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The Brain in Thain


To the left of the door is a guitar autographed by Jimmy Page. It’s a memento from the day last year when the Warner Music Group went public. “He played the guitar section of ‘Whole Lotta Love’ and timed the final chord for the bell,” Thain says, with a rare gush of enthusiasm. He’s an unpretentious man with a flat midwestern manner. He wrestled in college, and looks as if he could still make weight.

If nothing else, the sociological distance between Thain and the average floor broker or specialist is about as far you can get between any two people on Wall Street. Thain hails from the tiny Illinois town of Antioch. “I did not grow up in an upper-crust, aristocratic background,” he tells me. “I went to a public high school.” But with his Goldman pedigree and his Harvard M.B.A., he is emblematic of the class of achievers who first began flocking to Wall Street during the sixties.

The floor, on the other hand, is home to the sorts of hustlers who’ve occupied a hallowed place in the finance industry for generations. They are, almost to a man, white ethnics—Italians, Irish, Jews. If you were to press them, they’d probably tell you their first read each morning is the New York Post, not The Wall Street Journal. “I didn’t get a 1600 on my SAT,” one floor denizen tells me. “My business is to make money off my own wits.” These are people who regard Goldman Sachs as a force for evil, and Thain sensed they were prepared to make his life difficult. “There was a little bit of the concern of Goldman Sachs ruling the world … was I a Trojan horse sent over here?” he says. “And so convincing the members that I was here only to help them, to act in their best interest, it did take some time.”

To the floor, the Archipelago deal looked a lot like the final close. The more electronic trading, the floor reckoned, the fewer humans you’d need. That in itself might not have been a huge problem for Thain. The economic history of the last 150 years can roughly be summarized as one long march by machines into terrain previously held by human beings (a march financed by Wall Street and cheered on the floor of the NYSE). Fortunately for the John Thains of the world, rarely have the humans put up much of a fight. In this case, however, there was a wrinkle to complicate the Marxist analysis: In addition to being laborers, many of the humans were also owners of the exchange, by virtue of owning their seats. Which meant that all the fear and loathing of the coming change—combined with a sense that the terms of the merger were far too generous to Arca—could have effectively nixed the deal. “I can’t tell you how many attempts had been made during my years and prior to merge [the various exchanges],” says former SEC chairman Arthur Levitt of his tenure at the American Stock Exchange. “The efforts were … really killed by the floors.”

Thain’s eventual response to the anxiety on the floor was some parts ingenious, some parts obvious: a hybrid trading system—fittingly dubbed “Hybrid”—that gave customers a choice. If they preferred humans, they could still use the old floor-based system. If they preferred to trade electronically, they could use the exchange’s new souped-up technology. The system’s logic is hard to refute. Suppose you want to sell 10,000 shares of an obscure stock that trades only every two weeks. If you try to sell it today, the price may effectively be zero, since there are no buyers. The advantage of humans is that they can usually scare one up. On the other hand, brand-name stocks like IBM and GM have millions of constantly traded shares. For these stocks, there’s no reason to forgo the speed of electricity.

That Thain succeeded at threading this needle has surprised no one from Goldman. “One of the things about being bright is that you can sometimes see a solution that is simple and elegant,” says Fred Eckert, an early mentor. “He’s always been like that … I think he was one of the three or four smartest guys we hired during the twenty years I was there.”

More surprising is that Thain’s achievement has been hailed in less naturally sympathetic quarters. Frank Christensen is a member of the “Buttonwood Group,” a fraternity of seat owners who’ve spent decades on the floor. Christensen says there was genuine queasiness over the Hybrid plan, but Thain convinced the group it was the only way to ensure the exchange’s survival. “He put everybody at ease,” Christensen says. Thain even won converts among the brokers who had no ownership stake—which is to say, the people who had nothing to gain, and everything to lose, from the merger and IPO.


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