"Flash Boys"

[fiefoe]

Michael Lewis always finds great personalities to make his stories pop.

• As late as 2008, major telecom carriers were unaware that the financial markets had changed, radically, the value of a millisecond.
• David Barksdale, came on board—to cut, as quietly as possible, the four hundred or so deals they needed to cut with townships and counties in order to be able to tunnel through them."And they didn’t even know who the clients were! They only discovered us from reading a letter we’d written to the SEC. . . .Who takes those kinds of business risks?”
• For $300,000 a month plus a few million more in up-front expenses, the people on Wall Street then making perhaps more money than people have ever made on Wall Street would enjoy the right to continue doing what they were already doing.
• And they say, ‘Absolutely, this is totally about optics.’ We had to wordsmith it so they had plausible deniability.” Morgan Stanley wanted to be able to trade for itself in a way it could not trade for its customers;
• There was one drill in the world—it would cost them $2 million to rent—capable of boring a tunnel under the river. In June 2010, the drill was in Brazil.
• The amazing idea the big Wall Street banks had sold to big investors was that transparency was their enemy.
• Why would the market on the screens be real if you sent your order only to one exchange but prove illusory when you sent your order to all the exchanges at once? Lacking an actual theory, Brad’s team began to send orders into various combinations of exchanges.
• That question implied an understanding: 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.
• online broker TD Ameritrade, for example, was paid hundreds of millions of dollars each year to send orders to high-frequency trading firms, including one called Citadel, which executed a large number of orders on TD Ameritrade’s behalf.
• Which hardware companies made the fastest computer equipment, and which buildings in which cities contained floors that could withstand the weight of that equipment—old manufacturing buildings were best.
• “I felt like the getaway driver,” he said. “Each time, it was like, ‘Drive faster! Drive faster!’ Then it was like, ‘Get rid of the airbags!’ Then it was, ‘Get rid of the fucking seats!’ Towards the end I’m like, ‘Excuse me, sirs, but what are you doing in the bank?’ ”
• The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value.
• The orders resting on BATS were typically just the 100-share minimum required for an order to be at the front of any price queue, as their only purpose was to tease information out of investors... BATS, unsurprisingly, had been created by high-frequency traders.
• The sequential cost-effective router will go first to BATS and buy the 100 shares—and cause the other 100,000 shares to vanish into the paws of high-frequency traders (in the bargain relieving the broker of the obligation to pay to trade).
• If an investor wished to buy 10,000 shares of Microsoft, and 100 shares were offered on the BATS exchange at $30 a share, while the full 10,000 listed on the other twelve exchanges were offered at $30.01, his broker was required to purchase the 100 shares on Bats at $30 before moving on to the other exchanges. “It mandated routing to more exchanges than you might otherwise have to go to,” said Schwall. “And so it created more opportunities for people to front-run you.”
• The rule, however, contained a loophole: It failed to specify the speed of the SIP.
• That’s why volatility was so valuable to high-frequency traders: It created new prices for fast traders to see first and to exploit.
• the conflict of interest that brokers had when they were being paid by the exchanges to route orders; the conflict of interest the exchanges had when they were being paid a billion dollars a year by HFT firms for faster access to market data; the implications of an exchange paying brokers to “take” liquidity;
• RBC conducted a study, never released publicly, in which they found that more than two hundred SEC staffers since 2007 had left their government jobs to work for high-frequency trading firms or the firms that lobbied Washington on their behalf.
• A distinction cried out to be made, between “trading activity” and “liquidity.”.... as activity could be manufactured in a market simply by adding more front-runners to it.
• What should have happened next was that his order in the dark pool should have been filled at $100.01, the official new best price in the market. He should have been able to buy from himself the shares he was selling at $100.01.
• in Rob’s mind, a new possibility. If just one of the exchanges was handed the tool for protecting investors from market predators, the small brokers from around the country might flock to it, and it might become the mother of all exchanges. “Screw that,” said Brad. “Let’s just create our own stock exchange.”
• By the fall of 2011 Schwall had become something like a connoisseur of the uses of LinkedIn to find stuff out about people in and around high-frequency trading.
• Even if the Wall Street bank resisted the temptation to trade for itself against its own customers, there was virtually no chance they resisted the temptation to sell access to the dark pool to high-frequency traders.
• As Brad had put it, “You could front-run an order in a dark pool on a bicycle.”
• Goldman hunted in the same jungle as the small HFT firms, but it could never be as quick or as nimble as those firms: No big Wall Street bank could. The only advantage a big bank enjoyed was its special relationship to the prey: its customers.
• The chief obstacle to the FBI’s ability to extract his confession, oddly, wasn’t Serge’s willingness to provide it but its own agent’s ignorance of the behavior to which Serge was attempting to confess.