Flash Boys: Not So Fast: An Insider's Perspective on High-Frequency Trading by Peter Kovac
Peter Kovac eviscerates Michael Lewis in this response to Flash Boys. He goes chapter by chapter, pointing out the problems in Michael Lewis's arguments. He points out that some of the "bad behavior" Lewis complains about is impossible - it violates exchange rules, laws or even physics. Some of the examples given in Lewis' book are just wrong. (Kovac is kind enough to chalk it up to sloppiness, rather than outright fabrication.) Other examples are correct, but have the wrong attribution. A trader that tries to sell some stock may see the market price change simply due to economics - more demand tends to increase price. Similarly, the price of Chinese ETF may change even when the Chinese market is closed due to demand from those in other markets.
Kovac spins the tables on the HFT story by portraying the traders as Davids against the Goliaths of the big firms. The big brokerage houses have highly paid employees that earn much more than those in the HFT house. They have capitalized on market inefficiencies to make millions and billions of dollars. The High Frequency Traders have helped make the markets more efficient, reducing the opportunities for the "old bot" network. Retail investors now have better trades with improved pricing. The traders that have been significantly impacted are the big hedge funds. Their easy "rent seeking" has been reduced.
Kovac does point to areas where Lewis has got things right, such as with trading types and other issues. Somewhat surprisingly, Kovac, like Lewis before him, does not provide a clear definition of what a High Frequency Trader is. (Though to be fair, he does provide more details than Lewis.) In the end, he admits that Lewis is a writer who wrote an interesting story that is a little loose with the facts. Lewis may have let his trading background color his view of the traders. Flip-flop wearing techies are not the same as Alpha-male techies.
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