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Flash Boys: A Wall Street Revolt Paperback – March 23, 2015
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#1 New York Times Bestseller ― With a new Afterword
"Guaranteed to make blood boil." ―Janet Maslin, New York Times
In Michael Lewis's game-changing bestseller, a small group of Wall Street iconoclasts realize that the U.S. stock market has been rigged for the benefit of insiders. They band together―some of them walking away from seven-figure salaries―to investigate, expose, and reform the insidious new ways that Wall Street generates profits. If you have any contact with the market, even a retirement account, this story is happening to you.
- Print length320 pages
- LanguageEnglish
- PublisherW. W. Norton & Company
- Publication dateMarch 23, 2015
- Dimensions5.5 x 1 x 8.3 inches
- ISBN-100393351599
- ISBN-13978-0393351590
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Editorial Reviews
Review
― Hector Tobar, Los Angeles Times
"Important to public debate about Wall Street… in exposing what one of his central characters calls the ‘Pandora’s box of ridiculousness’ that financial exchanges have become."
― Philip Delves Broughton, Wall Street Journal
"Reads like a thriller . . . Lewis is the kind of writer who creates his own weather system."
― John Lanchester, London Review of Books
"Remarkable… Michael Lewis has a spellbinding talent for finding emotional dramas in complex, highly technical subjects."
― Financial Times
"Michael Lewis does it again . . . fascinating."
― Steven Pearlstein, Washington Post
"A beautiful narrative, so well-written. You’ve got to get this."
― Jon Stewart, The Daily Show
"If you read one business book this year, make it Flash Boys."
― David Sirota, Salon
"Michael Lewis is a genius, and his book will give high-frequency trading a much-needed turn under the microscope."
― Kevin Roose, New York Magazine
"Michael Lewis knows how to tell a story."
― Vanity Fair
"A fast-paced tale backed by gutsy reporting."
― Tina Jordan, Entertainment Weekly
"Who knew high-frequency trading was such a sexy subject?"
― Bloomberg Business Week
"Score one for the humans! Critics of high speed, computer-driven trading have a new champion."
― CNN Money
"Flash Boys richly deserves to be the first chapter in a new discussion of market rules and abuses… Lewis raises troubling and necessary questions."
― The American Conservative
"Michael Lewis is one of the premier chroniclers of our age."
― Huffington Post
"When it comes to narrative skill, a reporter’s curiosity and an uncanny instinct for the pulse of the zeitgeist, Lewis is a triple threat."
― James B. Stewart, New York Times
"[Lewis] is a top-flight storyteller."
― Lev Grossman, Time
"A tour de force that will grab and hold your attention like the best of thrillers."
― Jon Talton, Seattle Times
"Lewis writes about the resilience of underdogs, even in the face of seemingly overwhelming odds. He’s doing essential work, and anything that embarrasses fat cats and encourages reform is a flash in the right direction."
― Julie Hinds, Detroit Free Press
"Lewis simply tells the truth."
― Will Deener, Dallas News
"Michael Lewis has another hit on his hands."
― Zachary Warmbrodt and Dave Clarke, Politico
"[Lewis’s] ability to find compelling characters and tell a great story through their eyes is unparalleled. He can untangle complex subjects like few others. His prose sparkles."
― Joe Nocera, New York Times
"As always, Lewis simplifies the complex―and makes it fascinating."
― People
"Recommended… Entertaining."
― San Francisco Chronicle
"Entirely engaging… Illuminates a part of Wall Street that has generally done business in the shadows."
― New York Review of Books
About the Author
Product details
- Publisher : W. W. Norton & Company; Reprint edition (March 23, 2015)
- Language : English
- Paperback : 320 pages
- ISBN-10 : 0393351599
- ISBN-13 : 978-0393351590
- Item Weight : 8.8 ounces
- Dimensions : 5.5 x 1 x 8.3 inches
- Best Sellers Rank: #12,657 in Books (See Top 100 in Books)
- #11 in Economic Conditions (Books)
- #19 in Investment Analysis & Strategy
- #23 in Company Business Profiles (Books)
- Customer Reviews:
About the author
Michael Lewis, the best-selling author of The Undoing Project, Liar's Poker, Flash Boys, Moneyball, The Blind Side, Home Game and The Big Short, among other works, lives in Berkeley, California, with his wife, Tabitha Soren, and their three children.
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Michael Lewis book follows three intertwined narratives.
First, he opens the black box on what is high frequency trading (HFT). How it works, how it extracts rent profits from investors in the stock markets. There are currently over 50 stock market exchanges: 13 are public, and the rest are dark pools. The more market exchanges there are, the more arbitrage and front running opportunities there are for high frequency traders (HFTs) to exploit.
Second, it narrates the history of the Investors Exchange (IEX) founded by a righteous quant type bunch who decided to start a stock market exchange that would eliminate all the HFT rent seeking strategies so to deliver a fairer market price to institutional investors trading on their platform.
And, third it follows the strange life and career of the Russian computer programmer Sergey Aleynikov. He worked for two years for Goldman Sachs from 2007 to 2009 to render their computer trading systems faster and more competitive within the high speed world of HFT. He left Goldman Sachs with his computer codes that Goldman Sachs deemed proprietary. Goldman Sachs had him arrested by the FBI in 2009, and ever since he has been either engaged in trials prosecuted by Goldman Sachs or in jail.
This third narrative also covers the ambiguous and evolving engagement of Goldman Sachs in HFT. At first, it attempts to become an engaged competitive high frequency trader itself. And, that is when it hired Aleynikov to improve its trading computers’ speed. Later, it will realize that chasing the HFTs in a speed competition is a losing proposition. And, it will become the only major Wall Street investment bank to fully support the Investors Exchange (IEX) to counter and neutralize the nefarious impact of HFTs.
Going back to the first narrative, High Frequency Trading extracts rent profits from institutional investors (and their retail investors) in three ways.
The first way is by beating the investor to the stock market gateway and quickly buying and reselling the stock to the investor at a small profit. They call it “electronic front-running.” To do that, you need to be fast. That is where the nano second trading speed comes in. The “co-location” of the HFTs servers next to the ones of the exchanges plays a major role by reducing the electronic distance travelled and maximizing trading speed.
The second way is by exploiting a complex system of kickback and rebates on trades implemented by the various exchanges themselves. They call it “rebate arbitrage.”
The third way appears similar to electronic front-running, except that the HFTs exploit minute price discrepancies between the various exchanges before the exchanges themselves have had a chance of correcting those. They call it “slow market arbitrage”. Apparently, of the three rent seeking strategies this is the most lucrative one for the HFTs.
The above strategies are implemented within a market universe that is alien to individual investors and most institutional investors. This market universe has interesting characteristics. Its foundational one is an unfathomable stock trading speed measured in the 1/10000 of a second. Such speed relies on extra fast fiber optic networks and computer servers located extremely closely to the servers of the stock exchange themselves. Another characteristic is the HFTs purchasing customer order flows from the Wall Street brokerage houses. The latter now make more money from selling those customer order flows to HFTs than from trading itself. In essence, Wall Street sells proprietary customer order information to the HFTs, so the HFTs can front run these same customers (their stock orders). And, somehow SEC laws have still not caught up to this apparent infraction of the integrity of the stock markets. That’s even though the mentioned HFTs rent seeking strategies are at least a decade old.
So, next time when you think your brokerage house is acting in your best interest, think again. It is acting in the best interest of the HFTs and itself by making money on selling your order information to the HFTs. And, we are talking millions if not billions of dollars in total annual revenues for the Wall Street brokerage houses.
Going back to the second narrative, to correct for all those markets flaws exploited by the HFTs, Brad Katsuyama, a former trader at Royal Bank of Canada, will create a “fair” exchange: the Investors Exchange (IEX) in 2012. This exchange takes specific infrastructure measures to entirely eliminate all the exploitative advantages of HFTs including: 1) ensuring market pricing data arrives at external points of presence simultaneously; 2) slightly delaying market pricing data to all customers (no co-location, HFTs servers are not allowed proximate to the IEX servers); and 3) IEX refuses to pay for order flow and does not offer related trade rebates of any kind. The majority of Wall Street banks and HFTs will do everything possible to kill this emerging “clean” exchange in its infancy. This is because they collectively extract yearly rent-profit in the $billions on the back of retail and institutional investors. However, as mentioned one of the main player will break rank as Goldman Sachs ultimately decides to support IEX by routing a good portion of its trades to IEX. Goldman Sachs understands that what IEX is doing to restoring integrity in the equity markets is critical. And, as a result IEX survives. Nevertheless, it is not entirely encouraging when evaluating how much impact IEX has in restoring the integrity of the US equities markets since it captures less than 3% of its volume to this day. In other words, over 97% of such market trading volume still is done under the exploitative rent-seeking system abused by the HFTs (electronic front running, etc.) and the other Wall Street banks (making more money from selling their customer order flows than actual trading).
The third narrative about Sergey Aleynikov and Goldman Sachs evolving position regarding HFT is very interesting because of its ambiguity. Aleynikov used mainly open source software to develop his codes to improve Goldman Sachs computer speed. When he accepts an offer to join Teza Technologies (who offered to triple his compensation from $400k to $1.2 million), he decides to copy and take his computer code on a USB drive. At such point, Goldman Sachs aggressively pursues him (gets him arrested by the FBI, tried, and jailed). At the time, Goldman Sachs considered the mentioned computer codes to be proprietary and critical to its competitive position within the HFT environment.
Michael Lewis will engage with many industry insiders (HFTs, computer programmers, etc.) and solicit their opinion on whether Aleynikov was truly guilty of stealing proprietary company codes or not. Almost unanimously this crowd of insiders advance that Aleynikov was innocent. And, that his practice of copying his own open source based codes when he moved to another employer is absolutely standard within the computer programming community. Aleynikov also indicated that he had no use for Goldman’s proprietary codes as they were very cumbersome catered to Goldman’s antiquated legacy computer systems. When Michael Lewis talked to outsiders like institutional investors, they were far less lenient. And, they typically considered that Aleynikov was clearly guilty of stealing proprietary codes.
As indicated, Goldman Sachs at first vigorously pursues Aleynikov in order to protect its position in terms of trading speed within the world of HFT. Much later, when it decides to give up on the speed competition and decides to do just the opposite by supporting IEX, Goldman Sachs does not pursue Aleynikov as adamantly anymore. But, by then the legal system takes a life of its own. As a result, some of the related lawsuits are still going on to this day. Aleynikov is nearly bankrupt and has an online legal defense fund to raise money to mount his defense and reclaim his innocence.
Obviously, it is well written and compelling.
On reflection, however, I wonder why it seems like a big deal to have financial intermediaries slice milliseconds and then microseconds off stock market buy and sell transactions.
To me the issue of artificial intelligence applications seems like a bigger deal than time slicing.
Let me give perspective. I worked once with a man whose college roommate was given six million dollars by his (the roommate's) father to master the commodity market in cashew nuts. This was more than fifty years ago.
His father did not believe that his son's education would teach him how to prosper in this market. So he underwrote a real world trial and error education.
I don't know anything about cashew markets but I can appreciate that you must know who is producing and who is consuming this product. You must know all the factors connected with the producers and consumers. This would include but not be limited to: the countries where the fields are located, their microclimatology, their owner's ages and prospects, their labor relations, politics and economies, etc.
There would seem to be several dozen factors associated with each producer and consumer and the mechanisms in the market that process and transport the product. And you would have to be alert to trends and any sudden impact of plant diseases, drought, floods, revolutions, etc.
Well, to make it short, the roommate spent the six million and had nothing to show for it.
But, now consider the artificial intelligence applications to such problems. In particular, consider adaptive artificial intelligence algorithms. Let the application scan the WEB for `cashew' or whatever its translation is in the dozen or more languages of the countries where it is grown and even more countries where it is consumed. This includes information from the respective departments of agriculture with alerts and forecasts along with reports from selected growers that you pay to make such reports, etc. It would also include reports from the producer of my favorite cashew candy bar, Rocky Road!
With the computer power now available and the decreasing costs of Internet connection and bandwidth, would you not be able to find the important factors among the patterns of these data?
Would the big banks not be able to fund such a development and even provide it with information from their transactions base?
Can you see where this could go with access to NSA style surveillance of financial and personal transactions?
It was one of the worries of many producer countries about the implications of EROS - earth resources observation satellites with their multispectral 24/7 monitoring of their lands. The country controlling the satellite data might know more about your cashews than you do? This was a big issue forty years ago and now you never hear of it.
So, why did Michael Lewis concentrate on time slicing rather than the issue of Goldman Sachs being able to count the cashews on your ranch?
Top reviews from other countries
Conclusion - Well as "Inventors" of the IEX stock exchange would say : Pick up the f*****g book.
Nice insights a lessons for life for wall Streeter and non wall Streeters alike. Enjoy.
It's always about the people and Michael knows how to bring each character at the forefront of the action and the STORY.
E' ovviamente molto tecnico su alcuni aspetti relativi al funzionamento dei mercati finanziari, e quindi è rivolto comunque ad un lettore che abbia competenza in questo ambito; in ogni caso, l'autore ha condotto il massimo sforzo per evitare di redigere un testo rivolto unicamente a specialisti della materia. Per chi vuole sapere che fine fanno i suoi soldi quando li investe mediante operatori finanziari, broker o gestori di fondi di investimento, ritengo sia una lettura assolutamente consigliabile. Può essere utilmente abbinato ad altre letture dello stesso genere, altrettanto valide, come ad esempio "Dark Pools" di Scott Patterson, che in un certo senso illustra l'altra faccia della medaglia, ovvero le idee di chi ha cercato in buona fede di eliminare l'arbitrio degli Agenti di Borsa dai mercati americano (i "Banditi del SOES" sono nati così, grazie a questi sforzi...) ed alla fine si è trovato coinvolto suo malgrado nella creazione di "mostri" quali i sistemi HFT, che a mio avviso hanno avuto successo grazie alla cecità di chi doveva redigere norme atte proprio ad evitare l'asimmetria di conoscenze fra i vari partecipanti al mercato.