MARKET STRUCTURE DICTIONARY

BRIAN W. LEITE

Brian W. Leite is the author and editor of the Market Structure Dictionary.  He is also a market structure specialist and divisional VP for ModernIR, a market structure analytics firm. In that role, Brian utilizes his twenty years of institutional sales and trading experience to guarantee superior coverage for some of the largest and most dynamic public companies in the world.

Prior to joining ModernIR, Brian was a Senior Vice President of equity sales and trading for Kaufman Bros. where he provided sales trading coverage to West Coast institutional investors from the firm’s San Francisco office. Prior to Kaufman Bros., Brian was a Vice President of sales trading for Needham and Co. in San Francisco also covering West Coast institutional investors.

Brian began his career on the Los Angeles floor of the Pacific Stock Exchange working as an assistant floor broker for Kemper Securities. He subsequently held positions at Wedbush Securities and Bank of America as a NASDAQ market maker focusing on technology, healthcare, and consumer stocks. Brian holds a master’s degree in economics from the University of Southern California and a bachelor’s degree in economics from the University of California, Irvine.

A NOTE FROM BRIAN... 

"If a buyside trader tells me to 'participate but do not initiate," how aggressive should I be?"  "At what point will relatively high transaction costs alter a portfolio manager's decision to trade?"  "To what extent do high frequency traders impact liquidity?"  "What impact do dramatic and far-reaching rule changes such as Reg NMS have on the price formation process?"

Such questions are routinely asked, and such terminology routinely used, not only by market practitioners but also by market structure analysts and microstructure academics as well.  Yet to my knowledge, never before have the "terms of the trade" been compiled into a single, unified, focused source.  A Market Structure Dictionary, so to speak. 

To my knowledge, this dictionary is therefore the first and only comprehensive study ever attempted of the terminology used in the fields of market structure and market microstructure, with a focus specifically on the language used by professional Wall Street stock traders.  As such, it includes not only definitions of the key terms that practitioners and academics alike may encounter, but it also provides insight into the way the pros on trading desks and exchange floors actually speak with each other on a day-to-day basis.

Strictly speaking, the language of stock trading is a composition of various technical terms and a large number of specialized “idioms.”  But really, it’s just Wall Street lingo … and trader slang.  Many of these words and phrases may seem at first glance to be familiar, but their actual usage on trading floors can often be confusing or even counter-intuitive.  One might go so far as to call the language of stock trading “arcane.”

I believe the time is ripe for the production of such a dictionary.  Historically, the idioms and customs of trading were passed down from one generation of professional trader to the next, much like family heirlooms.  Each senior trader taught his protégée who passed the knowledge along to his own protégée in due time.  Therefore, these words and phrases developed, evolved, and became refined over decades (if not centuries) of use.   And eventually, some of the terminology (like many an off-color joke) passed from Wall Street to Main Street. 

However, the rise of electronic trading has, to some extent, broken this cycle.  At the very least, it is fair to say that the equity trading model has “evolved.”  Junior traders and assistant traders are no longer necessarily able to learn from a true mentor.  And many desks are small enough now that learning from one’s well informed colleagues has also become increasingly difficult.  One unfortunate consequence is that a fair amount of the traditional language and customs of trading is in jeopardy of being lost in the process.

As a result, I have created this dictionary.  One primary goal is to accurately catalogue and preserve as many of these idioms as possible for posterity.  But I also hope that this dictionary will become a valuable reference guide for the market structure students and practitioners, for professional and non-professional traders alike.  As such, in addition to the terms, phrases, and customs that I have absorbed, learned, researched, or discovered over the years, I have included many historical references, academic terms, anecdotes, and descriptions of (sometimes long defunct) stock exchanges.  And since the markets continuously change and evolve, I have added much of the language of modern high speed computerized trading as well.  While the resulting list is certainly not exhaustive (nor likely could it be), I believe that it is respectably comprehensive.