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Author Michael Lewis: Market Distortion From High-Frequency Trading Is 'Accidental Conspiracy'

By    |   Wednesday, 02 April 2014 08:50 AM

The market disruption that has resulted from high-frequency trading constitutes "an accidental conspiracy," financial author Michael Lewis tells CNBC.

He has a new book out about high-speed trading titled, "Flash Boys: A Wall Street Revolt."

"The flash boys, the people at the center of the story, they see that the markets have gotten rigged," Lewis notes. "They think regulation is unlikely to cure the problem, the regulators are never going to keep up with Wall Street and they build a market-based solution."

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They want to build a fair stock exchange, he argues. A war has been created between investors whose money is being mishandled and the Wall Street firms that are mishandling it.

He explains the market's troubled structure stems from "unintended consequences" of regulations implemented in 2007.

"I think the high-frequency traders are exploiting a system that's got these glitches in it, and they found loopholes to jump through. . . . The problem is the opportunities of predation that they've been given, and they've been given them in part because the exchanges have created these unequal playing fields," Lewis states.

"The problem is that every time you enter the market, the information of value of what you're doing is being sold to high-frequency traders so they can exploit you."

Andrew Ross Sorkin of The New York Times has a bone to pick with Lewis. "He [Lewis] reserves blame for the wrong villains," Sorkin writes.

"He points mostly to the hedge funds and investment banks engaged in high-frequency trading. But Mr. Lewis seemingly glosses over the real black hats: the big stock exchanges, which are enabling — and profiting handsomely — from the extra-fast access they are providing to certain investors."

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The market disruption that has resulted from high-frequency trading constitutes "an accidental conspiracy," financial author Michael Lewis tells CNBC.
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2014-50-02
Wednesday, 02 April 2014 08:50 AM
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