Where Peterffy saw innovation, Jones saw somebody breaking the rules with a jury-rigged terminal. Peterffy’s operation marked a new dawn on Wall Street, as programmers, engineers, and mathematicians mounted a two-decade invasion in which algorithms and automation, sometimes incredibly complex and almost intelligent, would supplant humans as the dominant force in our financial markets. That difference, called the spread, could grow past 25 cents a share on some Nasdaq stocks at that time, so executing a pair of 1,000-share orders-one to buy at $19.75 and one to sell at $20.00-resulted in a near-riskless $250 profit. With the hacked data feed coming from the Nasdaq terminal, Peterffy’s code was able to survey the market and issue bids and asks that could easily capture the difference between the prevailing price at which buyers would buy and sellers would sell. The Nasdaq employee didn’t realize it, but he had walked in on the first fully automated algorithmic trading system in the world.

“We do it all from this.” A tangle of wires ran between the Nasdaq machine and the IBM, which hosted code that dictated what, when, and how much to trade. “This is it, it’s all right here,” Peterffy said, pointing at an IBM computer squatting next to the sole Nasdaq terminal in the room. “Where is the rest of the operation?” Jones demanded.

In fact, he saw only one Nasdaq terminal.

He had expected a room bursting with commotion: phones ringing, printers cranking, and traders shouting to one another as they entered buy and sell orders into their Nasdaq terminals. The more he saw-and there wasn’t much to see-the more flummoxed he became. He was chief among a new breed on Wall Street.Īs Peterffy led the way onto his trading floor, Jones grew confused. He wrote code, thousands of lines of computer language-Fortran, C, and Lisp-all of it building algorithms that made Peterffy’s trading operation one of the best on the Street, albeit still small. He didn’t make trades by measuring the feelings of faces in the pit, the momentum of the market, or where he thought economic trends were leading stocks. What Jones didn’t know was that Peterffy wasn’t a trader at all.

Feed and grow hacked