In recent years the name Michael Lewis has become synonymous with narrative driven journalism. His most recent book Flash Boys is no departure from his patented humorous descriptions and masterful storytelling. Flash Boys tells the story of Brad Katsuyama and a small group of eclectic individuals as they attempt to investigate and uncover a potentially systemically rigged stock market.
Lewis begins his book by dispelling some of the myths the general public has about Wall Street. Long gone, according to Lewis, are the days where the trading floor is a hectic and crowded venue. The real trading is now done electronically. Lewis chronicles the rise of this electronic trading leading up 2007, the first real year of the speed boom. This also gave way to high-frequency trading, which ultimately lies at the center of the mystery Brad Katsuyama and friends were trying to crack.
While working for the Royal Bank of Canada, Katsuyama noticed that the market was acting strangely. Rather on a whim Katsuyama decided to investigate these discrepancies. This initially quick investigation turned into something much more for Katsuyama, it became a mission. Through some trial and error, Katsuyama and friends discovered that market success was almost entirely dependent on physical proximity to the market and speed. Katsuyama realized, “Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run orders from one market to another.” It was then that he understood the stock exchange had become a class system based on speed.
Katsuyama believed that the markets were in a sense rigged, and this did not sit right with him. Like the protagonist in an ensemble film, Katsuyama gathered a ragtag group of highly skilled individuals in order to accomplish his goal; creating their own market. Much of the book then focuses on the difficulties of creating a new market that could not be exploited by high-frequency trading as previous ones were. Eventually Katsuyama and Co. do succeed and created the Investors Exchange, or the IEX.
While this was certainly an interesting read, the real sign that a piece of journalism is successful is when it enters the public conversation, and Flash Boys has certainly done that. Despite a number of detractors, Lewis’ findings helped spark the White House to announce they were going to do a regulatory review about market structure and dark pools. For that alone this book is well worth reading.
This review was written by staff member Curtis and originally appeared on this site.