Exclusive Interview With Lightspeed Financial's CEO Stephen Ehrlich

Stephen Ehrlich, CEO of Lightspeed Financial, was nice enough to grant Benzinga.com an exclusive interview. Lightspeed is a provider of ultra low-latency, direct market access trading technology, risk management, and brokerage services to professional active traders, proprietary trading groups and hedge funds. We talked to Ehrlich about his outlook for the electronic brokerage business, product developments at Lightspeed and about some of the factors that have made his firm a leader in the direct access, low-latency space. We were also curious to find out about his background and how it has contributed to his business success. This interview is also available as Episode 3 of Benzinga's Podcast.

Q: Can you give us a brief history of Lightspeed?

A: Lightspeed Financial was created about four years ago and was the result of a management buyout from E-Trade Professional. We started delivering technology services and brokerage services with direct market access to retail customers, mid-sized hedge funds and proprietary trading groups.

Q: Have you become more consumer driven recently?

A: The way the markets are today and the volume and the volatility in the markets, traders whether they are retail, or hedge funds and institutional, want more information on the trading platform. We saw a niche in that and that is the niche we go after - people who want more information from a trading platform that are looking to use direct access technology, whether it is retail or institutional.

Q: Where do you see the online brokerage industry heading in 2010? Consolidation, Expansion, or no change at all?

A: I really see an opportunity on the consolidation side. Lightspeed has been a leader in that space, acquiring Schonfeld & Co., Integrity Trading, and recently Noble Trading, the four years since the Companyís inception. In these market conditions, scale is a very important aspect in growing the business, and we see the ability to bring more value to our customers through the use of one infrastructure.. There is an opportunity to consolidate in the industry in 2010, and Lightspeed intends to continue to be the leader with regard to consolidation.

Q: The acquisition of Noble Trading was pretty recent. What edge does that give you? Why were you interested in acquiring them?

A: We acquired Noble Trading in February 2010. We did it for a few reasons. The first reason, again, is that we wanted scale, we wanted more customers under the Lightspeed Financial brand and the ability to offer them the speed of market data and speed of execution that both the manual Lightspeed Trader platform and the automated Lightspeed Gateway platform provide. . Secondly, the Noble Trading owners have done a really good job building a brand name that delivers third party technology and third party trading platforms. We wanted to continue to deliver the Lightspeed Trader and Lightspeed Gateway platforms, but we also wanted to expand that product offering to offer third party platforms under a different brand name. The Noble acquisition brought us more than 1,000 customers trading on third party platforms. So now we offer the Lightspeed Trader and Lightspeed Gateway platforms as well as third party platforms, expanding our product offering to customers.

Q:What makes Lightspeed different than other brokers?

A: We believe that with the Lightspeed brand name and the Lightspeed Financial product offerings, that traders have the best of all worlds right now. Both the Lightspeed Trader and Lightspeed Gateway platforms offer direct market access, lightning fast market data and executions, as well as built-in risk monitoring. Through our Lightspeed Trader platform, traders have real time charting, real time news, ticker alerts, scanning tools, and we just recently announced a partnership with Recognia to provide technical analysis tools to our traders as well. We also have Lightspeed Spotlight, which is our customer-exclusive social community where customers share information and trade ideas, as well as access to educational tools and resources from third-party providers. I think that all of that information on our own platform gives traders an advantage. On top of that, if a trader is used to a different platform, a third party platform, and wants to continue to use that platform, but at the same time get some of the other tools that Lightspeed offers such as Spotlight and our partnership with Recognia, they can gain access to those as well. With Lightspeed, traders have a homegrown platform which encompasses all of the tools of direct access trading, and third party platforms, and offers access to the education and other tools that Lightspeed delivers.

Q: How has the Recognia partnership helped your customers?

A: We have had this partnership for about six months to a year, where we offer some tools within our community and we are expanding that offering so that traders can use technical analysis and chart pattern recognition to help them make trading decisions. Our job as a broker is to help the trader to succeed in the markets. That is everything we stand for - delivering more tools and information to traders so that they can be more successful in the markets.

Q: Does Lightspeed have a social marketing strategy?

A: We do. We were probably one of the first brokers to enter into the social media world. We use Twitter, we have a Facebook page, and we do a lot of creative things off of that. We run games, we run Lightspeed contests, we were doing something around the NCAA tournament, and we try to really engage the customers with our social media strategy. We believe that customers want to tell us things. We don't want to tell them everything. We want to listen to what they have to say and take away both good and bad and react to that. We think that social media is a very important part of who we are and how we are going to grow as a broker.

Q: Do you plan to introduce any new products or features in 2010.

A: The big one, which we already discussed, is the expanded partnership with Recognia. We also are looking to expand our options and futures offerings. We also just launched Lightspeed WebTrader, which is a browser based platform for customers who do not need direct access. We saw demand from customers that were coming to us that were not quite as active as our traditional customers, but wanted the educational tools and stable platform that our DMA customers enjoy. Lightspeed WebTrader fits those customers and they get the same great service and stability from Lightspeed, but with a web based platform.

Q: Did you see the Barron's article about Lightspeed this weekend?

A: Yes. I think Barron's rated us as the best broker for frequent traders. And from a cost basis we were a leader on cost for active traders and less active traders. We are proud of where we stand, and we are proud of the Barronís ranking, and how we came out, and some of the information provided there. We look to really continue to be a market leader for active traders.

Q: You have been the CEO of Lightspeed Financial for awhile. What advice would you give to someone who aspires to be similarly successful?

A: One of the things that I do is read a lot. I think it is very important if you want to be a CEO of an organization to broaden your reach, and broaden your understanding, not just of the industry that you are in, but of things that are going on around you. I think that it is important to understand how different parts of running a business actually integrate, whether it is human resources or accounting or financial planning. I think it is important to understand all of that. You can't do everything, but by reading a lot of periodicals online, you can gain an understanding and an appreciation for everything else around you. Being a CEO, you have to be able to look at different perspectives, not just one perspective. You have to look at, "How does the customer see this? How do my employees see this?" I think it is important to learn how to picture things and view things from different perspectives - not just see it from your own eyes.

Q: What was your first or worst job?

A: That is a great question, a fun question. My first job was probably around the age of 11,12,13, somewhere in there. My father, who ran a tax practice on Long Island, would bring me in every Sunday to help him file and do preliminary prep of tax returns before he would sit down with each client. I think that gave me a really good perspective on what it took to become a leader in the business world and a leader of a company. It also gave me a perspective about hard work and it was a lot of fun getting to meet different people everyday. We did something like seventy-five tax returns in a given day, by hand, and that was how many people I got to meet in a given day.

Q: Is there anything else that we didn't ask you about Lightspeed that you think is important?

A: The one thing that I would like to point out, is that we pride ourselves on our customer service. Again, I know that a lot of people say that they have great customer service, but that is the core of who we are at Lightspeed. We like to develop relationships with our customers. We want to know who they are. We want to help them where we can. We really think that it is a very important aspect of being a broker and being the type of broker that we are. We want to listen to what the customers have to say and respond to it. We really want to be a partner with them. As they grow and become more professional and trade more and make more money in the market, we want to be a part of that. We want to partner with customers to help them do that. That is who we are at Lightspeed Financial.