This has indeed been a very busy week for us all. I mean with the Fed decision, big red, big green, talk of Wide Ticks, and even a Themis Trading MidTerm Exam on Reg NMS – we all need something a little lighter to talk about today. After all, we are more than a bunch of nerds looking at numbers, analyst reports, and blinking green and red numbers. Seriously. We are worldly men and women, and we certainly can venture into talking about music, art, anthropology, and even the animal kingdom! We like talking about the animal kingdom, and have done so in the past. And while locusts are a past favorite animal kingdom topic, today we want to talk about sloths. Fear not though, there is a market structure tie-in at the end of the note…

The New York Times had a fascinating article earlier this week titled The Sloth’s Busy Inner Life. It details some really fascinating behavior exhibited by the three-toed sloth, and even the two-toed sloth (why nobody talks about the one-toed sloth is a family secret best left buried). Check it out: the three toed sloth is more than an animal; it is a contained ecosystem in a way. It has living in its fur these moths, who hang out, die, and decompose in the fur, which provides a nutritious meal for the three toed-sloth. The thing is, though, that the moths lay eggs in sloth turd. Gross.

The three-toed sloth does not think it is gross. It really digs the nutrition it derives from the decayed moths in its fur, and it does all it can to insure that the moths will continue to provide such a tasty meal. The sloth actually climbs out of its tree every day, carrying its moth larva infested turd, and buries it in the ground – creating a nice protected environment for moth-hatching.

At this point we bet you are thinking, “Why in God’s name is Themis telling us about the turd-burying three-toed sloth?” The answer of course is because we really prefer to talk about the two-toed sloth. The two-toed sloth is smart. You might even say it is smarter than the three-toed cousin its shares the trees with. The two –toed sloth does not carry its turd out of the tree and bury it. It’s as if it looks at the three-toed sloth with disdain, thinking (in a Brooklyn accent), “What are you friggin kidding me?”

Why does this make the two-toed sloth smart? It is because he realizes that there are plenty of moths around to infest its fur, providing the two-toed sloth tasty meals, because of the work put in by the three-toed sloth cousins. It figured out it probably doesn’t need to be touching the turds and burying them, since the three-toe sloth does it plenty!

This is awesome. And the two and three-toed sloths do make us think of our modern markets, as we often ponder public quotes on exchanges (three-toed sloth) versus dark liquidity – especially internalizers (two-toed sloths). The latter depends on the former to do the work, and references, and needs, prices on the public markets, just as the two-toe depends on the three-toe.

Can the two-toe and the three-toe coexist? Of course they can – and they do. We suppose however, that it is a good idea to keep an eye on the population of two-toes versus three-toes. We suppose it would be scary for them both, especially the two-toe, if down the line not enough moths exist, due to sub-optimal turd-burying, and the food supply is endangered for everybody.

If that happens, we assure you that all of us will be asking ourselves, “is there anything lower than a freeloading sloth?”