Why Wall Street thinks Michael Lewis is wrong


Posted at Apr 06 2014 01:00 PM | Updated as of Apr 06 2014 09:00 PM

Author Michael Lewis smiles during a Reuters interview about his book "Flash Boys: A Wall Street Revolt," in New York. Photo by Lucas Jackson, Reuters

NEW YORK - What everyone can agree on about Michael Lewis's new book Flash Boys is that it has sparked heated debate and finger pointing.

The book accuses high-frequency traders (HFTs) of taking unfair advantage of a complex system and extracting billions from the markets by making trades at speeds that are unavailable to regular investors.

Lewis says some brokers sell information on customer flows to these so-called HFTs.

"The main point is there's systematic corruption in the market - systematic rigging. It's a rigging in the market," Lewis said.

Speaking to Reuters Thursday, Lewis claimed the victims include a wide-ranging pool of investors:

"The prey is everybody from David Einhorn, Bill Ackman, the biggest hedge fund managers around - to - my mother," he said.

But the backlash to Lewis's assertions has been sharp and loud.

Keith Ross is the CEO of alternative trading systems platform PDQ Enterprises.

"He didn't talk to any of the exchanges. He didn't talk to any of the other ATSs. He didn't interview any of the high-frequency trading groups that would have been able to further educate him on what's going on."

Proponents of high-frequency trading say it helps Main Street investors by providing liquidity in the markets.

"High frequency trading has made the market so efficient that Main Street has the advantage for the first time ever over Wall Street," Ross said.

Lewis acknowledges that not all everyday investors are hurt by HFT - but he says that's not the point.

"It is true - absolutely true - that if you're a buy and hold investor, the skim part of this problem - the money that is taken from you in the process of your trade getting executed - is trivial. That's not what you should be upset about. But you should still be upset because the integrity of the market's at stake," Lewis said.

Authorities say they have their eye on the issue.

The SEC announced this week it has several ongoing investigations into HFTs - as does the FBI.