I just finished reading Michael Lewis’s Flash Boys. It seems like a nice book on financial markets and high frequency trading (HFT), and how HFT makes money. And as is the case with Lewis, the story is very well told.
However, having worked in HFT in the past, and having written a book on market design (which will be out next month), there was one thing about the book that left a massive sour taste – that it makes a value judgment.
Fairly early on in the book, Lewis makes it clear that HFT doesn’t actually add value to the market, and in fact extracts value. And from then on, HFT and hedge funds who practice it are the “bad guys” of the book, and Brad Katsuyama and the rest of the IEX guys are the “good guys”.
If this were to be considered a journalistic account, it would be horrible due to the fact that there is not even an attempt to present the view of the opposite side – of the real flash boys (people working on HFT), and how HFT might actually be beneficial. It also fails to document whatever might be the shortcomings of IEX.
As the Ramanand Sagar retelling of the Ramayana has showed us, when you reduce a story to a story of “good against evil”, the story is robbed of all nuance, and what you get is a rather simplistic version. Any facts in the story that run contrary to this simplistic version tend to be glossed over (or reduced in importance). And what the reader gets is a wholly one sided view which may not actually be correct.
HFT is so fascinating (apart from the money it makes for its practitioners) that there exists scope to write a great value-neutral book about it (and someone who writes as well as Lewis is very well placed to write that). It is thus disappointing that Lewis has eschewed that and has instead written what effectively looks like PR for IEX.
In any case, reading the book gave me one valuable piece of input. In my book (that will be out next month), I’m starting each chapter with a quote. And the quote to the introduction of the book has been supplied by Flash Boys. It goes, ‘”Liquidity” was one of those words Wall Street people threw around when they wanted the conversation to end, and for brains to go dead, and for all questioning to cease’.
Perhaps, the quote suffices to tell you all that is wrong with the book (Flash Boys)!