senator Schumer has just been a praetorian supporter of the military academy to get the damage completely-
Josh King:
He was Toby's dominator.
Vincent Viola:
That's wonderful. But you wouldn't know it. It was just a Herculean effort to get the place really just completely shining, but there's been some severe road damage and they'll get it done. The head of the Corps of Engineers visited. Magnificent geographic location. Majestic, the military academy, how it sits and you can understand its strategic importance during the Revolutionary War.
Josh King:
Sure. I mean, in a broader sense, Vinnie, what's your assessment of the quality of leaders who are making now places like West Point, Annapolis and the Air Force Academy in Colorado Springs? Are they up to the challenges you think that lie ahead?
Vincent Viola:
Oh, absolutely. I think the young men and women, the cadets, midshipman and airmen, young airmen, they're called cadets also, are so much more vibrant, committed, aware of their obligation, their profession than we were 50 years ago, I could tell you that. They're just very impressive and I am very bullish about our military and about our officer corps.
Josh King:
You back then served in the 101st Airborne, graduated from ranger school at a very different time. Vietnam still an open wound at the time. President Carter wrestled with the Iran hostage crisis, including the failed rescue attempt, Operation Eagle Claw Desert One. What was it like to serve between this really interesting time, between the end of the Vietnam era and the beginning of the Reagan era?
Vincent Viola:
That's a fantastic question. My experience at the academy was really defined by professors who were junior officers who had, if not just returned from combat in Vietnam, had returned from combat not more than a couple years previous. So a typical class would stop five to 10 minutes short of its scheduled end and invariably a professor would share with us the obligations of combat leadership, and in many cases they would share personal stories.
I'll never forget one Saturday morning, we went to school six days a week when I was a cadet till 1:00 on Saturday, and as I remember on Saturday mornings we started real early and we had seemed like an hour and a half plus of mathematics, and at the academy you have to recite and defend your solution to a mathematical problem every day. And I had one major and his last name was Dewitt, and he was a Silver Star recipient in Vietnam and I'll never forget him stopping the recitations and on the chalkboard, sketching out an ambush that his company had been lured into by an regular NVA unit. I could remember with great detail how he put the chalk to the board and how he explained his actions in that battle, that fight.
Josh King:
Someone who followed you about nine years after you graduated from West Point was Mark Esper from the class of 1986. The former Secretary of Defense was on this show a couple of months ago, and among other things he talked about the Modern War Institute, which he chairs. Here's part of what he said in that conversation.
Audio:
My view was technology was going to be the game-changer and yet despite all my work, despite standing up Army Futures Command in the Army, DOD is still not at the point where it can quickly adopt innovative technologies at the speed of relevance, at a speed that will beat the Chinese to the punch, particularly in technologies like AI and robotics and quantum.
Josh King:
So Vinnie, you know a thing or two about the speed of technologies from all that mathematics that are required to win on the battlefield or in the markets. What's your assessment of where we are the way Mark talks about it?
Vincent Viola:
Well, first of all, Mark is a good friend and he's a fellow Screaming Eagle, a distinguished service, Persian Gulf One, and we've been actively involved philanthropically in the support of the Modern Warfare Institute. In fact, the first distinguished chair is a good friend named, retired four star, Chuck Jacoby. I tell you that as pretext. I think Mark is reflecting sense of urgency that is defined by his unique understanding of the PLA's focus to modernize their army. That is a central precept in Xi Jinping and quite frankly, Jiang Zemin's rejuvenation of China strategic initiative or purpose.
I am a little bit more optimistic. I think that we have a strategic culture in the Army around the divide between the human and technology and how that interface will evolve in the modern battlefield. The modern battlefield is a hybrid environment. We used to call it irregular, now it's a multi-domain and hybrid. All technologies that you could imagine are brought to bear, from electromagnetic warfare to cyber warfare to communication disruptions to automated decision-making around creation of targets and destruction of targets, and I think it is a matter of public private efficiency and I believe that the leaders in our military are aware of it and excited by it. So Mark talks about Futures Command. It's just a fantastic cutting-edge command and I think it's making a difference.
Josh King:
You talk about on the battlefield. Off the battlefield, Xi Jinping this week announces dramatically slower Chinese economy declines after many years of revealing economic statistics to reveal unemployment among the younger generation, perhaps sort of shielding what reality might be after beginning with Jiang Zemin through Hu Jintao and now Xi Jinping kind of a transparency because they were doing so well. Maybe they're not doing so well now in terms of cultural competition between the way our society in the West is based and the Chinese society, we might be winning that battle as well.
Vincent Viola:
It's interesting, Mark's sort of described an arc of the totalitarian revolution and he basically described disruption of society and then transformation to socialist construct and then eventual communism, and we all know the effect of Stalin and the creation of the Soviet Union and the consolidation of the communist revolution in the old Soviet Union. Mao was a devotee of Stalin and it wasn't really until Stalin passed that Mao became uber-confident around deploying his vision of Marxist-Leninism, Marxist-Leninist theory within society. So not to go into a Vinnie Ramble, when Deng Xiaoping decided that they needed to look at the economic practices of the Industrial West to get China back up on its feet after the reproché mon by President Nixon and Henry Kissinger, he understood that he had to do this without sacrificing complete devotion to Marxist-Leninist principles.
And if you really study China from the perspective of Xi Jinping and the Chinese Communist Party, it really starts and begins with Marx and Lenin and strict adherence to the ideology which professes a complete revolution of society's constructs as defined particularly in the West from the end of the Napoleonic wars through 1949. So why do I sort of belabor this point? It starts with the idea that there's no concept of reform in pure Marxist-Lenin philosophy. When the uprisings in Hungary happened in 1956, Mao was adamant that they had to be militarily struck down. By that time, Khrushchev was being more and more intimidated, quite frankly, by Mao's assumption of world leadership of the communist movement in, of course, 1968.
So from Xi Jinping's standpoint, first and foremost, the first purpose is to strict adherence to Marxist principles with a central leader in the form of Xi Jinping. The second is to make contiguous national unity around the geography as he defines China, which, we can get back to in a little bit, includes obviously Taiwan. You can see how they've gone about the absorption of Hong Kong. They're very serious about this. And the third principle or driver is create an economy where the Chinese people enjoy a livelihood and a mobility, and the fourth is the modernization of their military. But getting to your point, because I will answer your question, there's an inherent friction there. So Xi Jinping has to balance a return almost from a private entrepreneurially-motivated economy to a almost quasi-socialist form of economy with these state-owned companies are helped out by the entrepreneurial and the private class, but he's got to monitor that class because creativity and entrepreneurialism is born of what? The freedom to think, creatively reform an entity, an idea.
So it's a very tough balance for him. I don't know if that answers your question, but the point I'm making is there's no leader in post-Mao that has written more on pure Marxist ideology than Xi Jinping. His father was a respected member of the Party and he was a victim of the Cultural Revolution, so he was rusticated and Xi Jinping's worldview is formed by his immediate family's experience during the Cultural Revolution
Josh King:
And nothing more reflected the idea of the creativity and entrepreneurism of the Chinese people than I would say this string of IPOs here at the New York Stock Exchange from... I wouldn't remember the start date because it probably predated me, but we certainly had Alibaba here and then it all dried up around 2020, 2019, and it may not come again because I think this was the beginning of the crackdown in Beijing.
Vincent Viola:
Yeah, it's very interesting. In 2017 I had the privilege of enjoying a lunch with Henry Kissinger and he made the point that... He had just gotten back from China, and he shared the point with me that Xi Jinping was consolidating power under the auspice that in fact the private class in China, the entrepreneurial class, the capitalist class, had been corrupted and was corrupt, and under the guise of anti-corruption, they started to modify the behavior of people like Jack Ma, who's a larger than life who creative capitalist entrepreneur. So this is very powerful stuff.
Josh King:
Talking about Lenin and Khrushchev. A couple years after you left the Army in 1987, at about the time I was graduating college, President Reagan flew Air Force One to Berlin and took the stage in front of the Brandenburg Gate. I just want to hear a little bit of that.
Audio:
General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union in Eastern Europe, if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev. Mr. Gorbachev, tear down this wall.
Vincent Viola:
Chilling.
Josh King:
Yeah. I mean, Vinnie, I was with President Clinton during many meetings with President Yeltsin from Hyde Park to the White House to the 50th anniversary of V-E Day in Moscow, and then Clinton's successors Bush 43, Barack Obama, Donald Trump, and now Joe Biden have had to confront a very different leader in Vladimir Putin. Collectively, Vinnie, how do you think our leaders have delivered the message to Putin compared to the way Reagan did to Gorbachev?
Vincent Viola:
Generally speaking, I think our American society lacks an awareness of... We lack strategic culture and I think our leaders quite frankly reflect that. I think the American population generally can't possibly have a visceral appreciation of our good fortune because we know nothing different, but to a person like Vladimir Putin who was raised with a very, very severe understanding of how to, and he was trained, how to maintain an empire, because the Soviet Union really is the first derivative of the Russian Empire, and the Russian Empire has always behaved sloth-like. It's really primarily because of their disparate geography and quite frankly their lack of naturally efficient geography and topography. I don't think we understood the Vituperative experience that he had as a young KGB officer in East Germany, and these are primary defining emotional experiences that inform people's behavior.
Stalin was weeks away from being an orthodox priest in seminary. He was beyond brilliant theologically, but his eyewitness of the repression, the Tsar's repression, led him to revolutionary dedication, and when people are motivated by visceral primary experience, sometimes it's hard for them to be open-minded. Of course, Putin has let us know that 2004, 2007, the invasion of South Ossetia in Georgia 2008 and of course 2014, he was able to walk green-clad people into Crimea unopposed. It's a very, very difficult proposition for the West as we understand it, this post-industrial highly activated society that we would describe as the West. But I think there's a point to be made that's extremely important here: Once people experience the majesty of liberty, it's very hard for them to go back to subjugation.
I was privileged to visit Ukraine in 2000 right prior to COVID, to visit some of the forward positions, which were kinetic at the time, and which are now basically right along the gradient, the 600-mile-long gradient. Of course we were in armored vehicles, but we were getting passed by constantly by Toyotas Camrys and SUVs with Ukrainian civilians and camouflage uniforms with their rucksack in the rear seat and their weapon, a range of assault weapons, and it was chilling to me because I realized that... Well, first I realized, one, that there was going to be there broader conflict to come. Two, I realized that these people were going to fight to the death for what they had experienced as liberty and freedom and sort of that self-awareness, because it's really the spirit of the individual that drives society stability. One of the founding principles of our nation was the pursuit of happiness, grounded in personal responsibility, but informed by liberty, and they're strong motivating factors for individuals.
Josh King:
I mean, talking about the visceral appreciation of good fortune as you say, it might be particularly strong, and to add to that bucket, liberty, as well for kids of immigrants who grew up in places like Brooklyn, I have a history of working with some notable Italian American leaders who grew up in these parts. Joe Plumeri, who started in Trenton before going to work for Sandy Weill and Frank Bisignano, and Frank often talks about how his father, first generation child of immigrants, spent his life in the uniform of his new country. Vinnie, your dad, John, served in the army in World War II. How did that affect you?
Vincent Viola:
Well, okay, so you got me now because it triggers emotions. My dad was three years old when he came from Italy, him and his two older brothers, and he made the invasion of North Africa in Operation Torch as an infantryman, and soon thereafter became a supply sergeant and basically followed that army. It was on the command of Mark Clark and then eventually General Patton took over and made the invasion from there of Sicily, Anzio, fought up right through Monte Cassino and then was requisitioned as a replacement soldier to the Battle of the Bulge. And when my dad went to the battalion that he was going to replace, it was the battalion his older brother was serving in from the 98th Infantry Division. That always sticks with me and I'm happy I get a chance to share that.
I was somewhere eight or nine, I can't remember, and he said to me, "We're going to take a ride today," on a Saturday. My dad was my best friend my whole life. And we drive up the Hudson River cross over the Bear Mountain Bridge and all of a sudden we entered this place that conjured to me something more powerful than any place I'd been, and it was the first day of cadet summer training, what we call Beast Barracks in the old days, which is now called Plebe Summer. And my dad had served under a West Point junior officer in World War II, but he was there to find a friend of his who remained in the army and was a sergeant major at the academy.
I remember seeing these young men, at the time it was all men, in white T-shirts, gray shorts, knee-high black silk socks and black dress shoes standing at attention on this flat promontory overlooking the Hudson. And my dad never spoke about the war till the day he died, never did. He told me about my uncles, they all served on both sides of my family. But that day changed my life.
Josh King:
One thing that you and Joe Plumeri share maybe about 15 years apart is New York Law School, but neither of you ended up practicing law. Joe knocked on the door of what would become Travelers and eventually Citigroup, and you, you landed as a traitor at the New York Mercantile Exchange, now owned and operated by CME Group. How did you end up in the NYMEX pits coming out of the army?
Vincent Viola:
My dad got seriously ill 1979. My parents were my financial dependents by that point. I didn't really know what I wanted to do. And there's a gentleman who's still a very, very dear friend, if not a brother to me, his named Dominic Vassallo, who was just becoming a broker in the pits of the New York Mercantile Exchange, and if you... Just real quick history in the New York Mercantile Exchange, it was formed as the butter and cheese exchange and then it added eggs as one of its forward contracts, and these merchants tried to reduce the cacophony of prices and sounds around it, and Donnie said... I was going to pursue an engineering position and I had an offer from Pfizer and I had an offer from this engineering firm," and he said, "You're not going to those places." He said, "I grew up with you. You would be really good at this." He says, "Come with me," because I had a three-day break, because I was still with the 101st Airborne. Come with me, let's go on a subway. I'll show you the exchange.
And the elevator door opens on 4 World Trade Center, I walk out, and there are these boards and there are these numbers and there are these pits and there are these mostly men shouting across each other. So it reminded me of all of the primary experiences of my youth. What were they? My dad was a hardworking guy, always had a second job, but every free moment he had, he would be handicapping the races and I would go with him as much as I could, and he would let me stand by the board, the tote board, and he'd come back and he'd quiz me on the changes of odds for various horses. I always wanted to please my dad, so I was pretty good in arithmetic.
So the price is changing on the boards, right? Third last, second last, last, high and low of the day, and they just jumped at me almost in slow motion. Then I looked at the traders shouting across the ring at each other. I'm like, "This is easy. I grew up in a house where everybody was screaming at each other all the time in the sort of staccato and bravado of just wanting to communicate not in anger." Time stood still. So there was a gentleman who owned the clearinghouse named Gil Meyerfeldt, who became a role model and mentor to mem and then there was another gentleman who was larger than life, Herbie Weinberger.
He was about 6'3", shocking red hair, combat infantryman's badge in Patton's Army, and he said, "Kid, come over here. How much money you have?" And I told him. He said, "I'll tell you what, you put it in an account in my clearing house, I'll clear you. You're a West Pointer." I was finishing law school in the evening. He said, "And the deal is you're going to serve on every compliance and regulatory committee we have, and go get them." At the time, it took about three months to become a member and I just stood outside the pit and just absorbed it like a sponge, and I read every book I could on technical analysis. I was a big point and figure guy. And I started trading the same day as a dear friend who unfortunately I've been out of touch with, and he and I started together, and after the first day we'd promised each other we'd make one trade a day because that way we wouldn't lose all our money and be out of the business. And that's how I started.
Josh King:
I mean, remarkable similar story to Terry Duffy that he tells being at the Mercantile Exchange, getting a mentor who's going to help stake him or say he's going to clear him. I mean, you raised enough money to get your seat on the NYMEX back when it was member-owned, similar to the NYSE at the time. You were also working alongside another friend of mine, Charlie McGuffog or Charlie Swan as his name badge read at the time.
Vincent Viola:
Just a great guy, great trader.
Josh King:
And talking about great trader and what it was like. I want to just hear some of the sight and sounds of what the floor was like back then.
Audio:
What appears at first glance to be pure pandemonium is in reality a very structured business as highly choreographed and orchestrated as any Broadway show. The New York Mercantile Exchange is a marketplace for buying and selling futures and options contracts in commodities. For instance, energy products such as crude oil, natural gas, gasoline, home heating oil, propane and electricity, as well as metals like gold, silver, copper, aluminum and platinum. But what does that matter to me, you might ask.
Josh King:
And what does that matter to me, I might ask.
Vincent Viola:
That offer was presented by Madeline Boyd, who's a dear friend. I know a voice from the pits like it was yesterday.
Josh King:
I mean, you hear some of that and the way you describe looking at the board and seeing the numbers almost in slow motion, almost in a way that others might not have been able to see, certainly the people who weren't inside the exchange the way you were brought in on that visit coming out of the 101st Airborne. But even those sight and sounds, which might've been the high watermark of the NYMEX, could you see an evolution of technology or revolution of technology coming? What did you see?
Vincent Viola:
My whole career has really been defined and enabled by the kindness of others, the sincere kindness and teaching of others. And there was a chairman when I was first on the board, his name was Lou Guttman, who was a just brilliant man, brilliant man, and we were called to Chicago by Leo Melamed and Jack Sander, and I think Terry was just on the board. He was kind of a junior member like me. So he said, "Vinnie, you're going to come with me to Chicago because Leo has conceived of an electronic exchange and they're partners with Reuters and they're going to give us a chance to be their partners." Well, it made perfect sense to me, it made perfect sense to Lou, but now we had 742 members that we had to sort of bring along. It was a pretty difficult journey, sort of was intuitively obvious to a casual observer that we would be able to replicate the central limit order book and then of course execution of trades in an electronic domain informed by access to execution, but it was a tough battle.
Josh King:
Terry Duffy and the CME had a tough battle, you had a tough battle, ICE had a tough battle. I mean, you served as chairman I think from 2001 to 2004, and in your time leading NYMEX coincided with the emergence in 2000 of another major competitor, Jeff Sprecher, the founder of Intercontinental Exchange, which would eventually buy the New York Board of Trade, the London Petroleum Exchange, and this building, the NYSE. What was your sense of ICE and Jeff as it emerged on the scene?
Vincent Viola:
Here's how I describe Jeff and I consider him a friend as well Kelly. Hyperkinetic genius mind who is untirable, indomitable, but the thing I most respect about Jeff is he has a great sense of humor. His self-deprecating humor is what I just think is... It distinguishes him and it's his natural state to compete, and quite frankly, to win. So when I first met Jeff, we both sort of agreed on the strategic premise that, "Hey, this is going to happen," and the journey began. I could do five podcasts on my relationship with Jeff, both as a friend and a competitor, but just a superstar human being. Obviously you are part of what he's created. And it was a real tough time for the New York exchanges, particularly because we were always younger cousins of the Chicago exchanges, and another very dear friend who's larger than life, brilliant leader, Wall Street leader, is Gary Cohn, and Gary was on our board at the time, and he's like, "Vin, we got to deal with this. This is real."
And without getting into the details, I guess I never intended on being chairman, and the same gentleman, the three or four sort of mentors that saw me when I had my seersucker suit, which I'd spent the money that I had to buy and my attache case when I was walking around looking for entry to the Exchange, they sat me down and said, "We're going to go ahead and talk to Danny Rappaport. We really want you to be the next chairman. You owe it to us." By that time I was building other companies, and I don't know why I agreed to do that. I really don't. But in July, Jeff announces that he purchased the International Petroleum Exchange. Thank you, Jeff. I thought I was going to sort of steward maybe a transition and then a couple months after that, September 11th.
Josh King:
Yeah, and I was going to move past September 11th, but I think it's so formative. You're looking at that video that I just showed. If you actually look at the video, it shows where the NYMEX sat relative to World Financial Center relative to the World Trade Center. What was your experience that day?
Vincent Viola:
It's amazing. My wife who never would ask me, "Hey, can you drive..." Middle son, Michael, was going to a private day school, "Would you drive Michael to school?" I said, "Sure." And so she said, "Well, I want to take the ride with you," and we were just cresting the Pulaski Skyway when the first plane hit and on WABC radio, they said a civilian aircraft just hit the tower, slight damage, and I texted the vice chairman at the time and the treasurer, Mitchell Steinhouse and Richie Schaeffer, and I said, "That was a terrorist act. We are under attack. Immediately evacuate the building, close the markets and we'll meet." When I got to the ferry, the FBI had stopped all passage back and forth, but forward to extract wounded civilians. It was pretty...
So we convened as many board members as we could that evening at my house, and the next day I moved to ground zero and the real hero in that story are the staff of the NYMEX and Dick Rosso because I called Dick and I said, "Dick, we don't have any water. We're off the grid. We have light, but damage, sustained damage." I think I called Terry, I said, "Terry, we might have to ship all the traders Monday morning to Chicago." He said, "Don't worry about it." Jack Sander and him said, "Do not worry about it. We will create the pits for all your products. We will be up and running and connected."
Josh King:
And Dick was up and running right here on Monday, September 17th.
Vincent Viola:
Yeah, and we executed. We basically converted our closed network trading system, more like an order entry system really called NYMEX Access, to a web-enabled over... We didn't stop. Staff did not stop for 48 hours, and we relocated our headquarters up in Hotel Regency, Midtown, but we stayed in the building, because we got access to it, so we just basically slept in our offices and we all closed our eyes and crossed our fingers, and Thursday afternoon we executed 72,000 crew contracts. And if not for the staff and their untiring dedication and members... What was it like? That evening we had to call families of 32 members and brokers and clerks. Some of them did not know till that time, that afternoon and evening, because Paribas called a last minute meeting that morning at the top of one of towers, and it was pretty tough. It was pretty tough.
Having said all that, the spirit and the unity and the conviction and the courage and determination, and you all remember it, if you could think back, think about how united our country was as a society. To me, it was a matter of duty is what it was, but those staff members didn't have to live and eat and sleep there, and a lot of those folks sacrificed their health and they really did. And Dick was fantastic because we had every resource of the city at our disposal. He was really our senior commander of the financial industry in those days. So that's what it was like.
Josh King:
I mean, you mentioned that even at the time that you were serving as chair, maybe perhaps reluctantly or out of a sense of duty, you were also becoming the entrepreneur within that you ultimately always aspired to be founded, co-founding several businesses, Pioneer Futures, Independent Bank at Texas Regional Bank and Madison Tyler Holdings, and then Virtu Financial to market makers and electronic trading firms. What was your vision that you had as you were putting together these organizations?
Vincent Viola:
Well, I was very lucky because I was taught how to trade by very good traders, and two cardinal rules were ingrained in me, which gave me great confidence around market making. Position, position, position. Risk, risk, risk, real-time risk. So I was very confident that I could teach, share what I had learned back on the trading floor. It was a matter of... It felt to me a little bit like the military, like an infantry unit, because I could take a young person out of college, share what I had learned, capitalize them, put them in a trading ring and supervise them. And I've always been very lucky that I've been able to have kind, honest, super smart people around me, and trust me, that's not a reflection of my judgment of people because I sort of give everyone the benefit of the doubt. I've been extremely lucky.
Josh King:
Well, as you study people, you look at patterns. Wondering how you think it all tied back to what you saw at different points in your life growing up in Brooklyn, the tight-knit sense of family and community as well as your time at West Point and in the Army, the sense of working with highly motivated, highly disciplined brothers-in-arms and then whether that all comes together in the type of people you saw down the street over there.
Vincent Viola:
Absolutely. I always tell people my leadership evolution stopped at the platoon level in the United States Infantry, Airborne Air Assault. I am not a particularly strong process leader. I'll repeat it again. I've been lucky, blessed to be joined by people who were principally simply honest, kind of good character who actually could tolerate my disorganized and rambling brain and wanted to join sort of a journey that I kind of visioned forward. But I can't say enough for the people through the years. If I name one, I have to name 30, and it's hard to do.
Josh King:
I mean honest, kind, and of good characters sort of summarizes them all and the idea that you have been on this journey is also very evident through the conversation and what we have thought about our conversation. After the break, Vinnie Viola, founder chairman emeritus of Virtu Financial and I are going to dive a little deeper into Virtu and the shift to electronic trading as well as more on the state of our national security, and of course, his passion for hockey and horse racing, and that's all coming up right after this.
Audio:
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Josh King:
Welcome back. Before the break, I was talking to Vinnie Viola, founder and chairman emeritus of Virtu Financial about his early career from West Point to the commodities pits to founding Virtu Financial, which we're now going to go into a little deeper. Let's set the stage, Vinnie. It's 2008. There's storm clouds that those on the floor can clearly see. Let's hear from the Secretary of the Treasury at the time, Hank Paulson, October 14th, 2008.
Audio:
Today we are taking decisive actions to protect the US economy. We regret having to take these actions. Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence in our financial system. Today I'm announcing that the Treasury will purchase equity stakes and a wide variety of banks and thrifts. Government owning a stake in any private US company is objectionable to most Americans, me included.
Josh King:
So if it's such an objectionable action that the secretary's taking, why is this a good time for you and Doug Cifu and your team to open Virtu? Did the financial crisis create the sort of environment in which your ideas could thrive?
Vincent Viola:
We formed Virtu. We had intended on forming Virtu since... We worked on it from just middle of 2006 forward. It was a derivative of Madison Tyler. Madison Tyler had been proposed to me by the staff at Pioneer as a vehicle to create a proprietary software to then clear the equity markets, and their message to me is, "Vinnie," we were clearing the futures markets at the time, "If we can master the front to back of the equity markets, then there should be modalities through which we could make electronic your market making strategies," and that's what I proposed to Doug and a young man that was at Madison Tyler named Graham Free.
Josh, it was kind of a continuum, because the markets, even though they were volatile... Volatility especially in those days... Because electronification was really just taking hold across the range of assets and products. So quite frankly, the bid offers were fairly wide. So there was opportunity and if you abide by very strict risk management and very singular focus in how you define your trading and you don't allow disposition or opinion into your models, we thought this is as good a time as any. And so that's the best I could recall my thinking. Maybe I was too naive to think that maybe it wasn't a good time, but that's the best I could recall.
Josh King:
I mean, you transitioned from CEO and chairman to executive chairman in 2013, 2 years shy of the IPO for Virtu in 2015. Company now has a market cap, I think, of nearly 3 billion over the years. How have you seen not only Virtu evolve, but the industry as a whole?
Vincent Viola:
I have to say I'm a perennial optimist and I firmly abide by as the pie gets bigger, more people get fed. I think competition is a super important ingredient in the free enterprise system. The fact that commissions to retail users are insignificant, if not non-existent. I think the market structure, the national market structure, the regulation of it and the electronic market making component has had a lot to do with that, and I feel great about it. I'm a tad worried about our strategic financial position as a nation. I'm a touch concerned that our balance sheet is in a place that we might not understand. We need to reinvigorate the creative engines of entrepreneurialism across our United States industries that we may be surrendered to more efficient pricing. The CHIPS Act, I think, goes a long way to beginning that what I call renaissance of our technological industrial base. I just don't want people to lose confidence in the mechanisms around the formation of capital, distribution of capital, and then the public floating of enterprise because I really believe that's the sinew that drives the opportunity set forward.
Josh King:
I mean, the sinew to be driven forward is going to have to be left in some respects, Vinnie, to the next generation, and in April Virtu announced that your son Michael would succeed Bob Greifeld as chairman. Michael's been on Virtu's board since 2016. How far does the apple fall from the tree and where do you think Virtu goes from here under Doug's and Michael's leadership?
Vincent Viola:
We're very committed to stay focused on our primary discipline, which is market making, and one of the hallmarks of the firm, and I hope it's perceived this way, is to welcome and volunteer complete transparent communication around how we do what we do, why we do what we do, and what purpose we think it serves. So we welcome regulatory innovation and the agency execution side of our business is dedicated to bringing the most advanced execution tools to as much of the market as we can, and I feel really, really good about that. If you ask me, "Vinnie, what do you think is a sort of low-hanging piece of fruit that would inject significant efficiency to our market structure? I think we have the technology, if the clearing houses are open to it, to create a real-time straight-through processed cleared equity trade.
I get worried when I see short interest in companies rising above what I know are not liquid and available locatable stocks because the assumption is, well, they're going to get out of that position within the day or in the half-day. And I'm not poo-pooing the stock loan, stock borrow business. I understand that it's pretty straightforward, but I think we can reduce systemic risk through straight-through processing in real-time top day clearing, and that leads me to my greatest market structure concern, and that is how do we create end-to-end encryption standards for the market structures amongst disparate mechanisms of trading both exchanges, alternative trading systems and the like. That's my soon-to-be 68-year-old rant to Michael and Doug. I don't think they listen much to me anymore because they've sort of went through me.
Josh King:
A lot of that depends on the government. Jay Clayton sat in the chair that you're sitting in and had a conversation. Jay is more of a lifetime lawyer and deal maker. His successor, Gary Gensler is more of a market structure specialist. We've had great relationships with both, and yet the tenure of an SEC chair is as short as the presidential tenure, do we have enough staying power or at least continuation of policy to be able to enact these things from the governmental standpoint?
Vincent Viola:
I think we do, but it has to be driven by the street. The street. I love the term the street. The economy occurs on the street even today. We're a consumer-driven capitalist society, and I love the moniker, the street when we refer to our financial structure. It has to be driven. I mean, the clearing houses have to not fear that systemic change. The firms from the big banks to firms like Citadel and Virtu have to provide for them the safety and motivation to make these markets even more transparent, more efficient, and quite frankly safe.
Josh King:
So Vinnie, sort of winding our way down, moving from finance to foreign policy, you've also found success by keeping your friends close and your enemies closer, in a manner of speaking. I want to hear from your West Point classmate Michael Sheehan during his confirmation as the United States Counter-Terrorism Ambassador. This is going back in 1999.
Audio:
Sir Chairman, in many ways this job completes a full circle for me since when late in 1979, I was first deployed overseas as a young lieutenant in the US Army Special Forces. I was assigned to a counter-terrorism unit as the executive officer of a team known as the Door Kickers. Later I became the detachment commander when I was promoted to captain. At that time, Americans were being held hostage in our embassy in Iran and we're about to embark on a very difficult era of terrorism in 1980s. Operating on a shoestring, the unit I was assigned to was putting together a hostage rescue unit, although short on funding, was long on will, determination and professionalism.
Josh King:
The Door Kickers, short on funding, but long on will, determination and professionalism. Why did you team up with Michael to found Madison Policy Forum in 2008, the same year you founded Virtu?
Vincent Viola:
Well, Mike and I were close at the academy. We had a very common view about the threat and the symptomatic display and forms of terrorism. We formed the policy unit so that in our little way we could create compelling narratives that were grounded in nonpolitical discourse, almost objective data-driven descriptions of what we thought were, one, failings in our counter-terrorism culture and organizational structure, two, a brutally candid assessment of the threat. Mike also agreed to chair the Combating Terrorism Center at West Point, which my family was gracious enough to endow, and we locked arms. Now, so Mike and I... I want to say this, I hope this is not macabre, but Mike was a real brother to me, and on the last day of his life, we said The Rosary together. Why do I say that?
I told you I've been blessed to be around kind, strong people of character. There was no greater patriot, smarter, tougher, dedicated, selfless man. He's in top 10 people I've met in my life and he was a warrior. A stone-cold warrior. A fearless warrior. He spent more time in the jungles of Central America than anybody will ever know, and one of the greatest sense of humor you'll ever find of a human being. He was just a wonderful guy. So we formed the policy forum in our very humble way to apply rigorous intellectual information that would create then dispassionate nonpolitical debate on these issues, and that's sort of what I think we've done in our own little way.
Borne of the Madison Policy Forum is a wonderful resource called the Center on National Security at Fordham. We funded that. Karen Greenberg, who's a larger-than-life individual, publishes it every day. I would invite everyone to take a look at that. Basically, it demonstrates the balance between national security and the protection of justice and fairness in our society. So just think Section 702 of the Foreign Intelligence Information Act, Intelligence Surveillance Act, and that's the Center on National Security. We like to go right into the belly of the beast and make sure that the standards of personal liberty, the constitutional rights are protected while we defeat our enemies. And so that's kind of the Madison Policy Forum.
Josh King:
I mean, too few people I guess appreciate that Mike Sheehan was also sort of early on Osama bin Laden's trail and tried to sort of give the warning in some ways that... Whether or not Sandy Berger heard it or the Clinton administration heard it as a question, I think, for the ages. In terms of keeping our enemies closer, how do you think we're doing in terms of the areas of terrorism intelligence, cyber threats? The theater of operations seems to be shifting a little bit, Vinnie, from the Middle East to the Horn of Africa. US troops now supporting Mogadishu's offensive against Al-Shebaab. There's this caution that you're always fighting the last war. Have we caught up to ourselves and are we fighting what will probably be the next war at this point?
Vincent Viola:
The way I assess the state of our counter-terrorist operations, but more importantly the state of extremist organizations, is that they've become the first derivative in the Great Power competition. You see what's happened in Maui and you're seeing what's happened in Niagara now. These are subordinate to the Russian-Chinese alliance and really this dogma around anti-colonialism. It's the gift that keeps on giving. So the Nigerian government, it's very easy to blame the inefficiency around its function on the colonial French. We have phenomenal technical advantage. We've perfected the art of eliminating bad individuals, identifying them sooner and eliminating them, but I get very unsettled by the privatization of lethality that the Russians are perfecting through groups like Wagner. But this is all, it's almost synergistic to a expressed strategy by the Chinese and Russians. It's not lost on me that there isn't a continuum of communication around that.
Josh King:
I mean, it's not lost on me that Chinese and Russian worships are operating in tandem off the Alaskan coast either.
Vincent Viola:
There you go. So it was a great British historian, Arnold Toynbee, I think, and I sort of paraphrased him before, but he really had this sense of history and people should only know that the Peloponnesian Wars lasted for 400 years. They were the unraveling of the Greek civilization and they were replaced by the Roman civilization. But the uncertainty is the underpinning, it's the debilitating of the human spirit because humans have to feel positive, safe and trusting and uncertainty erodes that. I'm very concerned that we're not... I think we might be under thinking our strategy vis-a-vis Russia in the Ukraine a tad, and I don't want it to turn into a matter of political expediency. I really hope our best strategic thinkers understand the gravity and importance of this confrontation.
Josh King:
Maybe we'll stick on the theme slightly of keeping your enemies closer. You're sitting across the table from a lifelong Boston Bruins fan who thought that the B's '22/'23 record-breaking season of 65 wins, 12 losses and five ties, and their 135 points would make pretty quick work in the Eastern Conference playoffs first round against a team from Florida that was 42, 32 and eight, but that wasn't to be. So let's just take a little listen to that.
Audio:
Four cousins lifted in. First one to it, Tkachuk, hit by Carlo, but pops in the air, lands behind the net, right on the side of the goal and chop away at it. Tkachuk keeping it alive. Carlo can't grab it. It comes to Verhaeghe. Shoot, scores! Carter Verhaeghe and the Panthers have eliminated the Boston Bruins.
An incredible wrist shot. You just mentioned Verhaeghe with that great regular season. That line not getting many chance in this game and the improbable has just happened here.
Josh King:
The improbable just happened. You did that to us in the Garden in game seven. Thanks a lot, Vinnie.
Vincent Viola:
That was a very special moment for my family and I. Very special moment. I can't even react to it because I'm so happy for the players. I knew, in chatting with other owners, we were viewed as a formidable bowl opponent if we were lucky enough to make the playoffs. And Terry Duffy, Chicago Blackhawks beats the Pittsburgh Penguins in a really non-important game to the Blackhawks, we get into the playoffs and the rest is history. But that's hockey. You know it, Josh.
But I would say I can't express the happiness I had for our players. They really did lay it out completely, laid it on the line, and a couple guys left that series with broken bones and continued to play. It was just very humbling. I have to say, my sons, Matt Caldwell, our CEO, Bill Zito, Paul Maurice, they've created a culture of unity and dedication down there and it's pretty special. I understand that Cam Neely was none too happy, and I've only met Cam a couple of times, but I really have been meaning to call him and just tell him how proud I am of his team for the season they had and how humbled we were to be able to upset them.
Josh King:
It ended far too soon and I just watched Cam in the stands in so many of those games, and I thought this is going to be their year. Alas, it was not to be. I mean, you bought the Panthers in 2013, though growing up you were a staunch Rangers fan, cheering on the likes of Vic Hadfield, Brad Park and Jean Ratelle. Why the Florida Panthers?
Vincent Viola:
My wife, Teresa and I, we were determined to retire in Florida. She spent her summers in Pompano and just loved the state of Florida. I made a commitment to myself that by the time I was 62, I was going to try to evolve as a human being in other ways, so I took up stuff like fishing and we did it. And the opportunity, I got a call from David Stern who introduced me to Gary Bettman, who introduced that opportunity to me. I had been one of the partners in the Brooklyn Nets and the movement to Brooklyn from New Jersey, and it just felt like something we would enjoy, and we have. The family's really enjoyed it. Particularly my wife, she's really involved in the day-to-day business side of it, and I'm just so happy for her.
Josh King:
I mean, fans love to boo Gary Bettman, but he's been on the job for 30 years, which dwarfs what Adam Silver, Roger Goodell, Rob Manfred have done. What's the power of this product to the global fan?
Vincent Viola:
Well, first of all, Gary Bettman is a magnificent leader, visionary. He defies gravity in his accomplishments. He's a great strategic thinker. I think hockey brings out the absolute best in a fan. Obviously, we all know live, it's probably the most exciting sport because it's kinetic and continuous and it's random. It is a random sport. So fans start to get in the flow of that dynacism, and it's a rough sport. And Gary's vision was very clear that if you could introduce people to this sport, it would sell itself. Hasn't been easy in all markets, but once it hooks in there and once the surrounding communities start to play the game at a young age... Our biggest challenge going forward is to bring the game to all communities. We're doing much better in terms of women's hockey, but we have to get the game into all communities. We have to make the game available to all athletes. So once we do that and we're committed to it, I think the sport will explode in a step function fashion. It's a pretty international sport.
Josh King:
We had ESPN's Jimmy Pitaro on the show a couple of weeks ago talking about how he's improving the televised baseball product by mic'ing up players live, and with the pitch clock and other rules changes, I think baseball has had a great year and it's improving a lot, but hockey has always been this challenging game to watch with the small puck and the big eyes on television, what big ideas are out there to keep the viewers' attention?
Vincent Viola:
Well, we've worked real hard on puck tracking. We're starting to create graphics such that they can sort of attach to the player and provide statistics. We're trying to provide more specifics about the physics of the game on the screen while it's happening, speed of shot, angle of shot, speed of skaters, but I think it's going to take some kind of puck tracking, and quite frankly, use of multiple angle drone cameras. Things like mic'ing the players, that's growing and players are getting more comfortable with it, and I think we're going to probably one day work with the union such that the players will wear measurable gear so we can sort of-
Josh King:
Get more telemetry and wearables and stuff like that.
Vincent Viola:
Yeah, really feel like you're in that player's place as a fan, but the numbers are pretty bullish for the league.
Josh King:
Reading my hockey news, they're looking for Anton Lundell, your 21-year-old flying Finn about to enter his third season in the league as a potential breakout star. What does Coach Maurice need to do to bring the Stanley Cup finally home here to Miami from Las Vegas?
Vincent Viola:
Just keep doing what he's doing. This season was about presenting and rooting in the culture and understanding of what it takes to win, what it takes to play the game across 200 feet of the ice at all times and make the sacrifices that are necessary. I think he's done a fantastic job of that. So more of the same, and if you want to get a little to X's and O's too, our defensemen are going to be out for the first couple of months or so, Aaron Ekblad and Bryan Montour, and they're two of our anchors. We lost Radko Gudas who just was the soul of the team to free agency. More of the same.
I think the Panthers now have a culture unique to themselves. So funny, and I don't like to use either allegories or analogies to the military, because quite frankly I don't think it's fair to the military, but hockey teams are much like infantry squads. They go out there and as much as they abide by the system, they're really out there with the dual consciousness of doing really well while they're protecting their fellow player. You know the game well enough, it's a very, very demanding physical game. I think we have that in our culture. I think we've rooted it. I think Paul did a magnificent job, and before him, Joel did a magnificent job.
Josh King:
When's your first visit to the Garden?
Vincent Viola:
I don't know the answer to that and I'll tell you why: I can't go to Madison Square Garden and watch the Florida Panthers play for the Rangers. It's too emotionally conflicting for me. Yeah, I am a devout Ranger fan, but for the Panthers, and... Oh, gosh. You hit me right between the eyeballs there, Josh. And I don't think I have since we have the team. I watch the games, but it's hard to be... Now, I've gone and watched the Rangers when they weren't playing the Panthers, but that's...
Josh King:
So a lot earlier in our conversation, Vinnie, we talked about how you felt when your dad was looking over the racing form and your affinity for math and odds and risk through that. Let's end our conversation then going back to Kentucky in 2017, your horse, Always Dreaming, won the 140th running of the Derby. Let's return to that day at Churchill Downs for a moment.
Audio:
A bit now through on the inside, up into second, Always Dreaming with a two-and-a-half length lead to 16th to go. Looking at Lee is second, then comes Battle of Midway, Classic Empire. They're coming to the line and the dream comes true. Always Dreaming has won the Kentucky Derby.
Josh King:
What was it like standing in the winner's circle? That was a wet track.
Vincent Viola:
Surreal out-of-body experience. The best thing about winning the Derby is that my partner in Always Dreaming was a fellow who was about three or four years younger than I, who I knew growing up and we partnered on this horse. Fantastic athlete. His name is Anthony Bonomo and he was on the same pitching staff at St. John's with Frank Viola and John Franco, and I think we both lost our minds. I really think for maybe two minutes after the race we were cuckoo. I mean, we were vibrating. For a kid who grew up watching every derby, never having... I didn't go to any with my dad, but I almost can recall just about every derby in my life, if I really think hard about it, from about 1964. I don't want to try to do it, but what I said after races, I wish every person who's ever watched a horse race could experience what I'm feeling right now. It's better to be lucky than good, I could tell you that. Todd Pletcher, hall of fame trainer just had that horse peak performance on the day of the Derby. Thank you, Todd.
Josh King:
I mean, talking about Pletcher, just last month, your horse Forte won the Jim Dandy in Saratoga. I usually get up to the Saratoga reading room once a season with my old friend, Keith Mason, who part of the West Paces Racing syndicate, but I don't think I'll make it up this year. What's next for Forte? I mean, the blinders seem to work to Jim Dandy.
Vincent Viola:
Josh, you're blowing me away, man. This is a great interview. So we're going to go into Travers. I think the horse is ready. He had a great breeze the other morning. Irad Ortiz will be on him. I think Irad is the best jockey in the world and we're really excited. And the best part of it is I'll have all six of my grandchildren, my three sons and their wives with me in the box to watch that race. So whatever happens in that race, it won't compare to the feeling I'm going to have that whole day. Yeah, it's a magical, magical day. Been very lucky in the sport of horse racing and very, very humbled and aware of that good fortune.
Josh King:
I mean, everything we've talked about is about luck, friendship, family, perseverance, teamwork. I mean, from Brooklyn to West Point, to NYMEX to Virtu, and then all of your adventures since then. Vinnie, it's been great to catalog them with you and have this conversation.
Vincent Viola:
Well, you're very kind, Josh. I appreciate the conversation and I hope you enjoyed it as much as I did.
Josh King:
As will our listeners. Thanks so much for joining us inside the ICE house.
Vincent Viola:
Thank you.
Josh King:
And that's our conversation for this week. Our guest was Vinnie Viola, founder and chairman emeritus of Virtu Financial. If you like what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us, @ICEHousePodcast. Our show is produced by Lauren Sullivan and Pete Ash with production assistance and engineering editing from Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. We'll talk to you next week.
Speaker 1:
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