Diving into High Frequency Trading

You’ve probably seen a fair amount of publicity about Michael Lewis’s new book about high frequency trading, Flash Boys. Lewis is an excellent writer, but his previous books often were criticized for focusing more on story telling and being attractive to readers instead of presenting the full picture. It’s the same with this book. Lewis overstates his case by saying HFT means the markets are rigged. There are some other good criticisms of the book in this post. There also are good points in this balanced review in The Wall Street Journal. (Subscription might be required.)

Mr. Lewis wants to argue, though, that the markets are not just ridiculous, but rigged. The heroes of this book are clear: Mr. Katsuyama eventually assembles a team of talented misfits to create an HFT-proofed exchange called IEX, where a price is a price is a price. It’s backed by leading hedge funds and banks (and Jim Clark, the co-founder of Netscape and the subject of Mr. Lewis’s 1999 book, “The New New Thing”). Mr. Lewis gives the reader extensive insight into how his heroes see the market, but the alleged villains of the piece—HFTs themselves—are all but silent in their own defense. “Flash Boys” is a decidedly one-sided book.