Michael Lewis Shines Light on Wall Street ‘Flash’ Trading

Michael LewisAuthor Michael Lewis’ new book, Flash Boys: A Wall Street Revolt, shines a light on some dark Wall Street practices and raising questions of fair trading. Lewis is a former Wall Street bond salesman and the best-selling author of Money Ball, The Blind Side and several other books on the financial system. In his new work, he takes on some of the newer high-frequency trading practices and whether they give advantages to some traders over others.

Flash Boys: A Wall Street Revolt explains how brokers at some firms have gained microsecond advantages in trading on automated exchanges via advanced computer networks. The methodology – the use of dark pools – is a secretive but growing practice on Wall Street that is no longer secretive with the publication March 31 of Lewis’ book and all the publicity it is generating, including a 60 Minutes interview.

According to Lewis, anyone who owns equities is being victimized. The high-speed, high-frequency trading employs software-driven strategies to post and cancel orders at rates measured in thousandths or millionths of a second to capture price discrepancies on the American equities market. The flash traders are gaming the system to figure out which stocks other investors plan to buy, purchase them first by split seconds, then sell them back at a higher price second later.

In the book, Lewis specifically takes aim at several big banks, such as Goldman Sachs, Credit Suisse, and Merrill Lynch, whose giant dark pools he claims evolved from a safe place for clients to park their money into the realm of high-frequency trading sharks taking advantage of the imbalance in information and computing power.

The high-frequency trading practice has received less scrutiny than other parts of the financial system in the past few years, but was starting to draw attention prior to the light Michael Lewis shines on the Wall Street practice with the publication of Flash Boys. New York Attorney General Eric Schneiderman has started investigating the “predatory” behavior. His office is looking into privileges marketed to professional traders that allow them to buy access to faster trading data streams.

Michael Lewis was born in 1960 in New Orleans, LA. He received a BA in Art History from Princeton and a master’s degree from the London School of Economics before going to work for Salomon Brothers as a bond salesman. Eventually, he grew disillusioned and left Salomon to write about his experiences in the industry in Liar’s Poker, which detailed practices in investment banking and the appalling excesses of the 1980s. Since then, Lewis found great success as a financial journalist and author, tackling the financial markets in The Big Short, The Money Culture and other books, besides the two that spawned sports movies.

To keep the wraps on his topics (and ensure buzz when his books come out), Lewis reportedly has an unusual publishing contract. After waiting almost a year before his first book came out, Lewis now requires a two month turnaround from submitting the finished work until publication. Another unusual aspect for a repeated best-selling author, Lewis does not take a book advance. He likes the risk, and the control.

Considering Lewis’ new book is about gaming computer systems, his master plan of controlling the spin on his own books backfired this past week. Google algorithms allowed portions of the book to leak onto several Web sites earlier than they should have been posted. Before being hastily taken down before too much light shines on the manuscript, several on Wall Street caught glimpses and were trading tweets about Michael Lewis’ latest book, which is undoubtedly a hot topic all over the street with last night’s 60 Minutes airing and the publication of  Flash Boys yesterday.

By Dyanne Weiss

Sources:

Money

Bloomberg

New York Magazine

Forbes

International Business Times

W.W.Norton & Company

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