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Flash Boys

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Flash Boys: A Wall Street Revolt
Hardcover edition
AuthorMichael Lewis
LanguageEnglish
SubjectHigh-frequency trading
Genrenon-fiction
PublisherW. W. Norton & Company
Publication date
March 31, 2014
Publication placeUnited States
Media typePrint, e-book.audiobook
Pages288 pp.
ISBN9780393244663
Preceded byBoomerang

Flash Boys: A Wall Street Revoltis a book by the American writerMichael Lewis,[1]published byW. W. Norton & Companyon March 31, 2014. The book is anon-fictioninvestigation into the phenomenon ofhigh-frequency trading(HFT) in the USfinancial market,with the author interviewing and collecting the experiences of several individuals working onWall Street.[2]Lewis concludes that HFT is used as a method tofront runorders placed by investors. He goes further to suggest that broad technological changes and unethical trading practices have transformed the U.S. stock market from "the world's most public, most democratic, financial market" into a "rigged" market.[3]

Synopsis[edit]

Flash Boysmaintains a primary focus onBrad Katsuyamaand other central figures in the genesis and early days ofIEX,the Investors' Exchange.Sergey Aleynikov,a former programmer forGoldman Sachs,serves as a secondary focus.[2][3][4][5]

The introduction begins by naming Aleynikov and describing his arrest, along with the author's personal history on Wall Street, as the impetus for writing the book. The first chapter tells the story of a $300 million project fromSpread Networksthat was underway in mid-2009—the construction of an 827-mile (1,331 km)fiber-optic cablethat cuts straight through mountains and rivers from Chicago to New Jersey—with the sole goal of reducing the transmission time for data from 17 to 13milliseconds.[6](The construction of the line was dramatized in the 2018 filmThe Hummingbird Project.)

Lewis goes on to describe the modern world ofelectronic tradingand how it differs from the past—when trading was mostly performed inopen outcrypits on physicaltrading floors—and how that change has impacted the market.[7]The speed of data is a major theme in the book; the faster a market participant's computer system can receive and act on data, the better their edge, and opportunity to profit, with evennanosecondsmaking a difference.

The central story details financial executive Brad Katsuyama's discovery of how access to this fiber-optic cable—as well as other technologies and special arrangements between HFT firms,exchanges,and large Wall Street banks—presents an opportunity for those insider institutions to profit at the expense of retail investors. To counter this, Katsuyama bands together a team that sets out to develop a new exchange, calledIEX,designed specifically to prevent the unfair advantage enjoyed by HFT firms in the rest of the market.[8]

The final chapter is dedicated to the tribulation ofSergey Aleynikov,a formerGoldman Sachsprogrammertwice prosecuted and twice acquitted for a single act of allegedly copying proprietary computer source code from his employer before joining a competing firm.[9][10]

The epilogue details the author's bicycle journey to observe a string ofmicrowave towersalong the same stretch as Spread Networks' fiber-optic line. Lewis notes that the time to send a signal from Chicago to New York and back by microwave signal is about 4.5 millisecondslessthan to send it by optical fiber but, when Spread Networks was laying its line, the conventional wisdom was that microwave transmission's data capacity was too limited and unreliable due to sensitivity to inclement weather. "But what if microwave technology improved?," the author wondered. The story ends as the author climbs up a mountain summit where one of the towers is stationed. He notes the tower showed signs of age, and could have been erected some time ago, for some other purpose, but the ancillary equipment including a generator, a concrete bunker, and repeaters that amplify financial signals, were all new.

Critical response[edit]

The book has drawn criticism from some academics and industry experts, particularly on Lewis's views on HFT and other claimed factual inaccuracies in its description of trading strategies.[11][12][13]Other critics have praised Lewis's explanations of trading concepts and concurred in his criticisms of HFT. However, it is suggested that he neglected to pay attention to the larger issue of financial regulation, and excessively simplified the relationships between institutions in the financial market.[11][14][15]Some industry executives have dismissed the book as "closer to fiction".[16]Michael Lewis responded that those who said he "got it wrong" have a financial stake in the existing system.[17]

Manoj Narang, CEO ofhigh-frequency tradingfirm Tradeworx, argued that Lewis' book is more "fiction than fact," claiming Lewis needs a primer in HFT.[16]A review by academic blogger Scott Locklin notes that Lewis had never spoken to, nor cited, a single high-frequency trader in the book.[18]Andrew Ross, writing inThe Guardian,praised the book as an "effective exposé" but criticizes the author for arguing for the "heroism" of one group of financial insiders over another.[15]A month later, an article inThe Economistnoted that Lewis's book had generated "vigorous criticism", but that there may be some merits in itsliquidityconcerns.[13]

AFinancial Postreviewer suggested that Lewis intentionally omitted details that point to market-stabilizing benefits of HFT: "Ironically, theFlash Crashitself was just glossed over. Could that be because the primary cause of that momentary blip lay in a confluence of regulatory mistakes and that it was many of the demonizedHFTswho actually stood fast throughout and thereby ensured that the damage was a fraction of what it could have been had only the shell-shocked, traditional participants been left to respond? "[19]

AnOxford University Presshandbook chapter authored by Andreas Fleckner callsFlash Boysa readable and mostly accurate introduction into such topics asdark pools,front-running,orkickbacks.However, the article suggests that on-site trading practices are too technical for laymen, market observers, or even regulators to fully understand. The author recommends providing incentives forself-regulationrather than SEC regulation.[12]

Felix Salmon,a financial columnist forSlate,asserted that the negative impact of high-frequency trading was restricted to "very rich" financial intermediaries, such ashedge funds.He noted that Lewis's story "needs victims" and that he portrayed several billionaire characters as victims "by pulling out every rhetorical device he can muster." In a crucial part of the book's narrative, a mutual fund manager named Rich Gates was "shocked" to find out he was paying 0.04% per trade due to his fund's dependence on an HFT front. The reviewer noted that Gates' own mutual fund charged an average of 2.41% for "expenses" to retail investors.[14]

Impact and aftermath[edit]

In April 2014 the book reached No. 1 onThe New York TimesBest Seller list,remaining on the top for three weeks, before being overtaken byCapital in the Twenty-First Centuryon May 18, 2014.[20]

Jonathan Weil at Bloomberg suggests that theFBI's investigation into high frequency trading, a day after the book's release, was directly motivated by the book's claims.[21][22]

Lewis's phrase "The market is rigged" was often referenced.[23]The chairwoman of theSecurities and Exchange Commission(SEC),Mary Jo White,stated in Congressional testimony on April 29, 2014, that U.S. financial markets "are not rigged" in response to a direct question on claims in Lewis's book.[24]

Former New York City mayorMichael Bloombergdisputed claims made in Lewis' book on May 2, 2014, stating in aCNBCinterview that "the system isn’t rigged."[25]Arthur Levitt,adviser to high-frequency firmKCG Holdingsand former SEC chairman, commented that variation exists within the group of high-speed traders that Lewis’ book describes, saying "What is missed in the book and in the general discussion of HFT is there are some HFT traders who respect the sanctity of the investor, and some who don’t."[26]

Film[edit]

In April 2014,Sony Picturesacquired thefilm rightsto the book. In June that year, it was announced thatFlash Boyswas to be adapted into amajor motion picture,with acclaimedscreenwriter/producerAaron Sorkinpenning the screenplay, andScott RudinandEli Bushproducing the film. The project would be a second collaboration between Sorkin and Rudin on a Lewis book adaptation, as the pair also filled the same respective roles onMoneyball.[27][28][29]

By September 2017, the project had not appeared to make any progress, seemingly stuck indevelopment hell.Lewis commented his thoughts as to the stumbling block to a book-to-movie adaptation during a session at theNational Book Festivalin Washington, D.C. During a conversation withWashington Postjournalist Joel Aschenbach, Lewis stated the trouble was Hollywood won't cast "a movie with an Asian lead." (The real-life main character inFlash Boys,IEXfounderBrad Katsuyama,is ofAsianheritage.) Lewis stated that private emails leaked in the 2014Sony Pictures hackrevealed studio apprehension with having an Asianlead actor,as well as with an Asian character portrayed by aWhiteactor.[30]

In May 2018 it was announced that Sony Pictures'optionfor the screenplay had expired andfilm rightswere acquired byNetflix.Ben Jacoby was named as the new screenwriter.[31][32]

References[edit]

  1. ^"Michael Lewis author page".Simon & Schuster.RetrievedFebruary 22,2015.
  2. ^abMassoudi, Arash; Tracy Alloway (March 28, 2014)."'Flash Boys' starts Wall St soul searching ".Financial Times.RetrievedMarch 31,2014.
  3. ^ab"Michael Lewis 60 Minutes Interview on HFT [VIDEO]".Value Walk.March 30, 2014.RetrievedMarch 31,2014.
  4. ^Ahmed, Azam (March 18, 2011)."Former Goldman Programmer Gets 8-year Jail Term for Code Theft".The New York Times.
  5. ^Michael Lewis (September 2013)."Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?".Vanity Fair.RetrievedJune 18,2018.
  6. ^Tovey, Alan (April 2, 2014)."High-frequency trading: when milliseconds mean millions".The Telegraph.In his new book Flash Boys, author Michael Lewis looks at the extraordinary lengths high-frequency traders go to to beat the competition
  7. ^Maslin, Janet (March 31, 2014)."Hobbling Wall Street Cowboys".The New York Times.RetrievedJune 26,2014.
  8. ^Gapper, John."'Flash Boys' by Michael Lewis ".21 March 2014.Financial Times.RetrievedJune 26,2014.
  9. ^Brown, Tom (May 1, 2015)."Split verdict for Sergey Aleynikov ends a tumultuous trial but leaves open the chance the years long saga could continue".Reuters.RetrievedJune 18,2018.
  10. ^Matthews, Christopher M. (May 1, 2015)."Ex-Goldman Programmer Guilty of Stealing Code: Split verdict for Sergey Aleynikov ends a tumultuous trial but leaves open the chance the years long saga could continue".The Wall Street Journal.RetrievedJune 18,2018.
  11. ^abSmith, Noah (April 15, 2014)."Book Review: Flash Boys".RetrievedApril 19,2017.
  12. ^abFleckner, Andreas Martin (April 23, 2015)."Section 4 and Footnote 56, Regulating Trading Practices, The Oxford Handbook of Financial Regulation".Oxford University Press.ISBN9780199687206.SSRN2476950.
  13. ^abCoggan, Philip (May 7, 2014)."HFT: the backlash continues".The Economist.
  14. ^abSalmon, Felix(April 7, 2014)."The Lewis Effect".Slate.Archivedfrom the original on April 14, 2019.RetrievedAugust 13,2020.
  15. ^abRoss, Andrew (May 16, 2014)."Flash Boys by Michael Lewis – review".The Guardian.RetrievedJune 26,2014.
  16. ^abNarang, Manoj (April 4, 2014)."A Much-Needed HFT Primer for 'Flash Boys' Author Michael Lewis".Institutional Investor.RetrievedJune 26,2014.
  17. ^Lewis, Michael (March 23, 2015).Wall Street reforms after rigged trading revealed(Television production).New York City:CBS This Morning.Event occurs at 0:37.RetrievedAugust 19,2020.
  18. ^Locklin, Scott (April 4, 2014)."Michael Lewis: shilling for the buyside".Scott Locklin.RetrievedJune 26,2014.
  19. ^Bandeen, Ian (May 29, 2014)."Flash... or Fiction? Hit book on high-frequency trading lets the real villains off the hook".Financial Post.RetrievedJune 26,2014.
  20. ^"Best Sellers, Hardcover Non-fiction".The New York Times.April 20, 2014.RetrievedNovember 1,2014.
  21. ^Weil, Jonathan (April 1, 2014)."Weil on Finance: FBI Hops on Michael Lewis Bandwagon".Bloomberg News.Archived fromthe originalon April 25, 2015.RetrievedApril 1,2014.
  22. ^Bradford, Harry (April 1, 2014)."FBI Investigating High-Frequency Traders: WSJ".Huffington Post.RetrievedApril 1,2014.
  23. ^Rubenstein, Ari (April 30, 2014)."Thank you, Michael Lewis".CNBC.RetrievedMay 1,2014.
  24. ^Bartash, Jeffry (April 29, 2014)."U.S. markets 'not rigged,' SEC boss says, White downplays 'flash boy' charges in new Michael Lewis book".MarketWatch.Dow Jones.RetrievedMay 1,2014.
  25. ^Fox, Michelle (May 2, 2014)."System isn't 'Rigged'-Bloomberg defends HFT".CNBC.RetrievedJune 16,2014.
  26. ^Mamudi, Sam (April 1, 2014)."Not Every High-Frequency Trader Is Predatory, Levitt Says".Bloomberg News.RetrievedOctober 30,2014.
  27. ^Siegel, Tatiana (June 20, 2014)."Aaron Sorkin to Adapt Michael Lewis' 'Flash Boys' (Exclusive)".The Hollywood Reporter.Archivedfrom the original on August 15, 2020.RetrievedAugust 19,2020.
  28. ^White, James (June 22, 2014)."Aaron Sorkin Adapting Flash Boys".Empire.RetrievedAugust 19,2020.
  29. ^Han, Angie (June 20, 2014)."Aaron Sorkin May Write 'Flash Boys', From 'Moneyball' Author and Producer".Slashfilm.RetrievedAugust 19,2020.
  30. ^Vlessing, Etan (September 5, 2017)."Michael Lewis Says 'Flash Boys' Movie Unlikely Because Hollywood Won't Cast Asian Lead".The Hollywood Reporter.Archivedfrom the original on May 23, 2020.RetrievedAugust 19,2020.
  31. ^Fleming, Mike Jr. (May 17, 2018)."Michael Lewis Book 'Flash Boys' Moves To Netflix; 'Newsflash's Ben Jacoby To Adapt".Deadline Hollywood.RetrievedAugust 19,2020.
  32. ^McNary, Dave (May 17, 2018)."Michael Lewis' Wall Street Movie 'Flash Boys' Moves to Netflix".Variety.RetrievedAugust 19,2020.

External links[edit]

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