18 votes

60 Minutes Stock market rigged says Michael Lewis in new book

(SEE THE VIDEO LINK, VERY INTERESTING - click on "EPISODES")

Michael Lewis' "Flash Boys" reveals how a group of unlikely characters discovered how some high-speed traders work the stock market to their advantage

The U.S. stock market is rigged in favor of high-frequency traders, stock exchanges and large Wall Street banks who have found a way to use computer-based speed trading to gain a decisive edge over everyone else, from the smallest retail investors to the biggest hedge funds, says Michael Lewis in a new blockbuster book, "Flash Boys."

The insiders' methods are legal but cost the rest of the market's players tens of billions of dollars a year, according to Lewis, who speaks to Steve Kroft in his first interview about the book. Kroft's report will be broadcast on 60 Minutes, Sunday, March 30 at 7 p.m. ET/PT.

High-frequency traders have found ways to use their speed to gain an advantage that few understand, says Lewis. "They're able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price," says Lewis. "The speed advantage that the faster traders have is milliseconds...fractions of milliseconds."

Lewis says a former trader at the Royal Bank of Canada in New York, Brad Katsuyama, figured this out after he consistently failed to have his entire order filled at the price he wanted. Katsuyama, who speaks to Kroft, put together a team of experts to figure out how to defeat the problem and started a new exchange, IEX, that he believes will level the playing field. Katsuyama launched IEX in October and investors, large and small, can route their trades through IEX without fear of predators lurking. IEX has accomplished this by creating a unique speed bump. "They slowed down high-frequency traders' ability to trade on their market," says Lewis.

http://www.cbsnews.com/news/stock-market-rigged-says-michael... - (60 MINUTES VIDEO)



Trending on the Web

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

No way!!!

I can't believe this!

I guess I'll put my money in savings at 0.1% interest.

In the Wall Street casino

The House ultimately wins.
Step right up, folks.
Place your bets.
A winner—and lots of losers—every time.

Disclaimer: Investors should gamble responsibly. Play at your own risk.

"There are no markets anymore, just interventions."—Chris Powell.

Victims were only the big guys and those who bought their funds.

As I read it:

The victims of the high-speed traders' "fix" were those large imstitutions that were making a buy so big enough that no one exchange had enough shares to fill it. Because of this they split the trade orders up among multiple exchanges. When you do this you want to do it all at once, so your early trades don't swing the market price until after your later trades have been made.

Unfortunately for them, their orders didn't arrive at all the exchanges at the same time. This might be either because they all went out at the same time but some went by longer paths, slow links, or got held up in queueing on their way to to some of the exchanges, or because the software that broke the trades up didn't launch them all at the same moment. So their big buys happened early on some exchanges and late on others, in a way that repeated and could be recognized.

The high-speed traders' computers could watch the "early" exchanges, recognize the patten, and send a front-running order via a fast link to the "late" exchanges. This would arrive in line ahead of the victims' order, buy up the available stock, and offer to re-sell it at a slightly higher price - enough to pay the transaction costs and reap a small profit, but not enough to cause the victim's order to be aborted or filled with someone else's slightly-higher offered shares. Then the victim's order was processed and bought the stock at inflated price. (Similarly with sell orders, filling the outstanding buy offers and offering to buy the victim's shares at a lower price.)

The high-speed traders invest some money for a few milliseconds with a guaranteed profit, while the victims pay slightly inflated prices for part of their order. It all looks perfectly normal - like the stock just HAPPENED to go up between the issuing of the order and the trade. Or at least it does until you notice that it happens FAR too often to be chance.

This kind of guaranteed profit adds up SO fast that it was worth hundreds of millions of dollars to them to run more fiber, give themselves a few more milliseconds advantage, and expect to get away with enough more front-running trades to make it all back and more.

The solution was to time the launching of the pieces of the big order so they arrived at the various exchanges at the same time. With no early hints to the high-speed traders, the problem was solved.

This is not a problem for little guys making individual trades through a single exchange. (They still have OTHER problems: The high-speed traders act on news before they can, and if they buy their stock through a big mutual fund the fund's traders might have to do a multi-exchange buy and get bit.)

The new exchange delays all the orders by more than the time it takes other exchanges to process them, slowlowing the information leak from its published trading records into unusability. "Honestey" consists of refusing to let anybody bypass the delay.

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

DJP333's picture

So this is public

what happens now? Why is this all still legal? Why did CBS/MSM decide to run this story now? Maybe because HFT will be the scapegoat when the financial system finally crashes.

http://www.zerohedge.com/news/2014-03-31/high-frequency-trad...

Sometimes it blows my mind when you put it all together. There is stock market manipulation, commodity market (gold and silver) manipulation, interest rate manipulation, vote rigging in elections, media/news manipulation, manipulation of history, our whole lives are rigged and yet nothing is getting done about it. How much more of a wake up call does the American populous need for enough of us to say "ENOUGH ALREADY"!

"It’s not pessimistic, brother, because this is the blues. We are blues people. The blues aren’t pessimistic. We’re prisoners of hope but we tell the truth and the truth is dark. That’s different." ~CW

They ran it now because it's news and the problem's fixed.

They ran it now because it's news and the big guys have already implemented the workaround: skewing the ISSUING of the trades so they arrive at all the exchanges at the same time.

It's legal because all the pieces are legal. The "fault" was the victims', for (accidentally) spreading their trades out in time enough that the high-speed traders could see the early ones and react fast enough to swing the market on the later ones. They didn't do their due dilligence to take into account that the environment had speeded up enough that miliseconds of skew between the orders' pieces leaked information that affected the price of the later trades.

If the high-speed traders had intercepted the victims' orders it would be illegal. Because they were just watching the ticker, figuring out a pattern, and getting their orders in fast enough that they were processed before part of the victims' original trades, the speed-demons were "just ordinary guys who happened to be really fast".

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

I watched the 60 minuets interview, one statement jumped out

During the interview it was asked why did anyone even listen to this guy? The answer was interesting, "there is nothing so powerful as an honest man". That statement helped me to realize why Ron Paul attracted so many supporters, you may not agree with him 100% of the time, but you knew that he was 100% honest, and sadly that is a rare virtue these days.

I felt the same

when I heard that and also thought of Ron Paul. Katsuyama seems like a straight arrow, and his having to eschew a successful lucrative position to do something based on principle is refreshing to see.

I see the stock markets

like a pool table that is tilted up on one side:

more often than not all of the balls will end up in one pocket.

This is the part that gets me.

If these HFT's skew the market so much. Why didn't they make money off the crash. In fact why did all of them go belly up. Didn't the machines predict that ?

Those machines merely control flow, and that is it. They make money off all the volume. They shouldn't be banned or anything becuase were coming to a point where the average person will have just about the same computing power.

IF and when it is ever investigated

We WILL see that a few usual suspects within the very institutions that went running to get on board with IEX are the ones who backed the development of the EFRS (Electronic Front Running System).

That's why nobody was initiating anything from that neighborhood.

How do you think Goldman Sachs, JP Morgan et al make their money. They get a cut of everything.

And you know what?

A few billion dollars is pocket change in these markets. We're talking about a penny a share.

And really all they did was make a better mouse trap that people gladly paid $10 million to subscribe to.

Who has that kind of money to put up?

12 dead bankers...?

But seriously, insiders have been making piles of money as long as I can remember from my trading days in the early 90’s. I am sure if you are a trader, you see them driving up stock prices hours or days before the news comes out; so I know the SEC rules are being ignored. Coming under “pattern day trading” restrictions in the amount of trades I can do in a five day period allows the insiders even more leverage to profit handsomely with just one trade so they can sell right after the news comes out. From my observation the playing field will always be limited for us little guys compared to the big boys. Of course I am thankful I am still alive with my moral conscience intact.

A Bankers Dozen?

couldn't resist...

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

This is a very interesting

This is a very interesting development!

...

Indeed

I just added to view the video. I hope Katsuyama's IEX is successful as he is bringing more fairness and transparency to the markets.