Tom Sosnoff – The Path to Electronic Trading – John Lothian News

Tom Sosnoff - The Path to Electronic Trading
John Lothian

John Lothian

Executive Chairman and CEO

Veteran Trader and Serial Entrepreneur Shares tastytrade and Thinkorswim Origin Stories

Tom Sosnoff is a serial entrepreneur whose endeavors are transforming how people trade and understand the markets. Expanding on his success as an open outcry options trader on the CBOE, Sosnoff and his business partner, Scott Sheridan, built one of the first all-electronic online futures brokerage firms, Thinkorswim (TOS). 

Ten years after launching TOS, they sold it to TD Ameritrade (TDA) and moved on to their next startup, tastytrade. 

Thinkorswim offered a software-based trading platform, not a web-based one. It could be run from a thumb drive with the software on it from any computer. TOS was also dedicated to educating investors, something tastytrade would take to the next level.

John Lothian News interviewed Tom Sosnoff for the Open Outcry Traders History Project. In the interview, Sosnoff told the story of the start of Thinkorswim, which was a “throw in” idea after the primary ones he envisioned. JLN turned this part of the interview into a segment for The Path to Electronic Trading video series from MarketsWiki Education.

The first idea Sosnoff and Sheridan planned to  pursue was  options on anything, say even a signed Michael Jordan basketball jersey. The second idea was the development of an advisory firm. Lastly, they were going to start up an online broker, the “throw in” idea.

Scott Sheridan stayed on the CBOE trading floor while Sosnoff pursued these endeavors. At the time, Sosnoff still kept his membership on the CBOE and would trade only on the active expiration Fridays and a couple of other days.

They hired a group of seven people and they built the Thinkorswim trading platform. The first two ideas, options on everything and the advisory firm, were ditched when they realized regulatory approval for them would be difficult.

So they pursued the idea of the online brokerage, which is how the brokerage firm Thinkorswim came to be.

To fund the TOS, Sosnoff approached a firm he and Sheridan managed money for (about $200 million), the National Australia Bank, which was developing a startup fund at the time in 1999. NAB is the fourth-largest bank in Australia. 

National Australia Bank committed $10 million to Thinkorswim, but Sosnoff and Sheridan only took $5 million of the $10 million and used $1 million. Thinkorswim would give back the $4 million and later buy out the bank.

The reason for the buyout, which left the bank with a minor stake, was that at the time NAB did not want to have reporting requirements to the U.S. Federal Reserve, which was required because the bank initially owned more than 20% of ThinkorSwim.

Sosnoff says the real genius of Thinkorswim was hiring really good developers who were willing to build software. TOS was a downloadable software rather than a web-based platform.

By 2009, the firm was publicly traded under the symbol SWIM and three different firms tried to buy them out. The board of TOS voted to sell to TD Ameritrade despite Sosnoff’s and Sheridan’s objections.

Sosnoff would sign a three-year deal to stay at the firm. After two years, Sosnoff started a new business, tastytrade. 

Former TD America’s CEO Fred Tomczak wanted to invest, and TDA put up $20 million to Sosnoff’s $5 million to launch tastytrade, though tastytrade only took $5 million from TDA.

Tastytrade stayed partners with TD Ameritrade for five years. Then, when TDA tried to buy Tastytrade out and they said no. Sosnoff said he figured tastytrade must be worth a lot more than TD Ameritrade was offering. 

Instead, tastytrade started tastyworks in 2017, giving tastytrade its own brokerage platform.  Ten years after starting tastytrade. five different companies were bidding for the firm in the middle of the pandemic. They chose the deal offered by IG Markets, which has been quoted as a $1 billion deal.

Sosnoff says tastytrade’s digital network is the largest in finance in the world. He said he wants to take the network 24/5 or 24/7 and take their software and compete with the larger Interactive Brokers for digital products.

Sosnoff said he thinks that the GameStop trading episode was a watershed moment for a transfer of power from passive to active trading. 

He also talked about trading live cash crypto on their tastyworks brokerage platform, which he claims is the first for major retail equity brokerage platforms. He said he believes crypto will make it cheaper and faster to move money around the world. 

 

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