Thursday, October 23, 2014

Review: The Flash Boys

Books about Wall Street have a way of being incredibly depressing. For instance, Elizabeth Warren's story about fighting Wall Street has a main theme, which is, "Bank meets consumer, Bank screws consumer, ad nauseum." I'm happy to report that The Flash Boys is an exception to this rule.

The book is about high frequency trading: the practice of front-running investor's trades electronically in order to capture the bid-ask spread. It's an obnoxious practice, but generates so much profit that the firms doing so are willing to spend hundreds of millions relocating servers to be closer to the exchanges. Obviously those folks are the villains of the book.

But the book does have a hero, IEX, co-founded by Brad Katsuyama. Lewis follows the discovery (by Katsuyama, amongst others) of the existence of HFT, the desire to build an exchange immune to predation through HFT, and the creation of IEX and its team. The story is told well, as compelling as any thriller you might have read, and I found myself turning its pages furiously. It's also a short read.

I tried to think of ways IEX was built that might make them prone to the kinds of conflicts of interests that have plagued other exchanges, but came up short, so I think Lewis has done the story justice, rather than just acted as PR agent for IEX.

Recommended.

Hat tip to Larry Hosken for pointing me at this book.

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