"Wall Street has gone insane."

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The cornerstone of Flash Boys is a discovery made by an obscure Canadian banker, Brad Katsuyama, who noticed that whenever he tried to execute a trade, the stock price moved before the order went through. A long and tortured investigation revealed that the variable speeds at which trading information travels down fibre-optic cables to the exchanges was being exploited by brokers and high-frequency traders – so-called for the volume of trades they make – to jump the queue, buy the stocks in question and sell them back at a higher price to the person who expressed the original interest.

"Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run [orders]," writes Lewis. It was a side-effect of automated trading and a tough thing for bankers to wrap their heads around, let alone laypeople. In plain English, as a colleague of Katsuyama's put it: "My role was to walk around and say to clients, 'Don't you understand you're being fricked?'"

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Wow.


Anyway, I always feel like I get screwed doing market orders so I always do limit orders. A least I feel like I get a price that meets or exceeds my expectations most of the time.

The worse that can happen with a limit order is you are still stuck with the stock. Only go market if you feel like you really have to bail.

ETA: thanks for the heads up...new reading material.

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I always feel like I get screwed doing market orders so I always do limit orders.

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You should NEVER do a market order... Easiest way to get Fd in the A

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So I guess my feeling was correct

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Slight discomfort and burning in the rectum?

Flash Boys closes with this paragraph:

The application to use the tower to send a microwave signal had been filed in July 2012, and it had been filed by … well, it isn’t possible to keep any of this secret anymore. A day’s journey in cyberspace would lead anyone who wished to know it into another incredible but true Wall Street story of hypocrisy and secrecy and the endless quest by human beings to gain a certain edge in an uncertain world. All that one needed to discover the truth about the tower was the desire to know it.

Michael Lewis is referring to the microwave tower in Pennsylvania with the FCC license number 1215095. It is located in Potter Township, PA (Lat: 40.849278 Lon: -77.710778) The tower is used to beam stock quotes between Chicago and Cartaret, NJ faster than even the fiber optic cable laid by Spread Networks (which Spread laid because it wanted to make faster the transmission of the same stock quotes than the prior mechanism which included slower fiber cable routes). Many now argue that the microwave networks being deployed to speed up stock quote transmissions are actually makes the Spread Networks fiber route obsolete.

Who owns this tower? What about who owns this tower is mysterious, conflicted, and hypocritical?

Manoj Narang, or the entities he has stakes in, owns the tower. The application for the microwave device was filed by Converge Towers LLC, which is located at 770 Broadway, Second Floor. And while Converge Towers LLC is a subsidiary of BCG Cantor Fitzgerald, the application was filed by a misses Elizabeth Kim, who works at Thesys technologies (BCG Cantor – Thesys partnership?) (This is an interesting blog post you should look at by the way… particularly the comments section).

Who is Thesys Technologies? Thesys is an affiliate of Tradeworks, the Red Bank, New Jersey HFT operation that was hired in 2012 to license the MIDAS system to the the SEC. MIDAS, if you recall, is the data solution involving fast feeds that gives the SEC its ability to monitor quotes and trades at the same speeds the HFT firms do. Tradeworx not only provides the SEC with the fast feeds to view the limit order book as HFTs do, it also provides the analytic tools, and the framework and context to draw conclusions. MIDAS also powers the SEC’s market structure website, which consistently puts out analysis that demonstrates that HFT is not the villain it is portrayed to be.

Read this NYT 2012 article by Nathaniel Popper about Narang’s firm, and its relationship with the SEC. From that article:

- MIDAS was created by Manoj to “help regulators respond to critics of high-speed trading.” This bias in its deployment perhaps explains what some might view as HFT-friendly findings by the SEC to date.



- MIDAS cost the SEC $2.5 million up front, plus recurring fees. It is rumored to be higher than that, with the scope of the program much larger than initially reported.



- The S.E.C. will still not have the complete picture; it won’t have information on the trades executed in dark pools. MIDAS does not provide that.



- The Tradeworx- SEC initiative is supposedly managed by Glenn Nixon – who came from the Princeton Physics program.



- Tradeworx makes a ton of money selling data and technology to other trading firms, including microwave towers that beam trading data to Chicago, a faster method of transmission than fiber optic cables.

Manoj’s Tradeworx and Thesys is also partnered with NASDAQ. They just recently signed a major deal that would allow them both to sell algo-testing to NASDAQ’s high speed clients, starting this year. This is in addition to the microwave thing…

With that Tradeworx – Thesys – Manoj – Midas – NASDAQ context, watch Narang tell Bloomberg Television that speed matters less in today’s markets than it ever has in the history of markets. (15:35 in). So says the man selling speed to the SEC (the American taxpayer), HFTs, and Stock Exchanges. You can’t make this stuff up. It would be humorous if it were not so sad.

Is it any wonder that the SEC has trailed other law enforcement and political entities in examining flaws and abuse in our markets? The tools that they have procured are sold to them by an HFT firm. That HFT firm makes even more money selling microwave high speed trading transmission to other HFTs and exchanges. You would think such in-your-face conflicts would have made the SEC think twice about their partnership with Tradeworx. You would think the SEC would especially be embarrassed by the appearance of bias from one of their partners/representatives tainting the Flash Boys debate on public television, as Manoj has done all of last week. You would think that the SEC, a body so interested in proper disclosure, would have something to say about Manoj not publicly disclosing his relationships with so many that are entrenched in the status quo.

What is the answer to Michael Lewis’s riddle at the end of Flash Boys? Who owns the Pennsylvania tower with FCC license number 1215095? Tradeworx does. Manoh Narang does. The creator and SEC-entrenched high speed data seller does.

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They did a 60 minutes piece on this 3 weeks ago.

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The author was all over CNBC a few weeks back... Got into an argument with one of the guys that runs one of these trading shops live on the air. Interesting stuff.

So instead of me paying $191.92/share for my 50 shares of IBM I end up paying $191.93/share.

Oh, the HORROR!!!!

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So instead of me paying $191.92/share for my 50 shares of IBM I end up paying $191.93/share.

Oh, the HORROR!!!!

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Well that was the argument that was given back, but when you break down millions upon millions of transactions a day, those pennies add up and someone is making off like a bandit.

Bookmarked.

I like Lewis, and I've read everything he's put out since Liar's Poker but I haven't gotten around to his new book yet. BTW.....he's an Izzy Newman grad.

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Well that was the argument that was given back, but when you break down millions upon millions of transactions a day, those pennies add up and someone is making off like a bandit.

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Katsuyama and his team did measure how much more cheaply they bought stock when they removed the ability of some other unknown trader to front-run them. For instance, they bought 10 million shares of Citigroup, then trading at roughly $4 per share, and saved $29,000 — or less than 0.1 percent of the total price.
“That was the invisible tax,” Park says. It sounded small until you realized that the average daily volume in the U.S. stock market was $225 billion. The same tax rate applied to that sum came to nearly $160 million a day. “It was so insidious because you couldn’t see it,” Katsuyama says. “It happens on such a granular level that even if you tried to line it up and figure it out, you wouldn’t be able to do it. People are getting screwed because they can’t imagine a microsecond.”

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BTW.....he's an Izzy Newman grad.

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That's how he had the Tuohy connection for Blind Side.