Learn more
These promotions will be applied to this item:
Some promotions may be combined; others are not eligible to be combined with other offers. For details, please see the Terms & Conditions associated with these promotions.
Your Memberships & Subscriptions

Download the free Kindle app and start reading Kindle books instantly on your smartphone, tablet, or computer - no Kindle device required.
Read instantly on your browser with Kindle for Web.
Using your mobile phone camera - scan the code below and download the Kindle app.
Flash Boys: A Wall Street Revolt Kindle Edition
#1 New York Times Bestseller — With a new Afterword
"Guaranteed to make blood boil." —Janet Maslin, New York Times
In Michael Lewis's game-changing bestseller, a small group of Wall Street iconoclasts realize that the U.S. stock market has been rigged for the benefit of insiders. They band together—some of them walking away from seven-figure salaries—to investigate, expose, and reform the insidious new ways that Wall Street generates profits. If you have any contact with the market, even a retirement account, this story is happening to you.
- LanguageEnglish
- PublisherW. W. Norton & Company
- Publication dateMarch 31, 2014
- File size728 KB

Explore your book, then jump right back to where you left off with Page Flip.
View high quality images that let you zoom in to take a closer look.
Enjoy features only possible in digital – start reading right away, carry your library with you, adjust the font, create shareable notes and highlights, and more.
Discover additional details about the events, people, and places in your book, with Wikipedia integration.
Customers who bought this item also bought
- Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run orders from one market to another.Highlighted by 3,975 Kindle readers
- Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice.Highlighted by 3,157 Kindle readers
- “When something becomes obvious to you,” he said, “you immediately think surely someone else is doing this.”Highlighted by 987 Kindle readers
Editorial Reviews
Review
― People
"Who knew high-frequency trading was such a sexy subject?"
― Bloomberg Business Week
"A beautiful narrative, so well-written. You’ve got to get this."
― Jon Stewart, The Daily Show
"Lewis writes about the resilience of underdogs, even in the face of seemingly overwhelming odds. He’s doing essential work, and anything that embarrasses fat cats and encourages reform is a flash in the right direction."
― Julie Hinds, Detroit Free Press
"Important to public debate about Wall Street… in exposing what one of his central characters calls the ‘Pandora’s box of ridiculousness’ that financial exchanges have become."
― Philip Delves Broughton, Wall Street Journal
"Michael Lewis has another hit on his hands."
― Zachary Warmbrodt and Dave Clarke, Politico
"[Lewis’s] ability to find compelling characters and tell a great story through their eyes is unparalleled. He can untangle complex subjects like few others. His prose sparkles."
― Joe Nocera, New York Times
"Recommended… Entertaining."
― San Francisco Chronicle
"If you read one business book this year, make it Flash Boys."
― David Sirota, Salon
"Lewis simply tells the truth."
― Will Deener, Dallas News
"Remarkable… Michael Lewis has a spellbinding talent for finding emotional dramas in complex, highly technical subjects."
― Financial Times
"Michael Lewis does it again . . . fascinating."
― Steven Pearlstein, Washington Post
"Score one for the humans! Critics of high speed, computer-driven trading have a new champion."
― CNN Money
"Reads like a thriller . . . Lewis is the kind of writer who creates his own weather system."
― John Lanchester, London Review of Books
"Michael Lewis is a genius, and his book will give high-frequency trading a much-needed turn under the microscope."
― Kevin Roose, New York Magazine
"A fast-paced tale backed by gutsy reporting."
― Tina Jordan, Entertainment Weekly
"Michael Lewis knows how to tell a story."
― Vanity Fair
"[Lewis] is a top-flight storyteller."
― Lev Grossman, Time
"Lewis, as always, is exceedingly good at describing the complexities and absurdities of the subculture he portrays here… A deeply entertaining book, and one that illuminates how much our world has changed in less than a decade."
― Hector Tobar, Los Angeles Times
"Michael Lewis is one of the premier chroniclers of our age."
― Huffington Post
"A tour de force that will grab and hold your attention like the best of thrillers."
― Jon Talton, Seattle Times
"Flash Boys richly deserves to be the first chapter in a new discussion of market rules and abuses… Lewis raises troubling and necessary questions."
― The American Conservative
"Entirely engaging… Illuminates a part of Wall Street that has generally done business in the shadows."
― New York Review of Books
"When it comes to narrative skill, a reporter’s curiosity and an uncanny instinct for the pulse of the zeitgeist, Lewis is a triple threat."
― James B. Stewart, New York Times
Product details
- ASIN : B00HVJB4VM
- Publisher : W. W. Norton & Company
- Accessibility : Learn more
- Publication date : March 31, 2014
- Edition : Reprint
- Language : English
- File size : 728 KB
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Enabled
- Word Wise : Enabled
- Print length : 323 pages
- ISBN-13 : 978-0393244670
- Page Flip : Enabled
- Best Sellers Rank: #71,427 in Kindle Store (See Top 100 in Kindle Store)
- Customer Reviews:
About the author

Michael Lewis, the best-selling author of The Undoing Project, Liar's Poker, Flash Boys, Moneyball, The Blind Side, Home Game and The Big Short, among other works, lives in Berkeley, California, with his wife, Tabitha Soren, and their three children.
Customer reviews
Customer Reviews, including Product Star Ratings help customers to learn more about the product and decide whether it is the right product for them.
To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average. Instead, our system considers things like how recent a review is and if the reviewer bought the item on Amazon. It also analyzed reviews to verify trustworthiness.
Learn more how customers reviews work on AmazonCustomers say
Customers find the book engaging and well-written, with insightful content that helps explain complex financial matters. The book provides a fast-paced account of high-frequency trading and features interesting characters, with one customer noting its thorough explanations. While the pacing receives mixed reactions, with some finding it bogged down by the narrative, others appreciate its brisk pace. The book's length receives criticism for being repetitive and long chapters.
AI-generated from the text of customer reviews
Customers find the book highly readable, describing it as a fascinating and entertaining story.
"This is a classic Michael Lewis book. It reads quickly. The topic is fascinating...." Read more
"...And like a great detective story, it is eminently readable because at its heart is a kind of hero: Brad Katsuyama...." Read more
"...was able to make some sense about what was going on; it is an intriguing story to say the least, like a suspense novel that just draws you in...." Read more
"...It's a good story, and Lewis tells it well...." Read more
Customers find the book insightful and educational, particularly appreciating how it explains complex financial matters.
"...It reads quickly. The topic is fascinating. The content is extremely insightful as the true technicalities of High Frequency Trading are either..." Read more
"...They exist to make it easier for institutional investors (like the folks to whom you entrust your pension and mortgage, for example) to trade in..." Read more
"...many faults, as does Reg NMS, but the SEC has done an awesome job introducing regulation which have made the equity markets fairer, and more..." Read more
"...we know that Lewis is an excellent writer and has the gift of simplifying a complex story, but what made this book so inspiring for me was the heart..." Read more
Customers praise the writing quality of the book, finding it well written and easy to understand, with one customer noting its great prose and explanations.
"...And like a great detective story, it is eminently readable because at its heart is a kind of hero: Brad Katsuyama...." Read more
"...In a way, he is one of the best nonfiction writers in English working today. I'd put him up there with Bill Bryson. But you know that already...." Read more
"...Of course we know that Lewis is an excellent writer and has the gift of simplifying a complex story, but what made this book so inspiring for me was..." Read more
"...Obviously, it is well written and compelling...." Read more
Customers find the book provides great insight into high frequency trading, with one customer noting it's accessible to all readers.
"...exchange traded markets, e.g. futures and options, and these markets are more efficient, cheaper and more transparent than they have ever been...." Read more
"...think Lewis' writing style is perfect for the layman and the experienced trader alike...." Read more
"...Flash Boys continues that history with an easy reading perspective on High Frequency Trading...." Read more
"...book is well researched with facts, stats, personalities, players, markets, and all the insidious methods of high frequency trading splayed out in a..." Read more
Customers appreciate the book's fast-paced narrative, particularly its clear explanation of high-speed trading and high-performance computing.
"...Its foundational one is an unfathomable stock trading speed measured in the 1/10000 of a second...." Read more
"...Dark cables are cables that are optimized for speed of transaction...." Read more
"...attracting the players and running the games, and 3) keeping the games running smoothly via skilled dealers and floor personnel...." Read more
"...Another big problem is that this book focuses on the speed issue...." Read more
Customers appreciate the character development in the book, noting that the personalities of the involved participants are well-portrayed, with one customer highlighting the engaging narratives of the principal players.
"...Moreover while several of the characters are engaging, this isn't -- like "Blind Side" -- so much a story about people as it is about..." Read more
"...Really, it's the characters. The people in this book are real...." Read more
"...It's an interesting cast of characters that come together to try and make things right in the market." Read more
"...Great characters introduced throughout the book, and patient and simplified explanation of the arcane details of how this swindle works make the..." Read more
Customers have mixed opinions about the pacing of the book, with some finding it insightful into Wall Street corruption and greed, while others feel it is bogged down by the narrative and lacks a satisfying ending.
"...It is about the financial market must be well functioning and free of unnecessary intermediation. That said, still two thumbs up on the book!..." Read more
"...Christina testifies, the story line in “Flash Boys” is more fictional dramatization than fact...." Read more
"...And I can tell you that the casino poker analogy is perfect -- but not in the way Lewis thinks...." Read more
"...This is not only legal, but completely ethical, transparent, and definitely not front running...." Read more
Customers find the book's length unsatisfactory, describing it as repetitive and boring, with several noting that it could have been shorter.
"...Not because "long" is intrinsically better, but because it feels rushed in a sloppy way...." Read more
"...Also, the book's entertainment value is much lower than some of Michael Lewis' other books, in particular Liar's Poker, Moneyball and The Big Short...." Read more
"...Chicago and NJ and HFT/speed arbitrage/dark pools - the rest of the book struggles...." Read more
"I found Flash Boys to be riveting. I read it in two sittings in two days...." Read more
Reviews with images

Great Read - Condition NOT "Very Good" as described
Top reviews from the United States
There was a problem filtering reviews. Please reload the page.
- Reviewed in the United States on June 21, 2017This is a classic Michael Lewis book. It reads quickly. The topic is fascinating. The content is extremely insightful as the true technicalities of High Frequency Trading are either not covered or not understood even by the investment related media.
Michael Lewis book follows three intertwined narratives.
First, he opens the black box on what is high frequency trading (HFT). How it works, how it extracts rent profits from investors in the stock markets. There are currently over 50 stock market exchanges: 13 are public, and the rest are dark pools. The more market exchanges there are, the more arbitrage and front running opportunities there are for high frequency traders (HFTs) to exploit.
Second, it narrates the history of the Investors Exchange (IEX) founded by a righteous quant type bunch who decided to start a stock market exchange that would eliminate all the HFT rent seeking strategies so to deliver a fairer market price to institutional investors trading on their platform.
And, third it follows the strange life and career of the Russian computer programmer Sergey Aleynikov. He worked for two years for Goldman Sachs from 2007 to 2009 to render their computer trading systems faster and more competitive within the high speed world of HFT. He left Goldman Sachs with his computer codes that Goldman Sachs deemed proprietary. Goldman Sachs had him arrested by the FBI in 2009, and ever since he has been either engaged in trials prosecuted by Goldman Sachs or in jail.
This third narrative also covers the ambiguous and evolving engagement of Goldman Sachs in HFT. At first, it attempts to become an engaged competitive high frequency trader itself. And, that is when it hired Aleynikov to improve its trading computers’ speed. Later, it will realize that chasing the HFTs in a speed competition is a losing proposition. And, it will become the only major Wall Street investment bank to fully support the Investors Exchange (IEX) to counter and neutralize the nefarious impact of HFTs.
Going back to the first narrative, High Frequency Trading extracts rent profits from institutional investors (and their retail investors) in three ways.
The first way is by beating the investor to the stock market gateway and quickly buying and reselling the stock to the investor at a small profit. They call it “electronic front-running.” To do that, you need to be fast. That is where the nano second trading speed comes in. The “co-location” of the HFTs servers next to the ones of the exchanges plays a major role by reducing the electronic distance travelled and maximizing trading speed.
The second way is by exploiting a complex system of kickback and rebates on trades implemented by the various exchanges themselves. They call it “rebate arbitrage.”
The third way appears similar to electronic front-running, except that the HFTs exploit minute price discrepancies between the various exchanges before the exchanges themselves have had a chance of correcting those. They call it “slow market arbitrage”. Apparently, of the three rent seeking strategies this is the most lucrative one for the HFTs.
The above strategies are implemented within a market universe that is alien to individual investors and most institutional investors. This market universe has interesting characteristics. Its foundational one is an unfathomable stock trading speed measured in the 1/10000 of a second. Such speed relies on extra fast fiber optic networks and computer servers located extremely closely to the servers of the stock exchange themselves. Another characteristic is the HFTs purchasing customer order flows from the Wall Street brokerage houses. The latter now make more money from selling those customer order flows to HFTs than from trading itself. In essence, Wall Street sells proprietary customer order information to the HFTs, so the HFTs can front run these same customers (their stock orders). And, somehow SEC laws have still not caught up to this apparent infraction of the integrity of the stock markets. That’s even though the mentioned HFTs rent seeking strategies are at least a decade old.
So, next time when you think your brokerage house is acting in your best interest, think again. It is acting in the best interest of the HFTs and itself by making money on selling your order information to the HFTs. And, we are talking millions if not billions of dollars in total annual revenues for the Wall Street brokerage houses.
Going back to the second narrative, to correct for all those markets flaws exploited by the HFTs, Brad Katsuyama, a former trader at Royal Bank of Canada, will create a “fair” exchange: the Investors Exchange (IEX) in 2012. This exchange takes specific infrastructure measures to entirely eliminate all the exploitative advantages of HFTs including: 1) ensuring market pricing data arrives at external points of presence simultaneously; 2) slightly delaying market pricing data to all customers (no co-location, HFTs servers are not allowed proximate to the IEX servers); and 3) IEX refuses to pay for order flow and does not offer related trade rebates of any kind. The majority of Wall Street banks and HFTs will do everything possible to kill this emerging “clean” exchange in its infancy. This is because they collectively extract yearly rent-profit in the $billions on the back of retail and institutional investors. However, as mentioned one of the main player will break rank as Goldman Sachs ultimately decides to support IEX by routing a good portion of its trades to IEX. Goldman Sachs understands that what IEX is doing to restoring integrity in the equity markets is critical. And, as a result IEX survives. Nevertheless, it is not entirely encouraging when evaluating how much impact IEX has in restoring the integrity of the US equities markets since it captures less than 3% of its volume to this day. In other words, over 97% of such market trading volume still is done under the exploitative rent-seeking system abused by the HFTs (electronic front running, etc.) and the other Wall Street banks (making more money from selling their customer order flows than actual trading).
The third narrative about Sergey Aleynikov and Goldman Sachs evolving position regarding HFT is very interesting because of its ambiguity. Aleynikov used mainly open source software to develop his codes to improve Goldman Sachs computer speed. When he accepts an offer to join Teza Technologies (who offered to triple his compensation from $400k to $1.2 million), he decides to copy and take his computer code on a USB drive. At such point, Goldman Sachs aggressively pursues him (gets him arrested by the FBI, tried, and jailed). At the time, Goldman Sachs considered the mentioned computer codes to be proprietary and critical to its competitive position within the HFT environment.
Michael Lewis will engage with many industry insiders (HFTs, computer programmers, etc.) and solicit their opinion on whether Aleynikov was truly guilty of stealing proprietary company codes or not. Almost unanimously this crowd of insiders advance that Aleynikov was innocent. And, that his practice of copying his own open source based codes when he moved to another employer is absolutely standard within the computer programming community. Aleynikov also indicated that he had no use for Goldman’s proprietary codes as they were very cumbersome catered to Goldman’s antiquated legacy computer systems. When Michael Lewis talked to outsiders like institutional investors, they were far less lenient. And, they typically considered that Aleynikov was clearly guilty of stealing proprietary codes.
As indicated, Goldman Sachs at first vigorously pursues Aleynikov in order to protect its position in terms of trading speed within the world of HFT. Much later, when it decides to give up on the speed competition and decides to do just the opposite by supporting IEX, Goldman Sachs does not pursue Aleynikov as adamantly anymore. But, by then the legal system takes a life of its own. As a result, some of the related lawsuits are still going on to this day. Aleynikov is nearly bankrupt and has an online legal defense fund to raise money to mount his defense and reclaim his innocence.
- Reviewed in the United States on January 30, 2017This book is an interesting "story" ... but it leaves me very suspicious. If I were sitting in the meeting where it was first proposed that HFT be tried I would have been able to immediately describe how it could be (and should be) neutered as a tactic ... at virtually zero cost.
HFT requires two things: (1) timing predictability and (2) being able to "cut in line". Both of those needs are easily made impossible. Thus, a process can be designed that makes both impossible. And just like the whole HFT process requires quick adaptation, the process could have easily imposed a fix as an adaptation. Further, IEX could have designed their process with such an adaptation even if the others didn't. Their strategy would have remained the same: Attract business by being fair to everyone ... i.e. treating everyone the same ... i.e. unpredictable and sufficiently long latency ... not just in the order time stamping, but throughout the system responsiveness. Investing is not something about changing trading decisions within mili-seconds of committing to them. It is, by definition, a much longer term decision. Thus, any latency making all players equal would have no effect on the principal purpose of the process ... to bring buyers and sellers together in a fair, non-gamable, process.
I'll now just give some of the annotations I made to the book in the order I made them (with the hope the author sees them):
Pg. 174: "for instance one professor suggested a 'randomized delay'" ... and later: "Someone will just flood the market with orders" was mentioned as why this would not work. But it obviously would work. If no one can predict the process timing, no one can benefit from that timing. Focusing just on the orders was not the solution. But here, randomizing was just dispelled by this simple assertion and never brought up again. A $300 million secret effort taking over a year (i.e. the fiber from Chicago to NYC) would have been neutered in a matter of weeks ... or even days of becoming visible. Way before it could repay itself.
Pg. 177: "To create a 350-microsecond delay, they needed to keep the new exchange roughly thirty-eight miles from the place brokers were allowed to connect to the exchange".
With randomized latency this was unnecessary. With a "known" latency, it isn't even effective. I had seen the "coil the fiber" when working for a major telecom carrier six years earlier. They had the fiber on a spool and just tapped into the ends ... no big deal at all. Again ... that really fixes nothing, just moves the issue 350 micro-seconds down the road. Nobody wins by betting on the instant replay if all everyone sees is the instant replay.
Pg. 194: "You couldn't see the plane," he said. "You just saw the explosion".
Did "anybody" see the plane? Why did WTC7 mysteriously fall down? These people keep behaving like they believe the government's 19 cavemen with box cutters conspiracy theory tale.
Pg. 277: "The authorities evidently felt the need to leap into actions, or to appear to"
The "or to appear to" speaks volumes. The "authorities" are well known to be co-conspirators.
Pg. 281: "These savings were fully realized by 2005 and were enabled less by high-frequency market-making than the Internet, the subsequent competition among online brokers, the decimalization of stock prices, and the removal of expensive human intermediaries from the stock market."
The part regarding the "internet" is nonsense. If you didn't subscribe (and pay a fee to a broker or a data feed), you had a 15 minute delay in price reporting ... on the TV and on the internet. You were betting on the instant replay. Do you think that fact was there to protect the little investor?
Pg. 281: "the cost to investors of trading in the U.S. stock market has, if anything, risen... possibly by a lot."
This is absolute nonsense. Just digitalizing the spreads removed enormous cost. Then reducing and removing human interaction removed still more cost. All that HFT was about was front running and picking up crumbs. In the oil field, a business called "gathering" tapped into flaring gas. In the accounting business, diverting to a special account rounding to the penny residue did the same thing HFT is doing. It's not new. And it's not going away. Government regulators "always" enable such things.
Pg. 282: "The attention became focused almost entirely on high frequency trading..."
The fact that high frequency trading was cost effective was proof it was a bad guy. It could have been neutered by introducing random delays...within days of the scheme going live. Such a simple fact would have kept someone from trying to go live with it in the first place.
Pg. 282: "but perhaps it's too much to expect Wall Street traders to worry about the social consequences of their actions."
People will "always" act in their own self interest. And that is "always" enabled by government when it comes to really big scams. Being a "nation of laws" instead of "a nation of principles" makes it legitimate. If it's not against the law, it's ok. Thus we get 40,000 new laws each year.
Pg. 282: "I honestly don't fee that strongly about high-frequency trading."
Oh really? How do you feel about "gaming" the process.
Pg. 282: "If I didn't do more to distinguish "good" HFT from "bad: HFT, it was because I saw, fairly early on that there was no practical way for me or anyone else without subpoena power to do it".
There is "no" good HFT. Follow the money! He got all the information he needed in simple conversations ... no subpoenas at all. It would never have been tried if proper transparency and process existed. It was obviously gaming...masquerading as arbitrage. Random delay would have rendered it impossible from the beginning!
Pg. 282: "... firms need to reveal the contents of their algorithms"
No they don't. That just opens a new attack vector. Who gets to see those algos first? Make it impossible for any algo to have an advantage. That's the solution! Random delays deliver that solution.
Pg. 283: "They designed IEX to eliminate predatory opportunities created by speed".
And all they had to do was introduce random delay to those using their process. This neutered all HFC advantage yet doesn't resort to knowing what that advantage might be. Interestingly there's no mention of the tactic of placing orders and immediately canceling them. The process allowed that.
Pg. 286: "If this story has a soul, it is in the decision made by its principal characters to resist the temptation of easy money and to pay attention to the spirit in which they livce their working lives."
This is what hit me first about HFC and gaming processes in general. It sanctions cheating in a game as a valid tactic. This is why we need to be a "nation of principles"; not a "nation of laws". People violating principles will be naturally ostracized. Laws just deem everything not against the law to be lawful.
Pg. 286:"That some minority of Wall Street is getting rich by exploiting a screwed-up financial system is no longer news".
As if it ever was news. The government scheme of looking the other way and then fining as a new income stream is becoming government (and those they regulate) modus operendi. Ostracize both!
Pg. 286: "All they need is a little help from the silent majority"
What they need is a little help from plain ole common sense. The silent majority is the "clueless" majority. By my poll, less than 6% of USA voters know anything about WTC7.
Top reviews from other countries
-
Kindleのお客様Reviewed in Mexico on March 30, 2024
5.0 out of 5 stars Excelente
Muy buen libro.
-
fredReviewed in France on December 29, 2015
5.0 out of 5 stars très instructif
ce livre apporte un éclairage bienvenu sur le fonctionnement des marchés financiers. L'auteur a voulu être précis (et c'est nécessaire) pour disséquer les mécanismes qui font du trading haute fréquence une opportunité, pour une minorité qui s'enrichit de façon colossale sans risque, et un grand danger pour l'économie mondiale ; Cette précision peut rendre certains chapitres un peu rébarbatifs, mais c'est le prix de la rigueur intellectuelle ;
A lire par tous ceux qui veulent savoir où se joue l'avenir des finances mondiales....L'optimisme final n'est peut-être pas totalement justifié...la suite de l'histoire pourrait faire les gros titres de vos journaux préférés !
-
Federico P.Reviewed in Italy on January 3, 2015
5.0 out of 5 stars Un "must read"
Micheal Lewis non si smentisce mai, ottimo scrittore, ennesimo suo libro "must read". La storia é agghiacciante in quanto stiamo parlando di alta finanza istituzionale negli stati uniti condotta dai migliori laureati di università Ivy League, ma potrebbe essere tranquillamente ambientata in qualche paesiello della nostra penisola dove si studia e si lavora solo ai fini di manomettere e aggirare regole e istituzioni per monetizzare. Racconto pazzesco che mi ha fatto pensare che la finanza abbia davvero toccato il fondo, più in basso di cosi non si può scendere (ma sarò smentito). Scritto benissimo, intrigante con molti aneddoti interessanti e personaggi che coinvolgono il lettore, un "page turner" che si legge velocemente. Descrive una realtà che lascia l'amaro in bocca e che per certi versi conferma che tutto il mondo é paese; le cose da sistemare nella nostra società sono ancora molte e in tante parti del globo.
- A. D. ThibeaultReviewed in Canada on April 7, 2014
5.0 out of 5 stars A Brief Summary and Review
The thrust: Over the past 20 years, and particularly in the past decade, the stock market has undergone some significant changes. The most visible change is that much of the action has now become computerized. For example, whereas stock markets used to consist of trading floors (pits), where floor traders swapped stocks back and forth, we now have computer servers where sellers and buyers are connected automatically. Now, on the one hand, this automation has led to some substantial efficiencies, as once necessary financial intermediaries have now largely become obsolete (this has led to savings not only because the old intermediaries earned an honest commission for their dealings, but because their privileged position sometimes led to corruption).
It is not that the new stock market has done away with intermediaries entirely. Take brokers, for example. Brokers are still used by large investors to help them move large chunks of stock where the market may not be able to fill the order immediately. The brokers take some risk in this action, and provide liquidity in doing so, since they help move capital to its most useful location, and thus brokers still provide a very useful service.
While brokers have always existed, the new stock market has also added a new breed of intermediary. This new breed of intermediary is known as the high frequency trader (HFT). The high frequency trader operates on speed, relying on location and advanced communications technology to learn about the movement of the market before others, and uses this knowledge to make winning trades.
To give you an indication of how important high frequency trading has become, consider that at least half of the trades now being made in the United States are coming from high frequency traders.
Those who defend high frequency trading argue that these quick trades actually help move money through the stock market, and thus add liquidity to the system (the way brokers do); and that, therefore, high frequency traders provide a valuable service.
However, just how high frequency trading works has largely remained a mystery to anyone outside of the industry itself; and many have become concerned that high frequency trading is not so much a liquidity-contributor as a way of scalping money off of trades that would have happened anyway.
In 'Flash Boys: A Wall Street Revolt', Michael Lewis follows one man who made it his mission to find out what was going on at the heart of HFT. That man is one Brad Katsuyama, a broker from the sleepy Canadian bank RBC.
Katsuyama’s interest in the mystery began back in 2007, when he found that the trades he was trying to make from his desk at RBC were not being executed in the way they once had. In short, Katsuyama was being ripped off. And that’s not all. Katsuyama soon found that other brokers were also being ripped off—and even the investment firms were being ripped off. And since the investment firms manage your money and mine, we were being ripped off too!! This was big.
Katsuyama’s dogged persistence eventually led him (and a growing band of fellow mystery-solvers) to find that it was indeed the high frequency traders who were ripping him (and everyone else) off (though the HFTs were not the only culprits involved). What’s more, Katsuyama’s team also discovered just how the HFTs were doing it. The long and the short of it is that the HFTs are just gaming the technology. And in a way that is not only ripping others off, but making the system more volatile, and prone to errors and disasters as well (witness the flash crash of May 6, 2010).
Rather than deciding to join the HFTs at the trough (which would have been easy enough to do), Katsuyama and his team decided to fix things. Specifically, the team decided to start their own stock exchange: a stock exchange (called the IEX) that was designed to be immune to advantages in technology, and hence fundamentally fair to all (it was either that or wait around for the SEC to do something—which may take forever).
Now, you would think that a stock exchange that is fundamentally fair to all would be a big hit. But then again, a whole heck of a lot of people have no interest in making things fair to all. Which side will win? The fate of the IEX (which opened in October of 2013) has yet to be determined...
This book is fantastic. The story will confirm your suspicious that truth is stranger than fiction. Lewis writes beautifully, unpretentiously, and makes the characters jump right off the page (that wouldn’t have been that difficult here—these are some brilliant characters). My only objection is that Lewis’ explanations of the technical side of things, while very good, could have occasionally been slightly more clear. Still, an enlightening and wonderful read.
- Serghiou ConstReviewed in the United Kingdom on May 27, 2014
5.0 out of 5 stars Engaging in style but sobering in substance
The book is engaging in its writing style but sobering in its substance.
I wish, however, to remark that despite the informality of its style, the book is conceptually dense and nuanced - and at least for me intellectually taxing - while its author emerges as a personality imbued with morality, possessing a brilliant, incisive, and penetrating intellect which goes to the heart of the matter revealing things in all their sinister clarity and importantly impeccably documented. If the characters of the actors in the book appear somewhat overdrawn, this is to stress their remarkable traits. The hero, Brad Katsumaya, emerges both as a paragon of morality and brilliance.
When I consider the substance of the book words like sobering, chilling, and Kafkaesque come to mind while when I think what High Frequency Traders (HFT) and dark pools have done to Wall Street Exchanges and Finance, the first word that crosses my mind is travesty.
Regarding the substance of the book, for the benefit of brevity and clarity, I shall in the ensuing simplify and confine myself to the gist of the matter.
The specific mode for market manipulation and extracting money from investors which is the focus of discussion in the book is 'front-running' while the people practicing it and profiting from it are called ' High Frequency Traders'; an ancillary tool are 'dark pools' which are private stock exchanges, run by the big brokers, which are not required to reveal to the public what happened inside them.
The mode and pattern of front running is revealed when a trader interacts 'simultaneously' with different exchanges: when bids and offers for shares sent to the exchanges arrived at precisely the same moment,the markets acted as they should. If they arrived a millisecond apart, the market vanished, and all bets were off. Brad Katsumaya knew that he was being 'front-run' - that some other trader, was in effect, noticing his demand for stock on one exchange and laying it on others in anticipation of selling it to him at a higher price. Brad identified a suspect: 'High-Frequency Traders'. And indeed that is what precisely happened, a small clan of insiders with the resources to create speed were now allowed to preview the market and trade on what they had seen. They were ripping off the retirement savings of the entire country through systematic fraud and people did not even realize it.
The initial response of Katsumaya when still employed with the Royal Bank of Canada was to construct Thor which had built in delays so that orders could arrive at different exchanges at the same time (the window of opportunity was 465 microseconds).
It was possible to obtain an estimate of the windfall for financial intermediaries which was somewhere between $10 billion and $22 billion a year.
Subsequently Katsumaya resigned from RBC and with a team of experts built a fair and transparent exchange, IEX, which proved a success. The first to back it was Goldman Sachs which changed its former policies due to its long term interests. Among the considerations was the instability into the system when its primary goal was no longer stability but speed. Another the billions by financial intermediaries. It has to be appreciated that that the profits of the HFT was 85% with only 15% gained by the banks.
I regret that I have to conclude the review in a pessimistic tone considering that since the late 1800s the entire history of Wall Street was the story of scandal. Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice. No matter what the regulators did, some other intermediary found a way to react, so there would be another form of front-running.