He saw trading’s electronic future when others could not or would not.
Junius “Jay” Peake, who died last week at age 80, was an impatient electronic trading bull who pushed hard for changes in the equities markets decades before they happened, according to friends.
He began in the business in 1951. He was a longtime student of trading after helping to ease the back-office crunch of the late 1960s. Peake later became an academic.
Peake was a trading industry gadfly for over 40 years.
“Actually, elephant fly would be a better term,” said Robert Schwartz, a finance professor of market structure at the Zicklin School of Business at Baruch College in New York City.
“He was very outspoken, very articulate and impassioned,” Schwartz said. “Jay could be loud about the need for electronic markets.” Schwartz was a longtime friend of Peake and often featured him at his market structure conferences.
Harold Bradley, former head trader at American Century Investments and now chief investment officer of the Kauffman Foundation, called Peake way ahead of his time.
“He authored a series of papers in the 1960s and 1970s that led to the Securities Acts Amendments of 1975,” Bradley said.
Peake often battled the status quo in a trading industry that was ignoring “the transformational force of electronic trading,” according to Bradley. He called Peake a natural ally. They had similar ideas.
What earned Peake’s ire?
Friends say it was the inefficiencies of a market structure that could be better — the inability of the industry and regulators to construct a true national market system as envisioned under the 1975 amendments.
“Those amendments all really came out of Jay’s brain,” Bradley said. “He envisioned a world in which computers would seamlessly transfer orders from one person to another along with the terms of the settlement.”
Schwartz added that above all else, Peake really was an advocate for investors. “He believed that their costs were too high,” Schwartz said.
But Peake complained about numerous roadblocks to efficient markets.
“I’m scared we’re going to blow it as a country and lose our capital markets,” Peake told Newsday in 1988.
Peake was aggravated by the limitations and slowness of human trading as well as the problems caused by reams of paper records, friends say.
He also criticized the decision of the Big Board to retain parts of a trading floor through its hybrid exchange proposal. These were issues that Peake had been thinking and writing about for decades.
Indeed, Peake called for electronic markets in what some today view as an ancient world of paper markets back in the 1960s and 1970s.
Peake, in a 2007 article, recounted his first encounter with a market structure in the 1960s as head of market operations at a Manhattan brokerage.
“Although my area of responsibility did not include floor or over-the-counter trading, it encompassed the operational results of those activities,” Peake wrote.
“In those days, operational systems were almost entirely manual. Automation consisted of tabulating machines, key punches and Addressograph plates. The mechanics of floor and over-the-counter trading were accomplished by scribbles, shouts and telephone calls.”
These “archaic technologies,” as Peake termed them, led to a back office crisis as orders stacked up in the 1970s.
As a partner at Shields & Co. brokerage, Peake supervised the installation of a computer from National Cash Register Co., a computer called by some of his employees “the monster.” He was at times frustrated by the inability of regulators to accept his ideas for a central limit order book (CLOB) as well as the compromises of Reg NMS.
But to Peake the computer was a tool that, like it or not, the trader must embrace. It reduced costs through speed.
Peake also wanted a hard CLOB, but not in phases. He argued for installing it in one fell swoop.
In the 1970s, Peake and his allies, Morris Mendelson, a professor at the Wharton School, and R.T. Williams, a computer expert, argued that developing a CLOB in stages would be costly and might take as long as 15 years.
“It seems to us that a system that both provides an electronic book, with execution capability, a tape, and an on-line inquiry, will cost less, largely because the same communications facilities are used to display information, accept orders and record executions.” That’s what the Peake group wrote in a mid-1970s SEC filing as quoted in Joel Seligman’s book “The Transformation of Wall Street.”
The 1970s were a busy time for Peake’s group.
“The securities industry is understandably hesitant to accept alternatives that depart radically from the current system of exchange floors. Yet now is the time to find out, through experimentation, whether the visual arena is workable,” Peake and Mendelson wrote in a 1979 article entitled “The ABCs of a National Market System.”
After he left Wall Street for academia, teaching at the University of Northern Colorado, Peake remained passionate that the industry and regulators weren’t moving fast enough. He dismissed the Big Board’s plan to have a hybrid floor, one that was only partly electronic.
He had been a Big Board critic for years, complaining that only the best bids and offers on the specialist’s book were broadcast to other exchanges and to the public. The public needed much more from the legacy exchanges and the trading industry, he argued.
And Peake was also upset in the Reg NMS debate of 2004 when an amendment to the trade through rule allowed an automated market to trade through a non-automated market. For Peake, it was just another example of the industry ignoring the inevitable future of electronic trading.
“The Commission,” Peake told Traders Magazine in 2004, “seems to have backtracked on the NMS proposal. They have changed their definition from an automated market to an automated quote.”
Ultimately, Peake lost on Reg NMS and on many other things. Nevertheless, many believe that the “elephant fly” had a profound effect on how electronic markets evolved.
