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Summary
Summary
2015 Audie Award Finalist for Nonfiction
From the #1 bestselling author of The Blind Side and Moneyball
Four years after his #1 bestseller The Big Short , Michael Lewis returns to Wall Street to report on a high-tech predator stalking the equity markets.
Flash Boys is about a small group of Wall Street guys who figure out that the US stock market has been rigged for the benefit of insiders and that, post-financial crisis, the markets have become not more free but less , and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover each other, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading--source of the most intractable problems--will have no advantage whatsoever.
The characters in Flash Boys are fabulous, each completely different from what you think of when you think "Wall Street guy." Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world's stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.
The light that Lewis shines into the darkest corners of the financial world may not be good for your blood pressure, because if you have any contact with the market, even a retirement account, this story is happening to you. But in the end, Flash Boys is an uplifting story. Here are people who have somehow preserved a moral sense in an environment where you don't get paid for that; they have perceived an institutionalized injustice and are willing to go to war to fix it.
Author Notes
Michael Lewis was born in New Orleans, Louisiana on October 15, 1960. He received a BA in art history from Princeton University in 1982 and a Masters in economics from the London School of Economics in 1985. He is a non-fiction author/journalist of mostly financial themes. His books include Liar's Poker, Moneyball: The Art of Winning an Unfair Game, The Blind Side: Evolution of a Game, The Money Culture, Boomerang, Flash Boys: A Wall Street Revolt, The Big Short: Inside the Doomsday Machine and The Undoing Project: A Friendship That Changed Our Minds.
(Bowker Author Biography)
Reviews (4)
Publisher's Weekly Review
Veteran actor Baker brings his distinct patrician manner, with its smooth elocution and precise pronunciation, to the audio edition of Lewis's investigation into the world of high-frequency stock trading. The book chronicles a new band of marketplace rebels who engaged in a David and Goliath battle with Wall Street to level the playing field for investors. Baker's polished vocal mannerisms, though characteristic of the stodgy stereotypes of today's business tycoons, provide an effective contrast with the diverse cast of outlaws in the book. Issues of ethnicity remain at the heart of this tension, as technically gifted Wall St. outsiders from around the globe fuel the movement with their discomfort of the mainstream American financial industry. Baker's portrayal of Russian immigrant programmer Sergey Aleynikov is especially striking and evocative. Though not quite as dramatic, Baker's voicing of Irish finance expert Ronan Ryan also leaves an impression upon the listener. A Norton hardcover. (Apr.) (c) Copyright PWxyz, LLC. All rights reserved.
New York Review of Books Review
FOR BRAD KATSUYAMA, then a young equities trader at Royal Bank of Canada, a life-changing revelation about the stock market began in June 2007 with a mystery: Why, when he tried to buy stocks at the offered prices on his computer screen, did the offers instantly vanish and the prices pop higher? Katsuyama's struggle to first understand why he couldn't execute the trades showing up on his screen, and then to combat the problem by starting his own stock exchange, is the spine of "Flash Boys: A Wall Street Revolt," Michael Lewis's latest excursion onto the trading floors of Wall Street, a venue he portrayed so memorably in his now-classic "Liar's Poker." 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, as he's demonstrated in bestselling books like "The Big Short" and "Moneyball." But those formidable talents are only intermittently on display in this ultimately unsatisfying probe of high-frequency traders, who may (or may not) be ripping off investors and destabilizing the global financial system. In Katsuyama, Lewis has found a good guide into the esoteric and highly technical world of high-frequency trading. A mild-mannered Canadian Everyman with a capacity for moral judgment all too rare on Wall Street, Katsuyama seemed as befuddled as the rest of us by the explosion of the superfast, computer-driven trading that now accounts for an estimated 50 percent of all transactions in the stock market. He teams up with Ronan Ryan, an awkward young Irish immigrant with a knack for high-speed telecommunications technology, who joins RBC as head of high-frequency trading strategies, even though he has no idea what he's supposed to do. Thanks to their combined expertise, the answer to the mystery of the vanishing sell offers soon becomes clear: High-frequency traders are merely "pinging" the market with bids to tease out genuine buy orders. Then, at blazing speed, they cancel the offers, buy the shares, drive up the price by a few cents and resell them to a real buyer. This seems an amalgam of insider trading and front-running, both illegal in other contexts but, evidently, perfectly lawful here. High-frequency traders have plenty of accomplices, as Katsuyama and Ryan discovered. Foremost among them seem to be the exchanges - the New York Stock Exchange, Nasdaq and BATS, to name some - which are happy to sell their order flow to high-frequency traders and thus have a financial stake in perpetuating their practices. So, too, do the big banks that run so-called dark pools, matching buyer and seller, and that sell their trading information. Armed with knowledge of large buy and sell orders, high-frequency traders dart in ahead of the trades, capturing a tiny spread between bid and ask prices that may last for a millisecond or two. Lewis singles out Goldman Sachs as among the most egregious offenders. Rich Gates, who ran a mutual fund called TFS Capital, was "a bit surprised that Goldman, and only Goldman, seemed to be running a pool that allowed someone else to front-run his orders to the public stock exchanges." He was "shocked" that "no one seemed much to care that 35,000 small investors could be so exposed to predation inside Wall Street's most prominent bank." Among those who seemed unconcerned were reporters at The Wall Street Journal, to whom Gates took his claims, and officials at the Securities and Exchange Commission who turned a deaf ear. Why would this be? One of the frustrating aspects of Lewis's reporting is that readers never hear anyone else's side to a story. No one from Goldman, The Journal, the New York or other stock exchanges, or the S.E.C. offers any explanation, and it isn't clear whether Lewis gave them the opportunity. Taking the book's assertions at face value, how big a threat is high-frequency trading? Something certainly seems rotten here. Lewis relegates to a footnote the startling fact that Virtu Financial, one of the largest high-frequency trading firms, boasts that in five and a half years, it had only one day when it failed to make money, and that was the result of "human error." So there can't be any risk. But the average investor probably wouldn't even notice. Most don't care about a penny or two here and there, although in the aggregate those pennies can add up to big numbers. Defenders of high-frequency trading point out that since its advent soon after the market was computerized in 2000, the spread between bid and ask prices has narrowed, the cost of trading has dropped and investors have saved billions. The case for high-frequency trading is that it provides the liquidity that makes a more efficient, lower-cost, computer-driven market possible. Lewis clearly doesn't buy this argument, calling high-frequency trading "less a market enabler than a weird sort of market burden." Technology should have reduced the cost of intermediation. "Instead this new beast rose up in the middle of the market and the tax increased - by billions of dollars," Lewis writes. "Or had it?" He says he can't answer that, because "the new intermediaries were too good at keeping their profits secret." (IBISWorld, a market research firm that produces reports on high-frequency trading, estimates that it's a $29 billion industry.) But perhaps there's something far more dangerous here than mere intermediation. On May 6, 2010, the Dow Jones industrial average plunged 600 points, and then recovered, in mere minutes, in what is now known as "the flash crash." Despite an S.E.C. investigation and ensuing report, the causes of that confidence-shaking incident remain obscure. Were high-frequency traders and their Wall Street allies to blame? That's a mystery worthy of a book, but Lewis mentions it only in passing. Katsuyama and his band concluded that high-frequency traders, working hand in glove with the exchanges and big banks, were ripping off investors to the tune of billions of dollars. When, like Mickey Rooney and Judy Garland setting out to stage a backyard musical, they decided to quit their jobs at RBC and create their own exchange, their idea was to create a market free from conflicts of interest and openly at odds with the high-frequency traders. In Lewis's telling, their motives were largely idealistic and altruistic. "They loved the idea of a stock exchange that protected investors from Wall Street's predators." But presumably there was also a profit to be made once the high-volume traders - Vanguard, Fidelity and other big fund companies - gravitated to their new exchange and away from their corrupt rivals. That proved harder than expected. Katsuyama shocked a group of investors when he told them how the banks were colluding against them. "Which bank is the worst?" one asked. "I can't tell you," Katsuyama replied. "Do you know how frustrating it is to sit here and hear this and not know who that broker is?" another asked. "What we want to do is highlight the good brokers," Katsuyama replied, in classic P.R.-speak. Evidently idealism has its limits. But surely Goldman Sachs must be among the villains? Lewis repeatedly castigates Goldman for its alleged complicity in the financial crisis, and the firm played the role of the heavy in the saga of Sergey Aleynikov, about whom Lewis wrote at length in Vanity Fair and whom he rather awkwardly inserts into his narrative here. After Aleynikov left Goldman, where he was well paid but little more than a cog in the bank's own high-frequency trading operation, he was arrested and charged with stealing Goldman's computer code and covering his tracks. "The only Goldman Sachs employee arrested by the F.B.I. in the aftermath of a financial crisis Goldman had done so much to fuel was the employee Goldman asked the F.B.I. to arrest," Lewis dryly observes. so it comes as an unexpected twist that Goldman, the bank nearly everyone, including Lewis, seems to love beating up on, emerges as the new exchange's most prominent supporter - a savior of sorts - and that two Goldman executives, Ron Morgan and Brian Levine, are actually good guys. Lewis explains this seeming paradox with the observation, "It was a mistake to think of a bank as a coherent entity." Morgan and Levine "were not high-frequency trading types." Thanks to Goldman's support, Katsuyama's new exchange, called IEX, now seems well on its way to financial success, even though there's scant evidence it has made the slightest dent in the high-frequency trading that prompted its creation. It's a happy ending, of sorts. But Lewis might have pondered how frustrating it is for readers, and not just investors at Katsuyama's conference, to be told a story in which the villains aren't named. When Katsuyama declines to identify the bad bank, Lewis comes to his hero's defense, observing that "Brad was not by nature a radical." But a purported contest between good and evil in which all the characters are good quickly becomes dull, especially when the setting is as technical as high-frequency trading. The traders themselves remain faceless adversaries of Katsuyama and his buddies. Lewis never penetrates their high-tech lairs, or even seems to have tried. Who are these people? What are they like? How do they do what they do? How much money do they make and what do they do with it? And are they really so bad? (For answers to these questions, there's Scott Patterson's far more comprehensive and persuasive 2012 book, "Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market.") By the end of "Flash Boys," even Katsuyama seems to be having second thoughts about his high-frequency trader adversaries. "I hate them a lot less than before we started," he says. "This is not their fault. ... It's brilliant what they have done within the bounds of the regulation. They are much less of a villain than I thought. The system has let down the investor." That may be true, and to the extent "Flash Boys" focuses public attention on this system, it is a welcome addition to a growing chorus calling for further investigation and reforms, which may yet yield some results. In February the S.E.C. chairwoman, Mary Jo White, said the agency would intensify its scrutiny of high-frequency trading. And the New York attorney general, Eric T. Schneiderman, has started an investigation into the sale of trading data by exchanges. Given that the fourth anniversary of the flash crash is approaching, it seems not a moment too soon. How big a threat is high-frequency trading? Something certainly seems rotten here. JAMES B. STEWART writes the Common Sense column for the business section of The Times and is a professor at the Columbia School of Journalism. He is the author of nine books, including "Den of Thieves" and, most recently, "Tangled Webs."
Guardian Review
The publication of Flash Boys, Michael Lewis's bestselling expose of high frequency traders (HFTs) in the finance industry, could hardly have been better timed as a call for the Feds to step in. In the wake of the book's launch in early April, several regulatory agencies rushed to disclose that they were already taking action. For much of the past year, it appeared, the Justice Department, the FBI, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority had been investigating HFT firms and exchanges for violations of insider trading and other Wall Street rules. Not to be upstaged, the New York state attorney general, Eric Schneiderman, threw his own white hat into the ring. His office recently announced that subpoenas were being sent out to exchanges as part of a probe into their relationships with the HFTs. On the same day, the NYSE, now only one of the many exchanges driven by electronic trading, reported it had reached a $4.5m settlement with the SEC over related violations regarding "co-location" - the practice of allowing HTFs to site their computers right next to the exchange's "matching engine" so that information can be accessed more rapidly. Closer scrutiny of these kinds of relationships is sure to follow, along with some new rules. There may even be some prosecutions, though it is widely held that receiving trading data a few milliseconds ahead of someone else - which is the raison d'etre of HFT - is not very illegal. Wrong perhaps, but technically above board, if only because the SEC rules actually oblige brokers to seek "the best price" for a security. Even so, the outrage and pushback from Wall Street (Lewis, unsurprisingly for a sales seeking author, has described it as a "shitstorm") has been cacophonous, and it's easy to see why. After all, Lewis's takeaway argument is that the stock market is being rigged in favour of front-running traders, and that other players are being screwed for having slower connections. This allegation is especially threatening to the all-important image of the stock market as open and transparent. If the odds really are being stacked against those Lewis calls "mom and pop investors" (middle-class retail investors), then we can retire the myth that finance is a clean game for all - as opposed to a turbocharged machine, or even a vampire squid, for sucking up revenue for the very rich 1%. Perhaps this also explains why so many government regulators have lined up to show how zealously they are hunting down wrongdoers on Wall Street. For one thing, their hot pursuit of the miscreants is a handy response to the consensus view that elected officials have been lax in cracking down on the highly publicised transgressions of the finance industry. It might be late in the day, but here we are, working hard to nail the swindlers! And, perhaps more importantly, the unspoken (and unspeakable) goal of the regulators is to ensure that the illusion of market fairness is maintained. Every so often, that requires making a spectacle by throwing out some of the bad apples. The HFT scandal is only the latest evidence that the stock market's clubby insiders have always enjoyed an advantage from better and faster information. Yet the fiction of equal access is necessary to draw the punters into the casino, and to ensure that the market escapes the fate of being heavily regulated. Lewis goes one step further: he does not trust that the regulators can do very much at all, so he showcases how the market can reform itself. The moral champion in Flash Boys is Brad Katsuyama, a very well-paid stock trader at the Royal Bank of Canada, who figured out that the high-frequency guys were front-running his orders. Using fibre-optic cables that link superfast computers to brokers, the HFTs intercepted and bought his orders, selling the shares back to him at a higher price, and pocketing the margin. The mother of all schemes is an 827-mile cable running through mountains and under rivers from Chicago to New Jersey that reduces the journey of data from 17 to 13 milliseconds. A transatlantic cable still under construction will give a 5.2 millisecond advantage to those looking to profit from the spread trade between New York and London. Convinced that a level playing field was a better business proposition, Katsuyama responded by helping to launch a fully transparent exchange (IEX), to ensure that trading information reaches all investors at the same time. Lewis has written an effective expose, but in arguing for the "commercial heroism" of IEX's founders, he ends up polishing the myth of the market as a self-correcting mechanism. Left to its own devices, and drawing on the non-stop innovation of the finance industry, the market will flush out impurities and revert to its benign state of nature in which all participants have an equal shot at beating each other. According to this scenario, the failure of the regulators is preordained. Besides, the second-string graduates who take government jobs in regulation can never outperform the brainiacs who flock to Wall Street. Let's be clear about one thing. The inability to put "banksters" behind bars has nothing to do with the market's invisible hand or the mental superiority of the quantitative analysts who create algorithms for the supercomputers. Rather, it is a blunt reflection of the power of the creditor class to hold elected officials in thrall. Attorney general Eric Holder's confession, in Senate testimony last year, that the kingpins of high finance were "too big to jail", was a candid acknowledgment of the impotence of such officials. It confirmed the growing perception that the US has joined the ranks of failing democracies, where governments cannot protect their debt-burdened citizenry from economic damage caused by the "creditocracy". The hefty fines doled out in recent years to JP Morgan Chase, Wells Fargo, Citigroup, Bank of America, RBS, Barclays, UBS and other banking titans are now merely regarded as the wrist-slapping cost of doing business. Federal prosecutors are now threatening to bring criminal charges against BNP Paribas and Credit Suisse. But no one expects to see top executives in handcuffs any time soon. Mass economic disobedience in the form of debt refusal is more likely, and would be a more effective threat to Wall Street and other banking centres, though it is far off at present. If the brouhaha around Flash Boys helps to pre-empt a jumbo meltdown automatically triggered by the HFT machines (the "flash crash" of 2010, which saw a 1,000 point swing in the Dow, was an advance warning), then it will have done some good. But let's ask why the publication of a book such as Matt Taibbi's The Divide has generated so much less attention. Drawing on his Rolling Stone reporting in the five years since the 2008 crash, Taibbi fully details the record of bankers' malfeasance and extortion. The result should enrage everyone who has been on the wrong end of the predatory lenders, crooked collection agents, illegal foreclosures, PPI ripoffs and other swindles that are considered business as usual by the finance industry. The dupes in Lewis's story are the Wall Street brokers and hedge-fund managers who were outrun by flash boys "who would sell their grandmothers for a microsecond". The victims in Taibbi's book are the rest of us. Andrew Ross is an NYU professor and author of Creditocracy and the Case for Debt Refusal. To order Flash Boys for pounds 15 with free UK p&p call Guardian book service on 0330 333 6846 or go to guardianbookshop.co.uk. - Andrew Ross Caption: Captions: Traders at the New York stock exchange Closer scrutiny of these kinds of relationships is sure to follow, along with some new rules. There may even be some prosecutions, though it is widely held that receiving trading data a few milliseconds ahead of someone else - which is the raison d'etre of HFT - is not very illegal. Wrong perhaps, but technically above board, if only because the SEC rules actually oblige brokers to seek "the best price" for a security. Even so, the outrage and pushback from Wall Street ([Michael Lewis], unsurprisingly for a sales seeking author, has described it as a "shitstorm") has been cacophonous, and it's easy to see why. After all, Lewis's takeaway argument is that the stock market is being rigged in favour of front-running traders, and that other players are being screwed for having slower connections. This allegation is especially threatening to the all-important image of the stock market as open and transparent. If the odds really are being stacked against those Lewis calls "mom and pop investors" (middle-class retail investors), then we can retire the myth that finance is a clean game for all - as opposed to a turbocharged machine, or even a vampire squid, for sucking up revenue for the very rich 1%. If the brouhaha around Flash Boys helps to pre-empt a jumbo meltdown automatically triggered by the HFT machines (the "flash crash" of 2010, which saw a 1,000 point swing in the Dow, was an advance warning), then it will have done some good. But let's ask why the publication of a book such as Matt Taibbi's The Divide has generated so much less attention. Drawing on his Rolling Stone reporting in the five years since the 2008 crash, Taibbi fully details the record of bankers' malfeasance and extortion. The result should enrage everyone who has been on the wrong end of the predatory lenders, crooked collection agents, illegal foreclosures, PPI ripoffs and other swindles that are considered business as usual by the finance industry. The dupes in Lewis's story are the Wall Street brokers and hedge-fund managers who were outrun by flash boys "who would sell their grandmothers for a microsecond". The victims in Taibbi's book are the rest of us. - Andrew Ross.
Library Journal Review
Lewis (Moneyball) has a knack for illuminating complicated subjects. In this effort, he takes on high-frequency trading (HFT) in the U.S. equities market and that, post-2008, supposed reforms on Wall Street failed to end the worst pre-2008 excesses. Our story's moral compass is provided by financial services executive Brad Katsuyama, who discovered that the stock market is essentially rigged by firms that use their superior speed (courtesy of advanced algorithms and supercomputers) to skim a little money off nearly every trade. Since many people's retirement plans are tied to personal or mutual fund investments, this is an issue with currency for a wide audience. Katsuyama has helped form an alternative trading system in hopes of leveling the playing field. Narrator Dylan Baker, blessed with a strong story to tell, ably navigates the slippery minefield of high finance and low shenanigans. VERDICT Highly recommended. Kelly Sinclair, Temple P.L., TX (c) Copyright 2014. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.
