By Justin Doubleday
Wall Street greed was the overarching theme at Friday night’s Lisner Auditorium and Politics & Prose “Newsmaker Series” event, where Michael Lewis spoke about his latest book, “Flash Boys: A Wall Street Revolt,” which argues that high-frequency trading has rigged the stock market.
Mr. Lewis, the best-selling author of “Moneyball: The Art of Winning An Unfair Game” and "The Blind Side: Evolution of a Game," participated in a conversation moderated by the Dish’s Andrew Sullivan.
High-frequency trading (HFT) uses computer algorithms to trade hundreds of securities in mere seconds. In his book, Mr. Lewis focuses on Brad Katsuyama, a trader for the Royal Bank of Canada, who found that HFT technology could be used to anticipate trades milliseconds before they happen. The book has been featured in the New York Times Magazine and on 60 Minutes.
Mr. Katsuyama first sensed something was off in 2008, when he tried trading stocks at a set price and the offers would vanish when he hit the button on his computer to complete the transaction. He knew his moves were being anticipated, but he didn’t know why.
“The story is really about him trying to get an answer to that question,” Mr. Lewis said.
When Mr. Katsuyama found that high-frequency traders were essentially front-running the system, he set about trying to find a way to make the markets fair for those who don’t have access to the technology.
Mr. Lewis described his admiration for Mr. Katsuyama and how, instead of becoming a part of the problem, he tried finding a solution.
“I didn't put this in the book, but there's lot of evidence from his childhood that he has very strong protective instincts,” Mr. Lewis said of Mr. Katsuyama. He said that as a 15-year-old, Mr. Katsuyama protected his friend from being attacked by a group of teenagers as they walked to the library.
“He ends up a bloody mess,” Mr. Lewis said. “He wipes off the blood at the end and goes to the library to study. That impulse to take care of his friends runs very deep inside of him.”
It’s that instinct, Mr. Lewis said, that drove Mr. Katsuyama to establish a fair stock exchange where HFT couldn’t be used to anticipate future trades. In “Flash Boys,” Mr. Lewis details the efforts of Mr. Katsuyama and a host of others to form the exchange, called IEX.
Alexander Lee, a junior in the School of Business, said he liked how Mr. Lewis made complicated subjects like HFT accessible for the general public.
“He seems to cater to your normal average Joe,” Mr. Lee said.
Asked why more people didn’t act like Mr. Katsuyama and try to fix the rigged market, Mr. Lewis said he believes the incentives system on Wall Street is the main issue.
“Ripping off people in stock exchanges is highly paid and highly rewarded,” he said. “The people who are in American investment banks, it's a hard environment in which to be good.”
The laws surrounding HFT, however, may be changing soon. The New York attorney general, the FBI and the U.S. Justice Department have launched separate investigations to determine whether some aspects of HFT are illegal.
Mr. Lewis said the reaction to “Flash Boys” has been similar that of “Moneyball," because a disruptive entrepreneur challenged the status quo in both stories.
“Except nobody was accusing these baseball guys of breaking the law,” Mr. Lewis said. “The mistakes [in 'Moneyball'] were so much smaller compared to this.”