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Michael Lewis’ Flash Boys is a rigged market fairy tale of little significance
This is the story of how Michael Lewis, veteran producer of Wall Street pot boilers, rigged media coverage for his new book, Flash Boys: A Wall Street Revolt, and conned just about everybody. And I mean rigged. First Mr. Lewis appeared on CBS’ 60 Minutes Sunday night for a little front-running on the Monday launch of Flash Boys. Then he strung together a couple of words so as to manipulate public attention paid to the book and trigger an artificial jump in sales and line his own pockets with fat royalties — maybe 15% — on the spread between the C$32.95 retail price of the book and the cost of producing it.
The words he used on 60 Minutes were: “The stock market is rigged.” In a New York Times Sunday Magazine adaptation of the book, Mr. Lewis says “The stock market really was rigged.” That’s a pretty good sales pitch if you’re trying to sell a book about the stock market. The odd thing is that Mr. Lewis never actually says those words in the book. The words Flash Boys also fail to make an appearance, leaving readers guessing as to who they are.
Possibly the Flash Boys are the group surrounding Brad Katsuyama, the Canadian employee at Royal Bank of Canada in New York who is credited with having uncovered market manipulation by unscrupulous traders in the big-game business of computer-driven high frequency trading (HFT). Or the Flash Boys might be the HFT operators who engage in flash trading and perpetrate flash crashes and other market mayhem. It’s a convenient confusion but a great gimmick of a title.
In the book, the words “rigged” and “stock market” are used only by Mr. Katsuyama and one or two other characters. At one point, apparently while watching the stock price ticker on a TV screen, Mr. Katsuyama was thunderstruck. “That’s when I realized the markets are rigged. And I knew it had to do with the technology. That the answer lay beneath the surface of the technology.”
The trouble is that the book never proves its claim that high frequency trading is a rigged pit of manipulated prices. Nor is there support for Mr. Lewis’s media promotion slogan “The stock market is rigged.”
What readers get instead is a somewhat interesting well-told yarn about how Mr. Katsuyama at RBC noticed that some HFT traders were using their tech advantage to engage in an age-old market practice known as frontrunning. In the old days, a frontrunner would learn that an investor was looking to buy a stock and then buy the stock for his own account, hoping to capitalize on the rise in the price of the stock after the original buyer’s purchase went through.
For the rest of this article, click here: http://business.financialpost.com/2014/04/02/terence-corcoran-flash-boys-rigged-tale-ignores-high-frequency-tradings-revolutionary-effect-on-markets/