Financial journalist Michael Lewis, the author of Flash Boys, told BBC that the financial market has essentially been “rigged” by high-frequency trading (HFT) firms employing sophisticated computer algorithms deployed across super computers to trade ahead of human investors; effectively allowing these firms to gain an advantage which allows them to take what Mr. Lewis claims to be billions of dollars out of the market.
This practice which allows HFT firms to execute deals ahead of human traders, according to Mr. Lewis, is tantamount to rigging the market.
[quote text_size=”small” author=”– Michael Lewis” author_title=”Financial journalist & the author of Flash Boys”]
The market is rigged.
The practice allows HFT traders to pay for an advanced look at market information which provides them with what Lewis has referred to as “an unfair position” where these firms “know the prices before the ordinary investors they are trading against.”
High-frequency traders pay for an advanced look at [market] information so they are in an unfair position. They know the prices before the ordinary investors they are trading against. If you can trade at light speed, you can make thousands and thousands of trades in a second.
Lewis finds it “offensive” and “crazy” that rich traders are essentially “skimming off of middle class savers” at a time when he inequality is an issue.
As for regulation, the Flash Boys author is unclear on whether U.S. regulators will do anything about it, citing a “revolving door” between Wall Street banks and firms engaged in the practice and the regulators themselves— a relationship which he referred to as a “cozy club.”
While the possibility of regulations remains a mystery, one trader has already created an exchange known as IEX aimed at eliminating “predatory opportunities created by speed” and it already has at least one source of orders, Goldman Sachs.
What do you think of HFT firms acquiring financial market data ahead of their human competitors?