Flash Boys MAR 31 2014
Michael Lewis (The Big Short, Liar's Poker) is back with another book about the financial markets: Flash Boys: A Wall Street Revolt. It's the story of high-frequency trading and the traders who are fighting against it.
Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post-financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading-source of the most intractable problems-will have no advantage whatsoever.
The characters in Flash Boys are fabulous, each completely different from what you think of when you think "Wall Street guy." Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world's stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.
From a Bloomberg article about the book:
His latest target, high-frequency trading, comprises a diverse set of software-driven strategies that have spread from U.S. equity markets to most developed countries as computer power grew and regulators tried to break the grip of centralized exchanges. While the tactics vary, they usually employ super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.
I don't know too much about it but from what I've read, high-frequency trading seems to involve huge Wall Street banks using the Office Space/Richard-Pryor-in-Superman-III trick of shaving fractions of a penny off of trillions of trades every year, except that it's perfectly legal. The NY Times has an excerpt of the book to further whet your appetite.