On a sliding scale of difficulty, writing a general-interest book about high-frequency trading (hft) is slightly harder than making baseball statistics interesting, but easier than animating the role played by quantitative analysis in the 2007 financial collapse. “Collateralised debt obligations,” says Michael Lewis, who has written about all three, “are impossible to describe. There’s nothing harder. However, trying to show a reader how a market moves? How stock prices move? You can already see them tuning out.”
That was the concern when he wrote Flash Boys, an investigation into what he calls the “rigged” underbelly of Wall Street trading. In the event, the book has sold a staggering 130,000 copies in the US in its first week of publication. (By comparison, The Big Short, his biggest seller to date, sold 60,000 in its first week.)
Lewis has been on every talk show and financial news panel in the land, arguing with, among others, Bill O’Brien, the president of the Bats Global Markets stock exchange, about whether or not he and his cohorts are ripping off their customers. If the 53-year-old started off angry, opposition to the book has sharpened his stance into a moral crusade. “I find this story really upsetting,” he says over lunch in LA, where his publicity tour just ended. “The idea that the smartest, richest elites of society find this an acceptable activity. This predatory activity.”
If it’s emotional for Lewis, then the responses have been emotional too, given how unequivocal his accusations are. The cornerstone of Flash Boys is a discovery made by an obscure Canadian banker, Brad Katsuyama, who noticed that whenever he tried to execute a trade, the stock price moved before the order went through. A long and tortured investigation revealed that the variable speeds at which trading information travels down fibre-optic cables to the exchanges was being exploited by brokers and high-frequency traders – so-called for the volume of trades they make – to jump the queue, buy the stocks in question and sell them back at a higher price to the person who expressed the original interest.
“Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run [orders],” writes Lewis. It was a side-effect of automated trading and a tough thing for bankers to wrap their heads around, let alone laypeople. In plain English, as a colleague of Katsuyama’s put it: “My role was to walk around and say to clients, ‘Don’t you understand you’re being fucked?'”