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 an indispensable institution of global growth for over 225 years.
Speaker 1:
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 12 exchanges and six clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh:
I spent a little time this morning reading the history of International Business Machines. That's NYSE ticker symbol, IBM. It started back in 1911 as the computing tabulating recording company. And then Thomas J. Watson took over in 1924. Giving the business its current name. Watson was renowned as a salesman and built a highly motivated sales force whose motto was, think. You all remember those punch cards.
Josh:
Part of the massive systems used by governments and big insurance companies and eventually making their way into everyday life. Even a sporting good store on Manhattan's Upper West Side, back in 1953 could use those cards to track inventories right down to the high sheen baseball jacket sitting on the rack, attracting the gaze of a young sports fan begging his dad for the coveted item. Meanwhile, IBM was a good investment. It went public on November 11th, 1915. On that day, the Dow Jones Industrial average was hovering around a whopping 93 points.
Josh:
And today the Dow is north of 26,000. And even if you got into IBM back in 1953, you've done pretty well. A young man with an eye for a baseball jacket and a head for business, Stuart Frankel combined those two passions when his dad said Stuart could have the jacket, if, and only if he got a subscription to the Wall Street Journal, bought some of those early shares of IBM and tracked the company's progress through the succeeding decades of innovation.
Josh:
Young Stuart parlayed that early interest in using investments to fuel his other interests by founding Stuart Frankel & Co. The oldest independent broker on the New York Stock Exchange trading floor. Stuart still chairs the firm he founded back in 1973, which is now run by his two sons. Co-presidents Jeffrey and Andrew Frankel. From their current perch, just inside the NYSE trading floor, Stuart, Jeffrey and Andrew see just about everything that goes on during trading hours and have thousands of stories to share from the changes they've witnessed over 46 years at 11 Wall Street.
Josh:
What drove Stuart while supporting a growing young family to leave a job that he describes as a great overpaid salesman to risk starting his own firm and how have his two sons continued to evolve the full service floor business to thrive in an increasingly competitive market of no frills transactions agents. Our conversation with Stuart, Jeffrey and Andrew Frankel, right after this.
Speaker 3:
It's more than an iconic building or a global financial marketplace. It's anywhere technology, commerce and people intersect. The innovation that makes people's lives better. Dreams that were once impossible are now realities at the New York Stock Exchange we help tech companies flourish and change the world. So go ahead, bring those ideas to life. We'll bring it to market. We are Living Tech.
Josh:
Joining us inside the ICE House for a four man podcast are Stuart Frankel, chairman and co-founder of Stuart Frankel and Co. And the company's co-presidents, Jeffrey and Andrew Frankel. The firm, as I said in the intro is the oldest independent broker on the New York Stock Exchange trading floor and offers direct execution in cash equities and derivatives globally. Stuart began Stuart Frankel and Co. in 1973 on the simple idea of providing better access to the trading floor for institutional clients and today offers both research and execution to access to clients across the globe. Gentlemen, welcome inside the ICE House.
Jeffrey:
Thank you for having us.
Josh:
Stuart, are you still long IBM?
Stuart:
No, sir.
Josh:
Do you still own the baseball jacket?
Stuart:
I admired the baseball jacket as recently as two months ago. I was in Costco with my wife and I said, "That's the jacket that started it all."
Josh:
Well, tell us the story of the jacket and your dad, and IBM and the Wall Street Journal.
Stuart:
We went to a store called Davega on Broadway between 86 and 87th. And I saw this beautiful red and black satin baseball jacket. And I said to my dad, "Could you please buy this for me. It's the most beautiful jacket in the world." But I was kind of a big boy. And we went to the front and asked the salesperson, "Do you have this jacket in a boy's large?" And he said, "Hold on a minute. Let me see if we have it." And now we pressed some buttons. And I saw these cards going around in a circle. He said, "As a matter of fact, we do." And they brought the jacket out. And I said to him, "How did you know that from pressing that button and looking at these cards. He said, "Well, the cards show us all of our inventory." He said, "The cards show you your inventory." Who makes those cards?
Stuart:
And he said, "The IBM company." I got my jacket. We walked out of the store and the first thing I said to my father is, "Dad, I got bar mitzvahed about three months ago. I received about $3,200 in $25 bonds. Could we cash in my bonds and buy IBM stock?" Which was then selling at 301. He said, "We'll do that under one condition." I said, "What's that?" He said, "I'm going to subscribe to the Wall Street Journal. You have to read the paper every day so that you'll know if anything changes, because you have everything going on in this one company." I said, "Dad, we have a deal." So I was probably the only boy that went to summer camp and lived in a bunk with eight other boys. And I had the Wall Street Journal delivered every day. And I kept my promise. And to this day I read the Wall Street Journal every day.
Josh:
Where'd you go to summer camp?
Stuart:
I went to summer camp in Schroon Lake, New York. Camp Idylwold.
Jeffrey:
He still knows the song.
Stuart:
Yeah.
Josh:
I won't ask you to sing it. Thank you. But I got, when I went to summer camp, I missed the Red Sox so much, that I got the Boston Globe delivered two days late for a while.
Stuart:
Okay.
Jeffrey:
That's great.
Josh:
So Stuart, on January 5th, 1973, you and your wife launched Stuart Frankel & Co. You are 33 years old. You have a couple kids already and Andrew would be arriving next year.
Stuart:
Right.
Josh:
How did you come to the decision to make that leap?
Stuart:
That's a very good question. In 1970, I bought our first seat on the New York Stock Exchange from the original IBM money that I borrowed on in 1959 to buy $15,000 worth of a company called Haloid. And I owned Haloid from 1959 to 1970. Haloid in 1962...
Josh:
What did Haloid do?
Stuart:
They changed their name to Xerox. And that $15,000 allowed me to buy off first seat for, I believe it was $270,000. And I bought that, not because I had any idea of a business, but I felt that I was one of the great overpaid men in America and having a seat would give me some kind of alternative when the government figured out that the commissions were far too high at that time. They were all fixed rates.
Stuart:
And the seat would give me an alternative to earning a living. So once I owned the seat, I was still a partner at Loeb, Rhoades. I went, came over here every day that I didn't have a lunch date. Walked around the floor, talked to different people, got to meet them. And I began to realize that no one on the floor knew the end clients.
Stuart:
I knew the institutions. That's what I was doing every day for the previous 12 years. And that's what gave me the idea of forming a firm, cutting out the middle man and talking to clients directly on the floor of the exchange. I then went and saw the clients, told them my idea and no one encouraged me. As a matter of fact, everyone discouraged me because it had not been done before. And my wife Sharon said, "Please give it a try. If it doesn't work, you can always be a salesman at another major firm." And with that mind, I rolled the dice and we started with absolutely nothing. Our first office was inside of Neuberger and Berman at 120 Broadway. And the phones didn't ring. I had to make them ring. So I would work three days a week. I would go work every day, but then I would go after the close and go to Boston and try to see clients. And slowly people started to see that dealing with us directly reduced their cost of entry and exit into and out of stocks.
Josh:
Were you a scrappier kid at age 33 than the typical people that you'd find in this building who would be up here on the sixth floor at the Big Board club?
Stuart:
I don't know if the word was scrappy. I was never a member of the club here. Other words, there were many people, once they came, became members, they played Backgammon. They went up and played cards. They went and had an hour and a half lunch.
Andrew:
He was scrappy.
Jeffrey:
Hold on a second. Let me interrupt.
Josh:
Jeffrey.
Jeffrey:
When he worked at Loeb, Rhoades and he had the seat and he saw the clients on a Wednesday night, he would come back on Thursday and know what the clients wanted to do. But the order would go down to the floor because he was upstairs. And one day after him complaining enough, they said, "If you don't like it, why don't you come down and do it yourself?" And sure enough, that's when kind of the light bulb said, "You know what? I should do it myself because I know what they want." So that was pretty scrappy, a 33 year old guy to speak to the floor community. And that's what made you go forward.
Stuart:
Yeah. But when I got here, I had no time to be with other floor men. So there are people here will say, "Stuart Frankel, I know him. But we didn't know him that well." And the reason was I had to make the phones ring. And if I didn't make them ring, we had no orders. The other people that were here waited for the phones to ring and then carried out their jobs, executed.
Josh:
How did you convince people through these extra efforts, these trips to Boston to roll the dice with you? Why were you their guy?
Stuart:
Because what I claimed with them was that when they give the orders to the bigger firms, the people on the floor in my eyes, just my eyes, were like going to the supermarket. And they would get a carriage to walk around the supermarket with. And they had a shopping list, three chickens, four milks, and throw it in the shopping cart.
Stuart:
I said, "For me, if I don't do this right, I don't have anything else. So when you are talking to me, I will be so careful in getting you the right price, because that's all I have in my business. And if I am successful, I will reduce your cost of entry and exit into and out of stocks and make you more profitable."
Josh:
I walk past your son Stuart many mornings on my way to the opening bell. They're often the first faces that anyone sees entering the trading floor. How often do you make the trip into the city now to visit the booth and be with your guys at the New York Stock Exchange?
Stuart:
I would say rarely. I left 30 years ago. And one of the reasons I left was, when I was here, I saw so many fathers emasculate their sons on the floor. I never wanted that. So in 1989, I called up my son Jeffrey, who was working at a hedge fund and doing a very nice job as their trader. And I said, "Jeffrey, listen. You have two choices. You either come in here and run this business or I'm going to try to sell it because I don't want to do it anymore. I'm already 49 years old. I lost my dad at 60. And I want to be very careful." So he talked to his boss. And tell him what your boss said.
Josh:
First of all, how did the call from dad go from your end of the receiver?
Jeffrey:
It was an easy conversation. I mean, I really liked where I worked. I learned a lot and learning, not just how to trade equities, but futures, and as my father said, commodities. But when the phone call came, it was a time when so many calls were going out from the street. Everyone knew who had the buyback in Chevron, who had the buyback in Johnson & Johnson. And I saw these treasurers that were trying to repurchase their stock, getting raped every day. And I knew the concept that my father had of anonymity, being an agent of a desk, being an extension of a desk and what we tried to be, the priest and the confessional. You speak to us. No one else knew. It made a lot of sense. So although it was intimidating coming down to the floor and all of a sudden having to run a firm when never being in a crowd, it's a big difference when you sit behind a computer screen upstairs and you have time to make a decision.
Jeffrey:
But my first day on the floor, they push me into the IBM crowd and they said, "Kid, what do you want to do?" And I said, "Well, what's the market?" And they said it was a quarter and a half. And I said, "Okay." And I waited, because I didn't think I had to say anything else. And they said again, "What do you want to do kid?" And I said, "3/8 for 25,000." And it went from there.
Jeffrey:
And I learned and followed the path that my father had started and grew the business and enough so where we grew to up stage where my brother to this day gives me a hard time, because I called him up the second semester of his senior year and I said, "You've had enough fun."
Josh:
I want to get into that call. That call is still to come. But Jeffrey and Andrew, from your vantage point, you've seen it all and still see it all. How did you come to that very spot on the floor, and what are some of your memories of the people and moments that have passed under your gaze?
Andrew:
The greatest thing about the floor of the New York Stock Exchange in our opinion is that opening bell and that closing bell. You see people walk onto that floor and their eyes are wide open. From our perspective, we had been in the corner of the main room and we weren't seeing people walk onto the floor, that first reaction. They created an opportunity for us to move into what used to be the garage, a renovated portion of the exchange and gave us the opportunity to have this terrific desk. We're right off of the floor of the exchange, you can see that wide-eyed group walking in.
Jeffrey:
So for 40 of our 46 years in business, I would say the reason we were in the main room in the corner as Andrew discussed, there were five rooms on the floor of the exchange. That was centrally located. We were also directly across from the brains of the exchange. So if anything went wrong, we always liked the idea of being right in the middle of it. We knew if there was an issue. We were able to get to any room within seconds.
Jeffrey:
When they built the new room in the garage, one day we walked out there and again, anonymity is so important to us. We like the idea of having this new spot. And as Andrew said, what a home run for us to see the excitement of people entering the exchange. Especially since the ICE group took over and made this place into a private club, almost for the listed companies that come here daily. And it's something that probably is one of the best moves we've ever made.
Josh:
This concept of anonymity, for our listeners Stuart Frankel & Co. is one of the few buy side only firms on the trading floor. And how does that differentiate your offerings from other brokers?
Andrew:
So our model is really simple. A mutual fund, a pension fund, an insurance company, long short hedge fund, a company buying back their own stock, it's very important because they're trading such large blocks of stock, not to let the rest of the world know what they're doing. If a whisper got out that an institution was accumulating 50 million shares of a stock, that stock's going higher. And clearly vice versa on the sell side.
Andrew:
So our model is, as Jeffrey had shared earlier, when we get that order, we want to keep that noise quiet. We think we're going to get better pricing if we really protect the confidentiality of the order, the size, the symbol, et cetera. And that's really our model and it's important to protect them.
Jeffrey:
So the idea of moving to that new location after 40 years, the building was nice enough to give us an entire row where again, we don't have to worry about anyone looking over our shoulder, walking through our booth. Because as we sit across the desk from these institutions, we are able to tell them, it comes to us and nobody else sees it.
Josh:
Andrew, I listened to your episode on Greg Scheinman's podcast. You described your firm's mission as bringing institutional clients to the floor by a combination of manpower and technology. How does this location that you have help you achieve that goal?
Andrew:
Trading from the floor of the New York Stock Exchange is a terrific advantage. There are opportunities around the opening, terrific liquidity. There are opportunities around the close. We have the opportunity of having parity, where we are ahead of the line. So we're bringing not just our expertise and the technology that the exchange allows us to have on the floor of the exchange, but really the hybrid model. Which is really what the exchange represents. That's the best in technology with the best in manpower. So customers are trusting us with their orders. We're using that combination to get them best pricing. And again, for 45+ years, it's really worked.
Stuart:
I would say the key that I see from the being the coach is X, Y, Z institution has a million shares. I will see that we have a million shares to buy and then I'll watch my sons buy the stock like there's a seller there, not a buyer. And the clients feel that. That they're able to accumulate the stock without impacting the stock. And that's the talent that my two sons have. That they're making it happen. The clients are seeing it happen. And the more they see it happen, the more they want to do business with us because it's hard to duplicate that.
Josh:
Describe that talent that makes it sort of invisible.
Stuart:
I would say the talent is very carefully buying and not trying to get nine other people to buy with them. Not trying to leverage that order to turn it from a million to five million and just focusing on doing the right job for the client who's doing the buying or selling.
Jeffrey:
We try clearly not to be everything to everybody. We're not selling bonds. We're not in the option business of trying to commit capital. We have the ability to sit there and quietly work a stock and finesse a stock. It helps tremendously having the advantages Andrew said to be on the floor, to be able to walk out and speak with a specialist. Find out what he feels, see what he has going on. Whether it's for an opening or close or throughout the day.
Jeffrey:
Find out who the buyers are, the sellers. Have conversations. I always tell John Tuttle, what makes it so nice for a company to list here... I'd love to speak when the companies come, trying to decide whether they should go NASDAQ or New York. What makes it so great when the company lists in the New York is you have the ability to speak with a specialist. You have the ability to say, "Hey, there's news out. Do you know what's going on?" And there's a communication that takes place. Andrew, do you want to add to that?
Andrew:
Yeah. That transparency is priceless.
Josh:
Stuart, Jeffrey was talking about this first day that he was thrust into the IBM pit. What was it like for you? Your first experience on the trading floor? How did you begin to learn the business based on what you had already had at Loeb, Rhoade, but now you're on the floor doing things differently.
Stuart:
I was very nervous. I have, as I said, lived and breathed the stock market all my life, but going into a crowd and being busy with the names of who I'm buying from and having to write that down and the brokers' numbers in case the trade didn't go through. People always said I was a nervous wreck because this was not my forte. But if you had that wrong, one error could really cause you a whole month or six months worth of earnings.
Stuart:
So it was very nerve wracking and difficult. So much so that when people would meet my wife, they would say, "How do you live with him? He's an nervous wreck." And she would say, "I don't know what you mean." Because once I left the exchange, I was a different person. And it was once I left the floor and I drove home to Long Island, Atlantic Beach, where we lived. I listened to music. I relaxed. I came in the house. I was Stuart. When I came on this floor, the nerves of getting it right were just enormous.
Josh:
Was that drive back to Long Island, was that a time to decompress or would the pressure come off as soon as you left the door?
Stuart:
No, no, no. It was a 45 minutes to an hour ride, and I listened to some very soft music and it took me... I wasn't smart enough to walk out of the door and immediately throw a switch.
Josh:
Because Andrew, I think I know that you live in the neighborhood and I watch you walk out the floor not long after the closing bell and you're on your tippy toes. You're a happy guy.
Andrew:
Yeah. I am happy to run home to my wife, my children, et cetera. We're 15 minutes away and it's nice to live close.
Josh:
So Jeffrey from the time that Stuart founded the firm to now, with you and Andrew running it as co-presidents, what has always made it different than the other firms?
Jeffrey:
I feel what we do takes a special personality, and in hiring somebody, it's very hard to find if they have it until they're on the floor. And what I mean by that, there are plenty of people that sit in the boardroom that can't handle the speed and the finesse of the floor. There are people on the floor that are quick, can handle the speed, handle multiple things, that can't sit in the boardroom and handle the finesse that goes on upstairs.
Jeffrey:
Many times we've joked that the guys we need on the floor are guys that you walk into a deli and say, "Hi, I'd like a roast beef sandwich, Russian mayo, no tomatoes and I'd like a corn beef mustard." And the guy says, "I got it." And we're onto the next thing. That said, it's not an easy job to find until you actually are working it. Would you agree with that, Andrew?
Andrew:
Yeah, I guess the only thing I would add is, if you had an opportunity to go to a sporting event and you were able to watch it at home on a small television, or I could bring you to the playing field where it was incredibly... Very frenetic. And you'd want to potentially be on the floor if you really wanted to see the guts of what was going on.
Andrew:
And along the lines of what Jeffrey's saying is to handle those guts and to be able to handle that boardroom finesse is tough to manage on a daily basis.
Jeffrey:
You don't have the out if the phone rings and if the client's calling. You don't have the ability to say, "Can I call you right back? I want to check the floor and see what they have to say." You need to be willing to give an answer right on the phone in a comfort level to our clients, without having that out of saying, "Let me come back." You're right on the firing squad. You're right in the middle of the game as Andrew said.
Josh:
Talking about the floor and upstairs. Stuart, when Jeffrey joined in 1989, you moved off the floor at a time when many of the broker dealers and specialist firms had multiple generations working together in a single booth, why didn't you choose to work side by side?
Stuart:
The reason I chose that was I saw so many of these firms where the fathers would go to lunch, the sons would sell or buy and not please what the father wanted them to do. And openly right there in front of me on the floor, I would see a father absolutely killing his son.
Stuart:
And I've loved these boys from the moment they were born. We always practiced at home. We used to make believe there were a crowd and we were buying and selling in the house all the time. But I didn't want to feel that they did something that I didn't like, and maybe I would join with these other men and start yelling at them. I wanted to make sure that didn't happen. And the other thing that we always did that I think most firms probably don't do. You never can call Stuart Frankel & Company, rarely, and the phone rings twice. It's always answered on the first ring. And that was always our belief that nobody wanted to call the floor and have it ring four times and say, "Hold on." So people know when they call us, bang. I would be willing to bet 99 out of a 100, you never get a second ring. Because everybody knows, watch those phones.
Josh:
Jeffrey, the early 1990s, a tumultuous time for the markets as the volume was beginning to peak and the beginning of algorithmic trading took over. I want to listen to a commercial about floor trading from 1992.
Speaker 7:
It's one of the most advanced computer systems in the world. It routinely handle billions of dollars in transactions a day and lets the whole world know about each and every trade instantly. Yet, even all our technology still can't do what people do better than any computer.
Speaker 7:
Negotiate the best price for you. The New York Stock Exchange. Not just a place, a way of doing business.
Josh:
Not just a place, a way of doing business. Jeffrey, how was the floor changing and where did Stuart Frankel fit into the ecosystem of the floor at the time?
Jeffrey:
So what my father had started in having that ability to speak directly to a client for... At the time I was going into the crowd at this point in the early '90s. Andrew was now out of school. Where Andrew would be on the phone with a client and a client could call at 09:36 or 09:30 and say, "Home Depot, last sale, $36. Understand, if I can buy 4 million shares better than 38, buy the stock." And sometimes they wouldn't even take a breath. They just, "I want to own the stock, get in there." And Andrew would relay that story to me because I'm in the crowd.
Josh:
How's he getting it to you?
Jeffrey:
I would either... At that time we had yellow phones where you couldn't leave the crowd. You would have to be on that phone or I would, again, because we were centrally located. I would run back in. He would relay the story. And I would then go in and have that conversation with a specialist and say, "Look, you're about to open a stock. Please tell me what it's looking." And I remember Home Depot was looking, $35, $36. I said, "Please don't re-indicate it. But if at 36 I could buy 3 million shares. I'm happy to buy the stock."
Jeffrey:
So maybe he went out and said, "Look, it's $35 and half, $36." And sure enough, no other place like it, we were able to buy 4 million shares at $36. It would open and the client was thrilled because we bought it better than $38 and no one heard about it. And they didn't worry where it went from there because they just had instructions. They wanted to own the stock. There was no place like that, where you were able to get something done that quickly and then move on from there.
Andrew:
The concept that my dad started in the '70s caught fire in the early '90s. Because mutual funds were, especially growth funds were cash rich and wanted and needed to put cash to work. So there weren't these orders that they needed to spread over the day, as Jeffrey said, they wanted to buy them and they wanted to buy them quickly. And the idea of being able to talk to the floor of the exchange was newfangled and fantastic.
Andrew:
I felt like I was broadcasting the Kentucky Derby. It was fast. It was quick. And I am on the floor, giving them the play by play, giving them their numbers. And Jeffrey is right in this frenetic crowd and it's crazy. And yet we have to stay calm and say, "Yeah, you bought 2, 50, you leave 2 million, 2, 50. This is what's going on. Bear Stearns is buying. Lehman is selling." Both names are no longer here.
Jeffrey:
You might be better off going into Goldman. I see them as a seller. We were an extension of their desk. We wanted to be part of their team. And if it was best for them to call Goldman, we would tell them to call Goldman Sachs or Morgan, whoever it was. It was a time, where as Andrew said, people couldn't get enough of what we were doing. And we were extremely fortunate.
Josh:
So Andrew, you are the third leg of the stool here. You had headed off to UPenn as Jeffrey was starting on the trading floor. I want to fast forward a few years. And you were interviewing with investment banks as graduation approached in 1993. What happened to your plans to coast along for that last semester and be at Franklin Field with your cap and gown and make good on your parents' visions for you.
Stuart:
Atlantic City is where he really wanted to go.
Andrew:
I had plans with high school classes I had taken for college credit to take second semester senior year maybe a part-time job. But I was certainly going to make the most out of second semester, senior year of college. For me, the phone rang and it was my brother. He said I needed help. We needed help. And December of '93, it was a half a semester early. I came down to the floor of the exchange and nothing I learned from those textbooks, those economic textbooks, they don't prepare you for what you're going to see from the floor of the exchange. And especially in those days, we were just trying to handle answering the phones. We weren't making those phones ring. They were ringing. And it was really nerve-wracking for me. I think I could only digest a turkey sandwich for the first four months of my career.
Jeffrey:
There were fast balls coming at our head and you have to realize that back then we did everything with a calculator or in our head. Today, where we discussed the hybrid earlier, you had the computers that were calculating these numbers. I remember getting an order from, let's say Andrew, or hanging up the phone and running into a crowd and saying, "I hope they said, bye. I hope they said, bye." And I'm running in to buy X amount of shares and just hoping you didn't have a mistake. Our biggest concern was if you ever had an error and that was our business.
Andrew:
Now, it's order management systems are sending orders and you don't have to worry did he say S like Sprint or F like Ford. Is the number correct? Are our numbers proper? Things are flowing from our hand held computers that are issued by the exchange to the order management system of the buy side firms we're talking to. In those days Jeffrey was sending in handwritten papers and we were calculating memory plus on a calculator.
Josh:
I know what things were like back in those days, in 1993, December, and you're a senior at one of these great schools and Solomon Brothers and Drexel Burnham, and all of the big firms are interviewing for their analyst programs. And you might have thought that eventually your fate would bring you to Stuart Frankel & Co. but you certainly could have a couple years learning the ropes at a more languid pace in an investment bank before you go off to business school and then join the family company. But here come the fastballs at your head working with your brother. Why are you doing this to yourself? You don't even have a helmet on?
Andrew:
I think growing up, we remember sitting at the dining room table, my dad coming home from that 45 minute, 60 minute drive talking about his experience that day. What he did in the crowd. Who he saw the night before, if he was up in Boston. Family came first. And for us, it wasn't necessarily, "Would you consider it?" It was, "I needed you?" And that's really all that I needed to hear.
Josh:
So during the period, the nature of floor trading was evolving. Technology was increasing the speed of transactions and the margins were shrinking. As the floor went from 1/8s to 1/16s approaching a technological hurdle. I want to listen to Donald Kittell, executive vice president of the Securities Industry Association in a recording he made in 1999.
Donald:
Today's trading is December 29th, 1999. A week from today, we'll do December 30th. The week after that, we'll do the 31st. We're going to have a New Year's Eve party here on March 27th.
Speaker 9:
Good. Right there's good. All right, hold on a second.
Donald:
But we're able to turn the systems' clocks ahead to those dates and watch the conversion on that December 31st, which will be March 27th and then into the January 3rd date.
Josh:
Now, if you're following that, Y2K. And it's funny to think of it now, but 20 years ago, it cost the economy billions in preparation, testing and upgrades to just pass by without a bump. And here at the exchange, that date also ushered in decimalization. Stuart, in many ways, was this a continuation of the writing on the wall that you first saw in the 1970s?
Stuart:
I would say we always had the belief that we found a need and we were trying to fill it. So to us, whether it was decimals or 1/8s or computers or yellow phones, the key was we knew the end client and we were helping the end client. We were really providing a service and you talk about the last day of the 20th century. I have a photograph in my office at home of the balloons going up. And it says on the bottom of the photograph, "Last trading day of the 20th century." And I love having that picture. It's a great memory for me.
Josh:
After the break Stuart, Jeffrey, Andrew and I talk about how their business has evolved since the three began to work together and the secret to working with the family. That's right after this.
Speaker 10:
And now a word from Chip Bergh, CEO of Levi Strauss & Company, NYSE ticker, LEVI.
Chip:
There's no other brand in the world like Levi's. We're here today because of the dedication of the 15,000 employees that we have around the world. Growth is being driven across the company. Men's, women's tops, bottoms, outerwear. Virtually every country in the world grew last year. Being associated with an institution that goes back further than Levi's is special. This is where this company deserves to be.
Josh:
Welcome back before the break Stuart Frankel, chairman and co-founder of Stuart Frankel & Co. The company's co-presidents Jeffrey and Andrew Frankel and I were talking about how the firm got its start and their individual entry into the business. What were some of the ways Jeffrey that you guys saw openings in trading that others probably didn't?
Jeffrey:
Well, we shared with you the foresight my father had in understanding the value added of being on the floor. One of the other great foresights my father had was realizing clients didn't need to just use us for single letter stocks, double, two letter stocks or three letter stocks.
Josh:
Those are the NYSE stocks
Jeffrey:
That were just listed NYSE. So he realized that we could be value added as well, trading other stocks. NASDAQ stocks. So we had an office upstairs for a while, where we learned how to trade on a computer. Because at that time it wasn't a human being. It still isn't. Unlike the New York Stock Exchange, that's a computer based exchange. So we learned how to do that. And that allowed us to learn the technology side. Then when you became allowed to trade here on the New York, we had already been ahead of the game for that. We were able to trade electronically and I felt like that gave us a great advantage. Andrew, do you want to add to that?
Andrew:
Yeah, I mean, that was so big for us because we were able to do para trades. We were able to say, buy something versus sell something. And in those days there were dedicated traders that just traded NASDAQ or just traded New York Stock Exchange stocks. And we were basically saying to our customer base, we can do both with one ring of the phone. We can trade both NASDAQ and listed and we can do those sort of para trades where we were say buying Microsoft versus selling IBM. And that was a big advantage.
Josh:
Talk about, a little bit, some of the other elements of your firm, the important human capital that you have. Steve Grasso, a Stuart Frankel trader is a well known CNBC contributor and can be found on the set of Fast Money pontificating on the days trading nearly five days a week. So Andrew and Jeffrey, on a trading floor filled with personalities besides the occasional quote in a print article, both of you maintain an incredibly low profile. How has media changed the business and is Steve's on-air work part of Stuart Frankel & CO's business strategy to allow you guys to stay more on the sidelines?
Andrew:
From our perspective... Well first, Steve is our third brother. He's worked with us so long he's become family. And that's I think really important in working some with someone you feel so close to. Our business challenge was, where in the early '90s we talked about just handling the phones that were ringing, we transformed into a business that had to truly make the phones ring. So outside of terrific execution, we had to figure out what other value added service could we bring to our clients? We came up with the idea of having these intimate conversations and dinners with CEOs and CFOs of some of the publicly traded companies that are on the floor of the exchange. Steve Grasso hosts those calls, hosts those dinners. Does a terrific job with us. He meets a lot of those corporate executives on his show.
Stuart:
And if I can interrupt, one of the things I think that makes our firm unique is, it's very hard for the larger firms to say, "We're having the CEO of X, Y, Z company in and we're only going to invite 12 people." We have no problems with that because we're not insulting 200 people because we don't have 200 clients. We have clients and they're all over the country and we can't expect someone in San Francisco or Dallas or Chicago to come in for an hour dinner.
Josh:
You hold the dinners at the same place all the time, or you just spread it around New York?
Jeffrey:
We have about two or three different dinners, but Steven's been great at having these calls, again, where we are able to have a CEO on a call and different clients. Now where Andrew said, Steven has been great at meeting these or getting us these CEO calls. My brother's been terrific. Because you have to realize the traders aren't the people that are listening on those calls.
Jeffrey:
And the traders for 43 years were the clients that we only really spoke to. We had relationships with portfolio managers, but all of a sudden we needed to really get to know the analysts at these shops. And Andrew's done a terrific job getting these younger analysts to want to listen to these conference calls. So our business has changed where we're not speaking only to traders anymore. Our universe has gotten to be a lot larger where we must speak with all of the different analysts at these different shops.
Josh:
Stuart, I did find one story where Andrew refers to a story where you told him about a trip to the Riverside Memorial Chapel that you took with your father. What was the lesson and how has that influenced your life?
Stuart:
Wow, that's quite a question. I grew up on the West Side at 222, West 83rd in Manhattan. And when I was about 12 years old, my father said, "I'd like to take a little walk with you." So we take a walk from Broadway up Amsterdam Avenue and down Amsterdam Avenue and we're talking all about baseball. And we get in front of Riverside Memorial Chapel. And my father stops the conversation. He said, "Just a minute, Stuart. What do you see happening right here?"
Stuart:
I said, "Dad, What do you mean?" He said, "Well, what do you see?" I said, "It looks like about 200 people walking, I guess, inside to a funeral." He says, "Very good." He says, "You're very smart." Kept walking. Walk another 20 minutes, we turn around. We start heading back talking about the baseball team, the New York Giants at that time. We get in front of Riverside Memorial and he says, "Hold on a minute. What do you see happening right now?" I said, "Dad, what are you talking about?" He said, "Well, what's happening here?" I said, "I don't know. It looks like all the people that went into the funeral before are coming out." He said, "Very good?" He said, "What time is it?" I said, "It's 10 of 11." He said, "Remember what time it was when we passed before?" I said, "Yes, 10:30."
Stuart:
He said, "That's it Stuart. Life is over in 20 minutes. If you do anything stupid, you drive in $50 cars, have any drugs, you're not careful all the time. This is where you end up and life's over in 20 minutes." And he didn't realize it. But that day I was like a piece of cattle that got...
Jeffrey:
Branded?
Stuart:
Branded right on my head. And I never forgot that. It was one of the great learning lessons of my life. And I did try to pass it on to my own children.
Josh:
Talking about something else you passed on to all of your children. You all attended Collegiate School, an institution founded a century and a half before the New York Stock Exchange with the purpose that first of all that in so wild a country, the youth be well taught and brought up. Have the generation of Frankels that follow you guys, which I believe totals 11 just between Andrew and Jeffrey followed in your footsteps to Collegiate? And will they one day go from one iconic institution there at Collegiate to another and join you guys on the floor of the exchange?
Jeffrey:
That is my father's biggest dream is to have the third generation. And I think we're getting close to having them come join us. And it would be a great joy for us to have them.
Stuart:
Jeffrey did not go to Collegiate. He went to Woodmere Academy with my daughter. Andrew went and started in the sixth grade and two of Jeffrey's children went and all three of Andrew's children are at Collegiate, which I think is 394 years old. So it's a pretty special place. And yes, that is probably number one or two on my bucket list. The other one is to be able to be a great grandfather.
Josh:
So what's the leading edge of the next generation. How old is the first potential incomer?
Jeffrey:
Well, I have a daughter who is 28, who's working with Duncan Niederhauer now in New Jersey. I have another son who is in California, who's 25. And my youngest son is about to start at Goldman. And then Andrew's three boys are a little younger, but they're getting close and we've already had talks.
Josh:
Fastballs will be coming to the head soon.
Jeffrey:
We hope so. It would be great.
Josh:
I mean, talking about fastballs, athletics have played an important part of the Frankel family life. I heard that one of your kids Jeffrey, played basketball at MIT and I read in a recent New York Times piece Andrew, that your entire family often hit the links together. Does sports help underpin the teamwork that allows the business' continued success and allowed the family to work closely together over all these years?
Andrew:
100%. I think when you play on a team, you got to show up at a certain time. You got to come prepared. It's a game and you want to win. But in order to win, they always say, there's no I in team. At Stuart Frankel & Company, we genuinely feel like there's that same culture that if you don't come prepared, if you're not ready to answer the phone on the first ring, if you don't have the answer when it comes, if you're not ready to back up the person to your left and to your right... When our customers are calling us, if for some reason I'm on another phone, it's incredibly important that Jeffrey knows exactly what I'm doing.
Andrew:
Our order management system, everybody sees what's going on. We communicate like we're in a dugout and we're talking constantly. We're sharing what's going on. So that if I'm out on Monday, our customer that calls looking for me, they're not looking for me. They're looking for us. And if it's two o'clock and I'm in the bathroom, Jeffrey's got me covered. If it's Tuesday and I'm with my wife or my kids or whatever it is and we're at a school event, any of our teammates, they know what's going on and it's handled and nobody shies away because someone isn't in that booth ready to play.
Stuart:
And if I can also add, one of the things that makes off firm unique is no account that we have belongs to anyone. They all belong to the firm. So this is not like, I'm worrying about my account. You're worrying about your account. That's what goes on at the other major firms. People are assigned accounts. With us, it is been from day one, a team approach.
Jeffrey:
And we respect everybody. Whether you're doing back office work or you're out pounding the pavement, seeing clients, everybody is valuable.
Josh:
How many people are in the firm now?
Jeffrey:
I would say we're about 16 people.
Josh:
Andrew, you and your wife are supporters of the Hole in the Wall Gang Camp. And I want to listen its founder, the late actor and humanitarian Paul Newman.
Paul:
Well, I have been asked on several occasions to try to explain what motivated me to help build the Hole in the Wall Gang Camp. Which is a camp for children with life threatening diseases. I wish I could claim that it had come from some extraordinary religious experience, an epiphany of some kind, but it didn't. I was trying to acknowledge, I think, luck. What an important part it has played in my life, the benevolence of it and the brutality of it in the lives of some children.
Josh:
So how did you become involved with the Hole in the Wall Gang Camp? Even securing a bell for them that coincided with what would've been Paul Newman's 91st birthday.
Andrew:
I am very truthful in saying that my wife Bridget has made me a better person. She is on the board of the Hole in the Wall Gang Camp. And we try to encourage people rather than give us a gift when we got married to donate to the Hole in the Wall Gang Camp. She's very active, not just with money, but with her time. And the entire organization is phenomenal. To go up to that camp and see what they do for these children. The kids' faces are just lightning rods. And it's a terrific organization. And I have felt proud to get involved because of my wife's suggestion and it's been a terrific investment on all fronts.
Josh:
The Hole in the Wall Gang Camp was hosted, that bell that they had that day was hosted by John Tuttle, who Jeffrey mentioned earlier. Who is the exchange's vice chairman. And he is a zealot for the great state of Michigan. We're talking about kids coming into the firm. Andrew, your son just finished up his first year at Michigan. Are you going to let him get in the full four years or will he be getting the call early to join the family business like you?
Andrew:
I think, you had mentioned... Earlier you had asked, are the boys, girls, are they coming in? I think it's important to truly get exposure from other firms. So we've encouraged our kids to try to work elsewhere initially to get seasoned and then potentially come in. What we have done though is we hired one of Jeffrey's son's good friend to start in a couple weeks. The idea being, he's going to see what's going on, he's going to go home and say, "Wow, this is a terrific place." And hopefully he'll be the rush chair and he'll bring some of the other kids in. Certainly...
Jeffrey:
Well, what's easy is I will tell you Andrew's three boys... I have seven kids between my wife and I, and they all get along so great. So it should be an easy transition and a great place for all of them to be able to work together hopefully one day.
Stuart:
Can I just add something about charity, because you mentioned the Hole in the Wall Gang? The only time in 47 years that we ever had an advertisement in the paper was the day after 9/11. I was terribly shaken. My son Jeffrey was hit by a taxi on September 10th, crossing 79th Street and Park Avenue and he was in Lennox Hill Hospital. Andrew was on the floor. I was at our apartment on 80th Street.
Stuart:
And I saw the World Trade Center coming down. I called Andrew and I said, "Please run to the East River." Because I didn't know if the building was going to fall straight down or to the side. And he ran over to the river and ran uptown and the exchange was then closed for the next five days because all of the lines were down. And I came up with the one and only time we ever put a full page ad in the newspaper that said, united, we stand. And I still have it hanging in my office all about, as Americans, we have to stand up.
Stuart:
And I had the idea that the day the exchange reopened, we were the first firm in Wall Street. We called every client and said, "Every share of business you give us today will be donated towards the 9/11 tragedy." And to this day, if you go to Central Park, in front of the sort of lake where they have all the sailboats in the '70s, there's a statue there. Hans Christian Andersen with a little plaque that says, "In honor of the children whose parents perished on 9/11." And that's the only time we've ever advertised. And a lot of firms ultimately did have charity days, but way after us. And all the money that came in on that day, all was given away.
Jeffrey:
Clients were tremendously generous for that. It was a great day.
Stuart:
Tremendous.
Josh:
So, so much has happened to rebuild this part of the city since that day. So much has changed in this building. In 2006, the exchange demutualized. It led to the creation of NYSE Euronext and the eventual acquisition by Intercontinental Exchange. Is this when the firm opened up a trading desk on Euronext and how has that business fared following the ICE acquisition?
Andrew:
We realized that a lot of the European traders we were talking to traded both Europe and US cash equities. We needed someone on the ground there. We were fortunate to meet Barry Rijper, who was suggested by some of our present clients at that point. He's done a terrific job carrying the flag for us in developed Europe. The market at times a little stagnant, but we've made great relationships over there. Clients have become family and friends and Barry, again like Steve Grasso has become a real member of our family. And it's been a terrific investment for us to try to expand our business.
Stuart:
We also had the original concept that we could say to people in Amsterdam, instead of you going through an office in Amsterdam that called say Goldman Sachs in London and London then called New York. These people loved the idea of picking up the phone, not going through other offices and speaking directly to my two sons.
Josh:
So as we wrap up, Stuart, you were on the bell podium, ringing the closing bell to celebrate your firm's 45th anniversary. You were joined on the podium by your family, including Jeffrey, who I think had to remove your hand from that bell button once the four o'clock hour had passed. As you're standing up there thinking about this story that really begins with you and your dad and that sporting good store so many years ago, looking at the IBM cards and how that translated into the creation of this firm. What are you thinking?
Stuart:
What a lucky person I am. How grateful I am. How fortunate I've been. Never felt that I was any kind of a rocket scientist. Never somebody that got great SAT scores. Just a lucky guy who went from being a laundry man in college, delivering shirts and dry cleaning to having a brokerage firm. And having two sons that run it immaculately. Just lucky, grateful, and fortunate.
Josh:
You run it immaculately boys, but what are the biggest challenges to a full service floor broker in 2019 and beyond?
Andrew:
We're a small fish in a really large pond competing against giants. But we have stayed to our core competency and that's this direct execution. The idea of being a real partner in the trading process and we haven't wavered. We've developed relationships that we really covet and we hustle. And that's all we have is really our hustle.
Jeffrey:
I would just add how my father said how lucky he is, how lucky we all are. For me to be able to work with my father and my brother, the team that we have. And when you have a family business that's been around as long as ours, it's successful because we all have the same core values. We never let an issue, whether it takes place out of the building, in the building, let it grow. We tackle it. And we all push each other.
Jeffrey:
Andrew and I push each other to the point of, if we go to San Francisco, we wake up at six o'clock in the morning. We see clients all day long from the moment we land at 9:30, we then have dinner there, we take the red eye home. And now we're back on the floor here for the opening. As far as pushing ourselves, I'll look at him at one o'clock, "Are you staying? I'm staying." We're here. And we just have that fire. And it's something that we have as a family, and we never let anything build towards an issue. And we're just really lucky.
Josh:
The past isn't always the best indicator of the future. But with nearly a century of combined experience in the floor broking business, what do you guys see happening with the firm in the coming years?
Jeffrey:
Like I said, I hope our children join the firm. I feel that pendulum has swung back where a lot of clients thought that they didn't need the high touch, could do it all electronically, I think the management of the building since ICE has bought the New York Stock Exchange has done a tremendous job opening up this building and allowing corporations to come here. Allowing the buy side to come back into the building and see the change that has taken place. The Hybrid model has helped us, not hurt us. And I see nothing but good things coming down the line, not bad things.
Josh:
Technology, more technology, more video, the ability to do things a little differently than you have in the past?
Jeffrey:
100%. I feel like main street is back on Wall Street. Bringing the people in the way do, the technology has helped. We're doing baskets where we never did before. Because again, as Andrew said, 16 people handling 600 orders coming in at one time was unheard of. But with the technology today, we're able to do these large baskets and it's a whole new part of the business for us. You want to add to that, Andrew?
Andrew:
I couldn't have said it better.
Jeffrey:
Thank you.
Josh:
So when we get the first entrant of the next generation of Frankels into the business, we'll come back and do another episode of Inside the ICE House with a fifth microphone over here.
Jeffrey:
We would love that.
Josh:
Thanks so much.
Jeffrey:
Thank you.
Josh:
Stuart, Jeffrey, Andrew for joining us inside the ICE house.
Stuart:
Thank you for having us.
Josh:
That's our conversation for this week. Our guests were Stuart Frankel, chairman and co-founder of Stuart Frankel and Company. The company's co-presidents Jeffrey and Andrew Frankel. 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 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 Pete Ash and Theresa DeLuca with production and editing from Ken Able and Stephen Romanchich. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly of the available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes, nothing herein constitution an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
