A veteran programmer explains how the stock market became “rigged”

A small group of financial firms are using their technological superiority to skim the top off the market, Michael Lewis claims in his new book "Flash Boys." There's an increasingly heated debate over whether the practices, known as high-frequency trading, are harmful or helpful. Lewis, for his part, says the market is "rigged," and several federal agencies, including the Department of Justice, are now looking into what Charles Schwab recently labeled "a growing cancer."

Sophisticated and expensive computers allow high-frequency traders to take advantage of minuscule differences in price among the many exchanges where securities are bought and sold. Some firms pay to place their computers on the site of a stock exchange to be sure their access to price data is as fast as possible, a practice known as colocation; others will use technology to obscure their trading intentions for a few crucial thousandths of a second. Lewis's book tells the story of Brad Katsuyama, a former trader at the Royal Bank of Canada in New York. Katsuyama opened a new stock exchange last year to give investors protection from HFT.

Lewis is not the first to cry foul on these strategies. Eric Scott Hunsader, the founder ofNanex, has made himself immensely unpopular in some circles for his outspoken and persistent criticism of HFT, which he first encountered during the "flash crash" of 2010. Bloomberg called him the "nemesis" and "scourge" of the HFT world...


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