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‘Flash Boys’ star IEX CEO Brad Katsuyama talks about fighting duopoly



Brad Katsuyama 2
IEX CEO Brad Katsuyama
said he doesn’t consider himself the typical entrepreneurial

Business Insider/Jessica

  • Brad
    is the co-founder and CEO of the Investors
    Exchange (IEX),
    which prohibits
    high-frequency trading
  • HFT uses computers to make many trades in a fraction of a
    second, which Katsuyama argues is used by some in a predatory
  • Katsuyama and IEX came to prominence as the stars of

    Michael Lewis
    ‘ 2014 bestseller “Flash
  • IEX
    listed its first company in September
    , a major turning
    point for the exchange.
  • Katsuyama does not consider himself a natural entrepreneur,
    but was compelled to start IEX out of a fierce belief that he
    could help fight what he deemed a rigged system.

Brad Katsuyama has never considered himself a maverick or
anything like an entrepreneur. Before founding the Investors Exchange (IEX), he had a
cushy job as an executive at the Royal Bank of Canada.

But the more he learned about high-frequency trading — where
computers can trade a bunch of stocks in a fraction of a second —
the less comfortable he felt. He felt so strongly that
high-frequency trading was harming the market that he set out on
a path to create his own exchange, where predatory trading was

Investors can trade stocks from other exchanges on the IEX, with
the idea that it’s a level playing field. And in September it
listed its first exclusive company, Interactive Brokers.

As CEO, Katsuyama has adapted to being the face of the IEX. But
when Michael Lewis wrote a book about him, in 2014, the
best-selling “Flash
,” he felt a bit in over his head.

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Transcript edited for clarity.

Brad Katsuyama: I had never been on television,
live television, until
“60 Minutes.”
I had more LinkedIn requests at the end of that
“60 Minutes” episode than I had connections. We had over 500
people during the episode send résumés to the [email protected] email.
So things changed very quickly.

Beforehand, Michael Lewis gave me pretty good advice, and he
said, read something about you that says you’re a hero and read
something about you that’s really negative. He said, do an
inventory of how that feels. He said, if the bad ones feel much,
much worse and the good one feels good, he said, stop reading
everything. So I did that, and the bad one felt really, really
bad. And so I just … really, I don’t know if I’d read an
article fully written about me in years. My team is good at
keeping me informed, and I focus on the business, and I think if
you don’t let it change you, I think I’m the same person I was
before that happened.

Richard Feloni: On that note, how do you think
that Lewis represented you? Even just you personally?

Katsuyama: He absolutely nailed me personally,
my character, And what was really funny, was that I was really
nervous going into it because I had read basically everything
Michael had written.

Feloni: In preparation or just as a fan?

Katsuyama: No, as a fan. “Moneyball
is probably still one of my favorite books of all time.

Feloni: So now you got to star in your favorite
writer’s —

Katsuyama: I never thought that was actually
going to happen, but his characters are larger than life. And I
was really concerned. I’m a pretty normal person and never meant
to cause much trouble. Even growing up, I always just tried to
get along with people. It’s just a lot easier to do that than to
fight. And so, in the middle of kind of his research and his
writing, he said, I’m having a lot of trouble writing about you
because you’re kind of boring!

Flash Boys cover
Michael Lewis’ 2014 bestseller “Flash Boys” put
Katsuyama into the spotlight.


And so, I remember, he flew up to Toronto to have dinner with
five of my childhood friends, and he went around with my mom, my
stepfather, to try to get to know me better or my background
better. On the plane ride back, he sends me a text and says, I
figured you out. And I was, like, OK, here we go.

You were never looking for a fight, he goes; the fight found you
and you fought back. And that is the truest statement that could
ever be made about how I ended up in this situation. I was never
looking, never really to fight with anyone. It just so happened
that this was the way my life went, and when faced with the
decision of whether to let it go or to fight back, I chose to
fight back.

I think him figuring that out on his own, I think, for me was the
first time I was comfortable. The way that he was going to
portray me was actually going to be an accurate description of
who I am as a person so, that’s what resonated with people in
“Flash Boys,” is that this could have been anybody. I don’t view
myself as special in any particular way. I think I was the right
person in the right situation.

Feloni: So growing up, did you have a vision of
who you would become? Did you have a dream of what you wanted to

Katsuyama: Absolutely not. I’ve had a
comfortable life. I’ve had the same group of friends really since
I was 5 years old. Grew up in a pretty normal place. My family
life is solid. I was never forced or had this strong desire to be
something. So yeah, no. In a funny way. Which is really why, I
read Michael Lewis to read about other people who were doing
amazing things. I never in a million years thought that I would
be in a Michael Lewis book. Just never.

Feloni: That’s funny. Not the traditional path
to being a disrupter.

Katsuyama: No. Not at all. There’s nothing about
my background … I think part of the struggle was there was
nothing about my background that made him think that this is
something that would have happened.

One interesting piece is that he was, like, give me something,
you know, to talk about. Because typically it’s something in your
childhood sparks something, and so when he found out my parents
were divorced, he really tried to dive in. He was, like, tell me
more about that. I was, like, listen. I said, my mom and my dad
are still friends. My dad would come over for Christmas and we’d
all golf together. Lewis is, like, “OK, that’s not going to
work.” He basically scratched it out.

I’ve always been someone who’s had a lot of ideas. I’ve always
been someone who’s tried to give advice and be a good friend and
a good teammate. But, yeah, there was never this
take-on-the-system mentality at all.

Finding something that had him reconsider everything

Feloni: And even aside from your personal
character, was there ever any side of you that was maybe
entrepreneurial in that sense?

Katsuyama: I worked at the same place my entire
career so ….

Feloni: So no.

Katsuyama: I worked at the Royal Bank of Canada.
I had many different jobs. I always like building and creating,
running and building teams, and I had seven jobs in 12 years at
RBC. So I think maybe there was a bit of that spirit there, but I
could have retired at RBC and never had a second doubt. So I
think maybe … I’d say I’m more of an intrapreneur than
an entrepreneur.

Feloni: What led you into finance in the first

Katsuyama: Definitely not a love of finance. I
mean, I took finance in school, but I never really had an
affinity for the stock market.

I played hockey and football growing up. My stepfather played
hockey with someone who was a client of the Royal Bank of Canada,
and he said, you know what, I think Brad would be a good trader.
He’s competitive. He’s good with numbers and he’s pretty smart.
So my stepdad came home and said, you know, Jack thinks you’d be
a good trader, and here’s a contact at the Royal Bank of Canada,
and so I sent it in. And basically it was choosing between that,
a job at Microsoft, a job at investment, and a marketing job at
Proctor and Gamble. Those were my picks, and I picked trading.
It’s just where I ended up, in a way.

I think part of IEX, knowing the risks we took to start IEX, I
think partly is grounded in I don’t feel that working on Wall
Street identifies who I am. So if I lost it all tomorrow, I think
I could be totally happy with my life, from that point forward,
and I think a lot of people over-identify with their jobs. I
don’t really feel that way.

So, one of my jobs was going from running risk training where I
managed a group of human traders to taking on the role to run
global electronic sales and training, and that meant managing a
team of computer programmers and network engineers. People who
are building algorithms that my training team was using. That
shift, in a way, was eye-opening for me because it turned out
that those network engineers and programmers actually knew more
about how the stock market worked, than I did or my trading team
did as traders!

And when you start to understand the plumbing of the stock
market, you start to ask a lot of questions. Well, how can they
trade at that speed? Well, why is the exchange selling them this
cable? Why are the exchanges
erecting these microwave dishes
? You start to get down this
questioning path and then you figure out, wow, I can’t find any
of this stuff on the internet. I have to hire people with insider
knowledge about how these exchanges are actually operating their

It does become an insider’s game. Where the majority of the
people, including some big investors, have no idea this is what’s
happening in the stock market. Because again, if you’re applying
this tax on people, you don’t want them to know that they are
being taxed. You don’t want them to know that you even exist. You
just want to keep applying that, so that’s really what happened.
This subculture in the stock market exploded and it was taxing
everyone else who needs the stock market to invest in companies.

That’s the thing that I think is, you know, most concerning about
all this is, that the purpose of the stock market is you have
companies that need capital to build their businesses, build
products, provide services, et cetera, and the investors are the
ones who have that capital. So that transference in today’s
market, 2018, should be pretty efficient, right? Unfortunately,
it’s not efficient at all because the middlemen, the exchanges,
have made it unbelievably complicated to extract maximum rents
from that transference of capital. So I think that’s what we’re
trying to do, is fix that.

Feloni: And then when you were exposed to this,
at what point did it go from being something that you were upset
by, or just intrigued by, to all right, I’m quitting my job, I’m
starting my own exchange? That’s a pretty big leap.

Katsuyama: So I think the decision point at RBC,
there were a few factors. I think one was, yes, we wanted to
solve this problem on a bigger scale. Two is that the success we
had at RBC. There’s this one survey called the Greenwich
Associates Report, and RBC went from being ranked No. 19 in the
United States for products to No. 1 in six months.

Feloni: And that was the team you were working

Katsuyama: That was the team that I was running.
So that was a huge win. So that doesn’t mean we’re No. 1 in
market share. That just means people think our products are the

The analogy I used is that’s like winning the Super Bowl and then
everyone the next year is a free agent and then you have a salary
cap. There is no way you can keep that team together. So what was
happening at RBC is that me and a bunch of my key people were all
getting job offers from other banks. So if I don’t do anything,
I’m just going to be managing a team that’s been depleted and
there’s going to be all this turnover and we’re going to have to
start over and do a bunch of things. So that wasn’t very

The third piece was I was starting to read more articles. This
was in 2011, where big banks, I remember reading this article
that’s saying
Goldman Sachs is having trouble paying its best people
because they want to pay them enough to keep them, which they
have to do. But they don’t want to pay them too much to enrage
society. And I started to hear more and more about Wall Street
compensation. I said wow, society is having an impact on the way
Wall Street operates. I also kind of wanted to kind of get in
front of a tidal wave that I thought was coming where Wall Street
was going to be more accountable for transparency and truth and
fairness. There was this trend.

Feloni: Like a cultural shift after the Great

Katsuyama: Absolutely. The financial crisis
created a mistrust between Main Street and Wall Street, and I
thought we can create a company that essentially positions
ourselves for this wave. Not to say that people didn’t trust RBC
— they did. It was a great place to work, but just kind of
creating our own company to keep this group together, to solve
the bigger problem, and to be kind of well positioned for this
change that we’re seeing coming on Wall Street.

Those three factors were the reason that we decided to leave.

IEX team
The IEX team in


Risking it all to take on a duopoly

Feloni: Then what did your family and friends
say when you decided you were going to do this?

Katsuyama: The first person I had to get
buy-in from was my wife, and my second son was born three days
after I started IEX. So obviously life was changing pretty
dramatically. But she was always a believer in kind of, this is
your path and I have confidence in what you’re doing, and kind of
the deal we made is if this doesn’t work, I am going to leave
finance and we’re going to prioritize where we live and I’ll find
another job.

So, again, I think it was an asset to not be attached to Wall
Street. I was willing to take a risk that other people aren’t
necessarily willing to take. I got buy-in from her and my family,
my friends — no one really questioned what we were doing. I think
I had enough conviction at that point that this was the right
path, that people bought in.

A lot of people from RBC, when they heard I was leaving, wanted
to leave. We took a very small group of people. But I think one
piece of advice I would give people is it ended on good terms
because I didn’t hide anything from RBC. When I had the idea, I
brought it to them. We tried to do it actually as an RBC-created
exchange and the customers told us, well, it can’t just be RBC
because Goldman Sachs will never want to route to an RBC-created
exchange. So RBC understood that they couldn’t be a part of this
exchange. And so, I think being above board, and there were
people I trusted at RBC …

Feloni: Just being fully transparent?

Katsuyama: Being fully transparent. We walked
away. I think a lot of times people try to hide things. And it
ends up working out a lot worse and frankly, RBC is still a good
customer. Relationships are still there. There’s still a level of
trust and I think if I had tried to hide all this, that would
have been destroyed. And I had worked my whole career. Why would
anyone want to burn a bridge like that?

Feloni: What did you find, in terms of the
experience of being a leader as an executive at a big bank, to
now being a CEO of a startup?

Katsuyama: You take a lot of things for granted
at big companies. I think what concerns me a little bit about
what happens now or when I talk at universities or different
places, I think some people want to start a company more than
they want to start a particular company — “I just want to be an
entrepreneur.” I think there’s a huge amount of risk there,
because there are things that you would take for granted or
there’s things that you can learn at a big company, that you just
can’t on your own because once you’re on your own, it’s as much
about survival as it is about anything.

Feloni: So there’s less time to learn more

Katsuyama: Absolutely. Without question. It’s
like, “OK, we need phones. We need insurance. We need this, that,
and the other thing.” So you’re making decisions that are
necessary that certainly aren’t … you’re not learning anything
when you’re on, when you’re talking to the phone company all day.
I think, you learn how much we took for granted at a big company.
At a big company it’s about here’s a business, go build it. And
everything else just sort of works, right? You show up. There’s
chairs in your office and stuff like that. I think as an
entrepreneur you find out really quickly how much needs to be
done that has nothing to do with the business you’re trying to

Feloni: And you’re there as the lead inspiration
for your team, as well.

Katsuyama: Yeah, the risk level … I think I
fretted more about the risk other people were taking than my own
risk. At one point, the highest paid person at IEX was my
assistant because she wanted to come and she did, God bless her
for coming, but she couldn’t afford as big of a pay cut as the
rest of us could in a way, so you kind of got to do things like
that to make sure that you’re treating people fairly. Yeah, I
still fret about it. People’s families rely on us to make good
decisions and to build a good business so that’s a level of
stress that I think you don’t have at a big company.

But at the same time, when the buck stops at you, when you’re the
CEO of the company, you can control the amount of politics that
exist in your own space and, also to an extent, the company’s
space. And I think that I spent a lot of time at a big
organization dealing with politics and that cuts into
productivity. I don’t think I work more hours than I did at the
big bank. I just think I work way more productively in the hours
I spend.

We’re in a different life cycle. The early life cycle,
fundraising was the hardest thing I’ve ever had to do in my life.
It’s incredibly humbling. You get rejected hundreds of times and
people are basically pretty ruthless at times about the thing,
your dream. It’s like, “Here’s my dream,” and they’re like,
“Here’s all the reasons why it’s not going to happen,” or,
“Here’s why you are stupid or crazy, or, you know, I heard
[you’ve got odds of] “one in a million” from a pretty savvy
investor. When you hear that you’re like, oh my God, what have I
done? Fundraising was definitely something I had no idea how hard
it was going to be.

Feloni: Well, in that moment, when you have
someone who kind of like, maybe someone who you admire and
respect, and they just completely shoot down your dream, did you
have a moment where you questioned everything that you were

Katsuyama: I had many moments when I questioned
everything I was doing!

So one piece of advice that I give to anyone thinking about
starting a company is you have to have experienced the problems
that you’re trying to solve. You have to. It can’t be, oh, I’m
told this or I’ve read this. It’s you have to have lived through
the problems you’re trying to solve because there will be moments
where you will doubt yourself. There will be moments where you’re
absolutely at rock bottom. If you can’t rely back on the fact
that you have experienced the problem that you’re trying to
solve, you’ll doubt whether that problem exists. You can talk
yourself out of it in a way. I had many low moments. But I would
always fall back on the fact that I lived through this problem,
for years. And I know we can solve it. Then you snap out of it
pretty quickly. We had many, many ups and downs. It’s another
good thing about having a good team.

When I was out raising funds, one of our co-founders,
Ronan Ryan
, who is our president, he and I would go on these
pitches together. And I think what was nice was we’d be riding
the subway back and I would be totally bummed. He’d be, like,
“No, man. It’s OK. We’ve got this. Don’t worry about it.” Then he
would be totally bummed the next week and I’d be, like, “OK, man.
We got this.” So I don’t even think we hit rock bottom at the
same time. So, that probably kept us going too. If you can afford
it, having partners, teammates, is really helpful. I think alone
it would have been a much scarier situation than with a team.

Feloni: Because they share that vision and they
could lift you up when you need that boost?

Katsuyama: Yeah, and people can focus on their
areas of expertise, right? Like our CTO never left the office. He
was coding nonstop and our COO was the one getting the phones set
up and doing all these things, these thankless jobs, but he knew
that’s where he was kind of best focused. So I think we had
experts that were focused in their areas. And yeah, do I own less
of the company than I would if I didn’t have [them]? Yeah. But
50% of zero is zero. There’s no way in the world that IEX would
be where it is at this moment if I didn’t have that team
alongside me.

brad katsuyama iex
Katsuyama in IEX’s office.

Balancing ambition with patience

Feloni: Was it difficult building an exchange
when you’re working with the Securities and Exchange Commission,
the SEC, and things move gradually with federal oversight? Was
that ever frustrating in terms of things had to move a bit more
slowly than at other startups?

Katsuyama: Oh yeah. I mean,
it took us two years to get our exchange approval
. In startup
language, two years is an eternity. It took us another year after
that to get approval to list companies.

There are pros and cons of regulation. The pro is that the
barrier to entry is really high. The expertise level is really
high. A group of kids in college can’t create a stock exchange.
You just can’t. You don’t have the expertise. You don’t have the
understanding of the regulation. It’s just very, very hard to do.
The downside is that, yes, there is a huge wall to climb over
just for the right to compete. And I do think it’s why you don’t
see a huge amount of disruption in our part of the world, because
it is so heavily regulated. A lot of times innovators are
allergic to regulation. And for good reason.

So for us it was about getting the right people, setting the
right kind of long-term agenda. And I say this all the time,
almost ad nauseam, I say, I believe we’re on the right side of
this and I can predict we’re going to be on the right side of
this. What I can’t predict is when that’s going to happen because
it’s outside of our control. So we need to focus on the things we
can control. I did my best to not over-promise, to not
overestimate. It’s a matter of just trying to lay that plan out.
I think in the early days we expected the regulatory process to
go very smoothly and I think the second that we understood that
that was not going to be the case, we adjusted pretty quickly.

Feloni: So you got your first company for the
exchange in September. How did that feel and what does that mean
for IEX?

Katsuyama: Yeah, it’s another huge milestone for
us in a pretty long journey. There are 13 exchanges in the United
States, but if you go on the street and you ask people who are
the stock exchanges in the US, they’ll say New York Stock
Exchange and Nasdaq because where a company lists automatically
creates a connection to that company, and in people’s minds it
validates those markets as exchanges. They’ve had a 40-year-old
duopoly in listing major companies. They’ve kept people out
through the regulatory process partly, partly by
fighting them every step of the way
. It’s been a battle for
us. Whether it’s lawsuits, lawsuits threatened against the SEC,
the lobbying, it’s all that. We’ve lived through all of it.

If you have a duopoly you don’t want competition, and I think for
us, No. 1, it represents competition and, No. 2, when I look at
companies and I look at the shareholders that they have, IEX’s
big support and backing come from investors. Long-term investors.
The big ones. We continue to grow because of them, and then I
look at companies. And really these companies are listed on the
NYSE or Nasdaq. They’ve been hugely underserved, right? All of
the innovation in the market certainly benefited high-speed
trading. But how has that benefited the company? So for IEX, our
biggest value is taking the investors and the companies and
aligning their interests with their exchange.

Interactive Brokers, as our first listed company, we couldn’t
have written a better script. Here is company that has innovated
in the market. It’s one of the largest brokers that there is.
Their chairman, CEO, founder, Thomas Peterffy, for me, has been
an inspiration. I followed his career. People call him the father
of electronic trading. But, using technology to help investors,
to help lower costs. That’s what Interactive Brokers has done.
We’re on the same side of this debate to say, listen there’s a
part of high-frequency trading that is not good whatsoever and
the exchanges have essentially enabled that.

The problem with breaking a duopoly is there’s always risk to
someone going first. Who is going to go first? The risk here
isn’t actually that high, and it took someone sophisticated to
understand that but I think having someone that knows the
markets, understands market structure go first, it sends an
amazing signal to a lot of other companies, whether you’re in
finance or not, that this is a move you can make.

Feloni: Has it made those conversations that
you’re having with companies easier?

Katsuyama: I mean, absolutely. The interest
level after the Interactive Broker switch has been tremendous.
What’s funny is that when people start to think about
competition, if you do an inventory that says OK, what has my
exchange done for me recently? And your answer to that is I don’t
know. That’s a huge problem, right? They collect about $750
million a year from these companies that are listed there. This
is a sector that is in desperate need of competition.
Overcharging for the service and underdelivering on that service.
We see this as just a huge opportunity.

Keeping a healthy boundary between work and his personal life

Feloni: And as someone who’s building his own
business and someone who’s served a long time in a big
corporation, looking at all of this, how do you personally define

Katsuyama: What’s funny is that some people have
that barometer where it’s about money. And I could not tell you
if you asked me, if you had a gun to my head right now and said,
“What’s the value of your stake in IEX?” I would miss it. I would
be wrong. I don’t know. So that tells me it’s not about money.

I think success is about building a company that lasts, that
people are proud to work at, that my kids could work at some day.
And that’s not measured in dollars.

I think success is having a balance between what’s important to
you inside of work and what’s important to you outside of work.
And I think some amount of balance means that the most important
thing in my life is not just work. I think people equate success
to work. I actually don’t, and I learned the lesson early that
identifying yourself too much with one thing in a way sets you up
to be dramatically disappointed at some point.

If I defined my life around IEX, at some point in time I might
not be the right leader for IEX. So I would step down if the
company believed there was a better leader. I’d step down
tomorrow if the company honestly believed that there was a better
person to lead the company. I would do it. I actually think
that’s what makes our company work. I’m the leader because I
think I’m the best person for the job. I’ll hire people that I
think are more talented than me and I’ll be very candid with
people I’m friends with about whether they are doing a good job
or not.

It’s a business. But it’s not the only thing in my life. It’s
certainly not the most important thing in my life.

So I think success is a really, really broad term. It’s actually
important to ask yourself that question as an individual because
you can start to line up the things that you do on a daily basis
behind what your view of success is.

Feloni: Well thank you, Brad.

Katsuyama: Cool. Awesome.

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