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SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK ONE
The US stock market is rigged
when high-frequency traders
with advanced computers
make tens of billions of dollars
by jumping in front of
investors, according to author
Michael Lewis, who spent the past year
researching the topic for his new book "Flash
While speed traders strategies, developed
over the past decade with help from exchanges,
are legal, "it s just nuts" that they re allowed,
Lewis said during an interview televised yes-
terday on CBS Corp s "60 Minutes." The tactics
are too complicated for individual investors
to understand, he said.
"The United States stock market, the most
iconic market in global capitalism, is rigged,"
Lewis, whose books "Liar s Poker" and "The
Big Short" highlighted Wall Street excesses,
said during the interview. The new book comes
out today. "It s crazy that it s legal for some
people to get advance news on prices and what
investors are doing," he said.
Everyone who owns equities is victimised
by the practices in which the fastest traders
figure out which stocks investors plan to buy,
purchase them first and then sell them back
at a higher price, said Lewis, a columnist for
Bloomberg View. To show how lucrative the
tactics are, Lewis said a technology firm spent
US$300 million to build a line that would
shave three milliseconds off the time it takes
to communicate between New Jersey and
Chicago, then leased it out to securities com-
panies for US$10 million each.
The author s comments follow New York
Attorney General Eric Schneiderman s decision
to investigate privileges marketed to profes-
sional traders that allow them to place their
computers within feet of exchanges and buy
access to faster data streams. Officials at the
US Securities and Exchange Commission and
Commodity Futures Trading Commission have
also said market rules may need to be exam-
Lewis is adding his voice to a debate that
has obsessed the securities industry for almost
a decade while only periodically surfacing in
public via events such as the May 2010 flash
crash, in which the Dow Jones Industrial Aver-
age posted an almost 1,000 point loss. Previous
books by the one-time Salomon Brothers Inc.
trader have focused attention on everything
from mortgage derivatives to baseball statistics
and contributed to the outcry over the events
leading to the 2008 financial crisis.
His latest target, high-frequency trading,
comprises a diverse set of software-driven
strategies that have spread from US equity
markets to most developed countries as com-
puter power grew and regulators tried to break
the grip of centralised exchanges.
While the tactics vary, they usually employ
super-fast computers to post and cancel orders
at rates measured in thousandths or even mil-
lionths of a second to capture price discrep-
ancies on more than 50 public and private
venues that make up the American equities
High-frequency traders account for about
half of share volume in the US, a statistic that
shows their pervasiveness and hints at the
obstacles faced by proposals to rein them in.
Exchanges rely on HFTs for profits as well as
liquidity, with electronic market makers all
but eliminating the old system of human floor
traders who oversaw the buying and selling
of equities. While critics such as Lewis see a
Wall Street plot, proponents say the new sys-
tem is faster and cheaper.
In the US, the biggest high-speed traders
include Virtu Financial Inc., which filed in
March to sell shares to the public. Bats Global
Markets Inc., the Lenexa, Kansas-based equity
exchange that merged with Direct Edge Hold-
ings LLC this year, was founded by a high-
"We believe Lewis s book can have a big
impact on complex market-structure issues
that have been simmering for years," Joe
Saluzzi, co-head of equity trading at Themis
Trading LLC and a frequent critic of the status
quo in markets, said before the "60 Minutes"
interview was broadcast.
"Hopefully this type of publicity will finally
force regulators to take action on issues that
they ve been sitting on for way too long."
rip investors off
Continued on Page 21
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