Title: Flash Boys – A Wall Street Revolt
Author: Michael Lewis
Little guy goes after the big guys story. Only, it is all true.
‘Flash boys – A Wall Street revolt’, is written by Michael Lewis, a former bond trader in the Investment Bank, Salomon Brothers.
I am a finance-deaf guy. Fifty pages without either a shootout or a pair of boobs is more than I can take. But this book really lays bare the evil that goes by the name of Wall Street. It essentially says that the American stock market is rigged to benefit a few – the large investment Banks and their HFTs, High Frequency Traders who buy and sell billions worth of stocks and bonds every day.
The way these guys have rigged the market is by being as close, physically, to the 13 stock exchanges in the US, as possible and installing the latest and fastest computers in their dens. Even though transactions travel at light speed through fiber optic cables to ‘black boxes’ inside the stock exchanges, a closer proximity gives a trader a nano-second edge over you.
If you place a ‘buy’ order, the HFTs will come to know of it, get inside and buy a fraction of a second before your buy order reaches the exchanges and has had time to make the purchase. Then, having reached there first, they’ll turn around and offer you the very same stock at a marginally higher price. And you’ll suddenly find that the earlier offer is no longer there.
A one-cent difference, over 1 billion shares, is $10 mill cool and if that transaction is one in a million going on every minute, you could be losing a lot of dough, to someone who has an unfair edge over you.
Flash Boys must have had some pretty convincing arguments, because hours after its release, the book has triggered independent investigations of HFTs, by the FBI and the New York Attorney General’s office. And it should.
The American economy depends upon the trust that investors have on it’s financial system. If that trust failed and investment stopped, so would the ability of publicly listed corporations to borrow and therefore, to expand and to employ. In this respect, ‘Flash Boys’ gives us the bird’s eye view of a disaster in the making.
Ps:I was lying about not understanding financial stuff. If you give me a book of blank cheques with your signature on them, I can balance them. On the credit side, in my account.