A years-long debate over high frequency stock trading exploded Tuesday as the star of Michael Lewis' new book, Brad Katsuyama of the Investors Exchange (IEX), and BATS Global Markets exchange president William O’Brien locked horns on CNBC.
The New York Times reports
that "Floor brokers at the New York Stock Exchange, glued to their television sets, whooped and hollered at the spoken jabs," for the length of the 20-minute debate while Twitter simultaneously erupted with reaction.
Lewis' new book, "Flash Boys: A Wall Street Revolt," proposes that high frequency traders have "rigged" the market, giving themselves an unfair advantage over ordinary Main Street investors – something they haven't reacted very kindly to.
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Formerly the head trader for RBC Capital Markets, Katsuyama first noticed something fishy whenever he would place a large stock order. Sent via fiber-optic cable to the nearest exchange, the order would only be partially filled at the anticipated price, then completed at a higher price.
The Canadian Broadcasting Corporation writes
that, in a nutshell, "high frequency traders would use their speed advantage to buy the shares he wanted and then sell them to him at a slightly higher price – all in milliseconds."
Katsuyama and a colleague eventually created a system – Investors Exchange – that places what amounts to a speed bump in the process, eliminating the advantage of the high frequency traders.
As the live television debate began, O'Brien came out swinging, accusing his opponents of staging a self-interested publicity stunt for the new company. "Michael and Brad, shame on both of you, for falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a business model," he said.
Katsuyama fired back, saying "I believe the markets are rigged. I also think you’re part of the rigging."
The debate raged on from there, with O'Brien questioning Lewis' journalistic integrity over his alleged failure to speak with him or his company for the book, and Katsuyama conceding that computerized trading has "delivered benefits" to the markets.
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