Flash Boys: A Wall Street Revolt by Michael Lewis is a remarkable Wall Street story. Lewis lays out a series of interwoven stories that result in flaws around High Frequency Trading (HFT). While not the subject of a SEC investigation, the book’s publication has resulted in fines for companies trading in less-than-honest environments.
Flash Boys begins with the story of Sergey Aleynikov. Sergey is a talented programmer who is key to this story. We meet him as he faces prosecution.
The early chapters involve cutting fiber optic cable runs via Spread Networks from Chicago to New Jersey, This was most appealing to me. There was an understanding that trades could be altered in measurements of just milliseconds. 4 milliseconds is the timeframe trading companies needed in order to gain an advantage against their trading competitors. 4 milliseconds!
Enter the ability for large corporate banking firms to trade within their own dark pools. The practice of front running was taken to a new level with millisecond transfers. It adds up to shifts in profits away from smaller traders to benefit Wall Street banks.
The idea of milliseconds sounded strange at first. It is impressive to learn how trading firms and large banks were pouring money into advanced networks. Yet this resulted in the 2010 Flash Crash. Most could not understand how computers could cause the market to crash. It was just the beginning of questionable trading practices.