Product Manager Nightmare: The Pipeline Story

by drjim on September 17, 2012

The story of Pipeline Trading Systems should be a warning for product managers…

The story of Pipeline Trading Systems should be a warning for product managers…

Have you ever started something with the best of intentions only to have it go terribly wrong? As product managers, this can happen to us if we don’t keep our eyes open to what’s going on in the world around us. Over at Pipeline Trading Systems (now known as Aritas Securities) the product managers let things get out of hand and it came back and bit them, hard.

All About Dark Pools

In order to understand this story, I think that I might have to share with you how the murky world of high finance works these days. Firms that have a lot of shares of a company in their portfolio (like millions of shares) that they want to sell face a difficult problem. Simply by going to one of the big stock markets (think NYSE, or NASDAQ) and offering to sell their shares will cause the prices of the shares to fall because they are selling so many of them. Additionally, the folks who are actually doing the selling may take advantage of the deal and try to make money by buying or selling shares of the company before the big deal comes to market.

In order to deal with this problem, something called a “dark pool” has been created. This is a backwoods trading system where you can hide your identity and how much you are selling. This solves a lot of the problems that these big shareholders have been facing when it comes time to sell their shares.

These dark pools have been set up by a whole bunch of companies that you’ve probably never heard of. Right now there are roughly 50 such market centers in existence.

What Went Wrong At Pipeline

A company called Pipeline Trading created such a dark pool. Their product managers followed their product development definition and assured their customers that they would be able to trade as many shares as they wanted to and nobody would know who they were – just about perfect from a customer point-of-view.

As you can well imagine, when you are setting up a new product like this you are going to run into some challenges right off the bat. The product managers over at Pipeline had the problem that in the early days they had customers who wanted to trade using their dark pool, but not enough customers who wanted to buy because the service was so new.

In order to solve this problem, the product managers set up their own trading operation, called Milstream, with the goal of making sure that their customers’ orders got filled by first executing for its own account on the open market. Basically what they were doing was using the public markets to help complete deals on their private dark pool. So far this is all stuff that you could put on your product manager resume.

There’s nothing wrong with this, but here’s where things went off track. At some point in time the product managers at Pipeline realized that they could make a lot of money with their Milstream operation if only it had a bit more information about the deals that it was being asked to complete. They went ahead and added a special electronic link that connected Milstream to the Pipeline operations so that the Milstream folks now knew when an order was placed and some additional price information.

Effectively what had just happened is that the Milstream product managers had found a way to boost the success of their product by using non-public information (think insider trading) to allow Milstream to make more money on every deal that it helped to make happen.

We can all see how this came about: a temporary solution to a problem (not enough people trading) was further refined when someone realized that it could be used to make a lot of money (insider trading). As product managers we need to realize that it’s our product and we can’t allow others to use it in a way that is not legal or ethical.

What All Of This Means To You

The product managers at Pipeline Trading Systems were just doing their jobs and things went horribly wrong. Or were they?

As product managers it is a part of our product manager job description to keep our heads up every so often and take a look at everything that is going on around us. If we see something that just looks wrong, we need to take action.

I’m hoping that you won’t find yourself in such a situation where what’s being done is so very wrong. However, if you do then at least now you’ll know what the right decision to make is!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: At what point do you think that the Pipeline product managers should have spoken up?

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What We’ll Be Talking About Next Time

I’ve got a quick question for you: where do you keep your money? I’m not talking about pocket change, I’m talking about the big stuff – like your last paycheck? If you are like most product managers, you have a checking account and that’s where you keep your money. It turns out that about 25% of the U.S. population is either unbanked or underbanked – they don’t have a checking account. Clearly this is a segment of the population that the bank’s product managers want use the product development definition to go after. It’s how they’re doing it that might be interesting for the rest of us…

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