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"The Market Is Rigged" - Michael Lewis Explains How HFTs "Screw" Investors Every Day

Tyler Durden's picture




 

It was almost excatly five years ago to the day, on April 10, 2009, that Zero Hedge - widely mocked at the time by "experts" - began its crusade against HFT and the perils of algorithmic trading (which of course were validated a year later with the Flash Crash). In the interim period we wrote hundreds if not thousands of articles discussing and explaining the pernicious, parasitic and destabilizing role HFT plays in modern market topology, and how with every passing day, markets are becoming increasingly more brittle, illiquid and, in one word, broken. Or, as Michael Lewis put it most succinctly, "rigged." With Lewis' appearance last night on 60 Minutes to promote his book Flash Boys, and to finally expose the HFT scourge for all to see, we consider our crusade against HFT finished. At this point it is up to the general population to decide if this season's participants on Dancing with the Stars or the fate of Honet Boo Boo is more important than having fair and unrigged markets (obviously, we know the answer).

For those who missed it, here is the full video again.

And broken down by segment: in the clip below, Lewis explains how an extra millisecond allows high-frequency traders to exploit computerized trading in the U.S. stock market. By "beating" investors to exchanges, Lewis argues that high-frequency traders can buy stocks and quickly sell them back at higher prices.

Billions have been spent by Wall Street firms and stock exchanges to gain the advantage of a millisecond. "Is it a scam?" 60 Minutes correspondent Steve Kroft asks. Bigger, Lewis says.

Lewis further explains, video below, how ordinary investors are affected and argues that high-frequency traders have created instability in the stock market -- for everyone.

 

A reoccurring metaphor Lewis uses in his book "Flash Boys" is one of "prey and predators."According to Lewis, the prey is "anybody who's actually an investor in the stock market."

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Mon, 03/31/2014 - 08:20 | 4610014 NoDebt
NoDebt's picture

I watched 'The Walking Dead'.  It was largely the same subject matter.

Glad it finally hit the MSM, though.  Kudos to the Tylers who have been presenting this for as long as I've been here.  

Mon, 03/31/2014 - 08:23 | 4610027 philipat
philipat's picture

I'm sure the SEC will now be right onto it. When they switch over from the Porn channels.....

Mon, 03/31/2014 - 08:31 | 4610047 SWRichmond
SWRichmond's picture

So now that the story is public, and now we all "know" that HFT causes "instability", we know we can blame the coming crash on HFT and not on the failure of the command-control economy, right?

Mon, 03/31/2014 - 08:33 | 4610051 GetZeeGold
GetZeeGold's picture

 

 

How did you find out?

Mon, 03/31/2014 - 08:33 | 4610056 SWRichmond
Mon, 03/31/2014 - 08:41 | 4610077 SoilMyselfRotten
SoilMyselfRotten's picture

1200+ trading days without a loss and its rigged? What???

Mon, 03/31/2014 - 08:45 | 4610093 BLOTTO
BLOTTO's picture

Our whole life is rigged.

Mon, 03/31/2014 - 08:57 | 4610143 Bearwagon
Bearwagon's picture

Not the whole life, but we've been conditioned to simply ignore the part that's not. Much to the same effect, admittedly.

Mon, 03/31/2014 - 09:15 | 4610207 SafelyGraze
SafelyGraze's picture

you are saying that dancing with the stars is rigged?

take that back.

hugs,
kelly monaco 

Mon, 03/31/2014 - 10:22 | 4610439 Freddie
Freddie's picture

Free John Corzine!   Stop his persecution!

Mon, 03/31/2014 - 11:09 | 4610610 Keyser
Keyser's picture

So, what is Michael Lewis' handle on ZH? Inquiring minds want to know. 

 

Mon, 03/31/2014 - 11:14 | 4610629 eatthebanksters
eatthebanksters's picture

Who's kiding who?  Nothing will change...did they implement the Volker Rule? The same people who made more money with out that rule being implemented make money with HFT.  Pols are not going to slaughter a golden goose.  Sad as fuck, but true.

Mon, 03/31/2014 - 13:02 | 4611030 MillionDollarBogus_
MillionDollarBogus_'s picture

Does that mean I have to sell my beloved Perini Navi, and distribute the proceeds to Joe the plumber investor, and his cohorts? 

Mon, 03/31/2014 - 13:42 | 4611176 FEDbuster
FEDbuster's picture

Tax the fuckers.  Put a $1. per trade tax on every purchase and sell order filled, and a dime for every order placed that doesn't fill.  That would slow the motherfuckers down.  Put the money into a bankster fraud victim reimbursement fund.  

Mon, 03/31/2014 - 14:39 | 4611426 GoinFawr
GoinFawr's picture

Zh has convinced me that you have described exactly what will soon happen... to you, rather than any of the MF'ers, who will greasily slide into some contrived asterix-ey exception.

'There can be only one!' (price setting retail skimming quote stuffing bid spoofing frontrunning head faker HFT)

Mon, 03/31/2014 - 15:04 | 4611513 BC6
BC6's picture

Notice the feigned approval and endorsement of The Squid at the end? Yeah, Squid, you are for fair and honest markets. What a fucking joke.

Mon, 03/31/2014 - 16:54 | 4611870 Quus Ant
Quus Ant's picture

Why tell the truth if you're going to bury it, ZH?

This story:

http://www.zerohedge.com/news/2014-03-31/4-trillion-fake-euro-bonds-seiz...

deserves more views.  Vatican seizes 4 Trillion after a visit from the thief in chief.

Tue, 04/01/2014 - 05:26 | 4613226 StandardDeviant
StandardDeviant's picture

Yeah, that'll work.

Look up "Tobin tax" and "Sweden".

Mon, 03/31/2014 - 11:17 | 4610645 Four chan
Four chan's picture

And while congress that headless chicken attempts to peck away at mary barra over ignition keys,

nary a word on hft's who have driven the entire stock market off the road,

is heard in those halls of the bought and sold a long long time ago.

Mon, 03/31/2014 - 10:24 | 4610444 Chupacabra-322
Chupacabra-322's picture

@ BLOTTO,

So true brother, so true.

Mon, 03/31/2014 - 11:01 | 4610585 john39
john39's picture

the economic rigging is obvious enough to anyone looking...  the other areas of rigging are harder to spot or understand because most lack the context, or the 'control group' to compare and contrast...  like having a giant blind spot, wth no easy way to discern that it exists.

Mon, 03/31/2014 - 14:08 | 4611303 Quus Ant
Quus Ant's picture

Right.  So why is this a good time for truth telling on 60 minutes of all places?  The other shoe is teetering dangerously close to the edge.

Mon, 03/31/2014 - 14:42 | 4611446 Theosebes Goodfellow
Theosebes Goodfellow's picture

Ain't that a fact. In a rigged market place, counterparties are a bitch, ain't they? So thanks, but for now, make mine stackable phyzz, please.

Mon, 03/31/2014 - 16:05 | 4611693 g speed
g speed's picture

bingo--time for the gov't to step in and convert that investment to "safe and secure" tres.

Mon, 03/31/2014 - 09:01 | 4610150 giggler321
giggler321's picture

I always thought it was because they hired a load of PHD's to come up with a spreadsheet that may or may not have errors, modelling the free market.  I actually saw it once, someone did some nice flash graphics:

sheet with no errors

 

 

Mon, 03/31/2014 - 09:21 | 4610226 Bindar Dundat
Bindar Dundat's picture

WOW!!

The obviously deranged  canadian looks like he is a prime suspect to comit suicide very soon.  I hope he does not have a multi shot nail gun around anywhere.  Poor chap needs treatment -- NOT.

Good work to ZH for pushing this and hats off to sixty minutes for going with the story.

 

 

Mon, 03/31/2014 - 08:42 | 4610084 Sudden Debt
Sudden Debt's picture

Well, there where 2 stories in 60 minutes.

 

1. Tesla

And that stock is green now

2. HFT

People don't give a fuck and the MSN isn't planning on following up on that story.

 

So it's more like a "we told you so and you didn't care" story without any consequences.

The fact that Tesla is already green says about everything you need to know about HFT because it was watched by a lot of investors and they simply don't give a fuck about the fraud.

 

Mon, 03/31/2014 - 09:26 | 4610240 caShOnlY
caShOnlY's picture

People don't give a fuck

It is so true that people really don't give a flying fuck until it affects them.  They think they are making money in the "market" that they will draw upon in the future.  When the dump finally comes and no sudden surge ensues then they will will want to kick, scream and see heads roll.  Until then the fox can play in the henhouse.

Did Teachers, Police, Fireman give a fuck when factories started shutting down?  think they will give a fuck when their paychecks are halved when this illusion of borrowing to prosperity comes to an end?

Sheep don't care about the wolf eating other sheep until the wolf has it in it jaws.

 

Mon, 03/31/2014 - 09:35 | 4610284 nickels
nickels's picture

"It's my nature" said the scorpion to the frog as they both drowned. Everything you need to know is in Aesop.

 

Mon, 03/31/2014 - 09:50 | 4610325 spine001
spine001's picture

I've been researching the psy hology behind the "people don't give a fuck" status quo and after three years of work I've come to the conclussion that the popular phrase amonv uz is not true. People do care, but they don't know what to do about it in practical terms so they end up giving up some quickly and others like us never only to mentally survive. The best analogy is we'd love to fly but we can't. It's gravity and there is nothing we  can do about it. Thus the real problem is that the people are not being offered a real alternative, at least not real in their minds to the current state of affairs.

Mon, 03/31/2014 - 10:24 | 4610443 Panafrican Funk...
Panafrican Funktron Robot's picture

"Thus the real problem is that the people are not being offered a real alternative"

I think the other part of the problem is in people not seeking available alternatives, and waiting for alternatives to be offered for them.  I have found that stuff I am being offered is usually not in my best interest; the best things in my life I have because I sought those things out and worked hard to get them.

This is not standard human behavior though, I actually have to fight against a natural tendency for biostasis. 

As far as practical steps, I would say instead of "write your congressman!" or "protest stuff!", both of which are ineffective tools, I would suggest simply getting/staying out of debt, and converting savings in federal reserve notes to money (phys gold).  These two steps alone will radically change our shared human interactions for the better.  

Mon, 03/31/2014 - 10:37 | 4610497 disabledvet
disabledvet's picture

You mean die here or die fighting Russians isn't a choice?

Mon, 03/31/2014 - 14:55 | 4611484 Theosebes Goodfellow
Theosebes Goodfellow's picture

@disabledvet: a) Die here? No sir, I'm on the "live forever or die in the attempt" plan and b) WTF do I have against the Russians?

Says Panafrican Funk: "I would suggest simply getting/staying out of debt, and converting savings in federal reserve notes to money (phys gold)."

Says Theo: Agreed, but add "grow a garden". Apart from the healthy physical activity, not starving to death is a great overall gameplan when  the SHTF, assuming said feces impacts said propeller. Even if we never have a TEOWAWKI moment, you'll be in better shape, have healthier produce and save money on your food bill. P.S., grow more than you need, your neighbors will thank you and you'll be building community goodwill.

Mon, 03/31/2014 - 16:42 | 4611820 disabledvet
disabledvet's picture

that was suppose to be a joke.
http://www.youtube.com/watch?v=4gpNqB4dnT4

we can't even laugh at absurdity in our love of State Sponsored Hedge Terror? (Go Putie Go! No Putie No!) Grow your own damn plants phucker. I'm building a wall. "Good fences make good neighbors." Now get off my computer hacker phuck.

I bought this thing...for three hundred bucks...at "Best Buy"...and quite frankly...I expected better.
Next time "i'm going to Better Buy."

Mon, 03/31/2014 - 09:58 | 4610347 mickeyman
mickeyman's picture

Hell, you knew I was a scorpion when you decided to give me a lift!

Mon, 03/31/2014 - 09:37 | 4610285 Rip van Wrinkle
Rip van Wrinkle's picture

"....and see heads roll."

 

And they won't realise it'll be their heads that will do the rolling. Dumb pricks.

Mon, 03/31/2014 - 09:46 | 4610310 ptoemmes
ptoemmes's picture

True, but maybe Mutual Funds, Insurance companies and the like who seem to also be getting ripped will care AND do something about it.  Short of investigating and prosecuting - unlikely - starving the HFT beast of money is hopefully be a decent bet.

 

To that end, maybe a separate top post on the IEX Group/Exchange mentioned in the report is in order.  I suppose there are some/few good hedge funds... I did, however, shudder when it was mention that Goldman "supported" that effort.  

 

Pete

Mon, 03/31/2014 - 10:16 | 4610410 Max Cynical
Max Cynical's picture

"People don't give a fuck"

My dad is 71 and he's all in. He suffers from the most severe case of normalcy bias I've ever witnnessed.

Mon, 03/31/2014 - 12:35 | 4610928 valley chick
valley chick's picture

+100  I feel your pain...I am married to one..for now.

Mon, 03/31/2014 - 17:47 | 4612009 Nikki Alexis
Nikki Alexis's picture

"It is so true that people really don't give a flying fuck until it affects them"

Yes... and that's why a few of the sheep see the ugly of Obamacare.  It's taking money our of their pockets.

Mon, 03/31/2014 - 20:56 | 4612516 Freddie
Freddie's picture

Anybody get a feeling this Michael Lewis book launch and story is manufactured?  I like him and I think he is pretty honest but this is how I see this going down.

Uncle O Sam obam has known since 2008 that the public is getting ripped off.  The public gets fleeced in the markets for tenbs of billions.   Then a clever Royal Bank of Canada trader figures out what EVERY hedge fund manager already knew.   They come up with a clever way to go around the HFTs and put them in a loop.  The reality is they just stop sending their orders to BATS. 

Small fish will be indicted, lawsuits where investors get a certificate for a free Big Mac, Uncle Sam Obama gets $3 billion in fines that go around the Treasury to his retirement plan and the DNC.  Attorneys suing the HFT firms get tens of millions in fees. Michael Lewis book goes to Number 1, the Canadian Asian guy who "figured it all out" along with his Mick telecom pal are Heroes!  Yeah!  In the background, the real face behind this exchange (Goldman) stays hidden. 

Meanwhile, the public aka small investors are still f**ked.

Mon, 03/31/2014 - 09:45 | 4610283 RaceToTheBottom
RaceToTheBottom's picture

I am not sure the best way from here? 

Pick each part of WS and analyse its corruption and cheating or

look at the beast from the top and recognise that a beast designed to cheat, will cheat.

It has to be the second one.  What does one expect when WS is designed to cheat?  Every facet of it's being is aimed at cheating, getting something over the others...  How can it not perform exactly like it is?

 

Mon, 03/31/2014 - 11:04 | 4610590 moneybots
moneybots's picture

"The fact that Tesla is already green says about everything you need to know about HFT because it was watched by a lot of investors and they simply don't give a fuck about the fraud."

 

It's funny that they suddenly care when their money has gone up in smoke.  Don't spoil the party is always the response when the market is going up. When the market crashes, there is always that priceless photo op of stunned floor traders looking up at the crashing ticker.

When the market crashes, people are blaming short sellers, as if it was their fault the market was going down.  However, they don't complain when short sellers are forced to cover in a rising market, which helps push the market up.

Mon, 03/31/2014 - 11:26 | 4610696 Buckaroo Banzai
Buckaroo Banzai's picture

Yes I had one eye on the TV while 60 Minutes was on in the bar where I was eating dinner.

I'm surprised that the 60 minutes on-screen talent (don't know his name, notice I didn't use the word "journalist") didn't actually start sucking Elon Musk's cock. Because that seemed to be the gist of the Tesla segment.

Mon, 03/31/2014 - 12:44 | 4610961 mccvilb
mccvilb's picture

Who cares if they're shaving pennies off a trade. The real money is made in changing the value of millions of shares with a mere 100 share trade, and executing or blocking the executions of large positions with instantaneous multi-exchange reversals and the sudden introduction of a lack of liquidity (accomplished by one entity or group controlling both sides of the trade across a dozen exchanges). Not to be left out is the wizard behind the curtain controlling the direction and phantom gains and losses in pre-market actions of entire sectors. HFT just made it that much easier for the GSCOs and JPMCs.

Don't look to the SEC for regulation in this century. Former SEC head Mary Shapiro took it upon herself to shepherd HFT through approval and into existence over a two year period; the SEC was fully aware of every aspect of the predatory nature of HFT beforehand. This 60 Minutes story is old news.

Mon, 03/31/2014 - 13:53 | 4611238 Shizzmoney
Shizzmoney's picture

RE

So now that the story is public, and now we all "know" that HFT causes "instability", we know we can blame the coming crash on HFT and not on the failure of the command-control economy, right?

#swish

The robots aren't problem; it's the humans who created them.

Mon, 03/31/2014 - 08:50 | 4610111 wmbz
wmbz's picture

The SEC knows full well who their masters are. They may drop a small fry or two into the cooker from time to time, but never the really big fish. Not going to happen, period. They are owned and well controled.

Mon, 03/31/2014 - 13:36 | 4611163 DaveyJones
DaveyJones's picture

you mean our government is corrupt? 

Tue, 04/01/2014 - 01:04 | 4613024 Vice
Vice's picture

WHAT?!?!

 

BUT "CHANGE"!!!

Mon, 03/31/2014 - 10:43 | 4610507 HungryPorkChop
HungryPorkChop's picture

The huge gapping hole that MSM left out is by continually manipulating an asset via algorighms it would seem they could drive the price of a stock up or down.  They could make an internet stock with no profit go to the moon or punish a commodity like silver and destroy the entire industry causing massive layoffs and destroying millions of lives.  Now when will this piece make it on 60 Minutes? 

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