Sunday, May 04, 2014

Michael Lewis: "Flash Boys": the world of high-frequency trading on Wall Street, and the Aleynikov "self-mailing" case


Author: Michael Lewis

Title: “Flash Boys: a Wall Street Revolt

Publication: New York, Norton, 2014, ISBN 978-0-393-24466-3, 274 pages, Introduction, 8 chapters, Epilogue
  
Amazon link:

I did not personally appreciate the extremes to which Wall Street technologists go to gain speed advantages in high-frequency trading, and that whole job markets have built up around the practice.

Early in the book, Lewis talks about the covert projects to hardwire new faster connections across the content, and how the distance of the connections, even at the speed of light, matters. 

Toward the end, Lewis describes how dark pools, especially the new alternative trading system IEX works, and how practices to regulate abuses by large investors wind up hurting the small investor anyway (whether by SEC regulation or private good will). The growth of high frequency trading even after the financial collapse of 2008 (in a world of subprime mortgages and credit default swaps) might seem obscene to some; they certainly represent extreme capitalism. 
  

But the most interesting part of the narrative is the prosecution of Sergey Aleynikov, a former programmer at Goldman-Sachs.  He was arrested and at first convicted of “theft of trade secrets by emailing code to himself (or saving it in a repository) as he left the company.  He codes was almost all open source and would not have been useful to another Wall Street employer. The conviction was overturned on appeal.  The book discusses the growth of non-compete rules and of the difficulty of certain employees with changing employers at all.

When I worked in the mainframe era in 80s and 90s, it was acceptable to take printed code and test or even production results home for additional checking during support and implementations.  That would not be true today given the explosion of privacy concerns.  I once tried to pick up copies of code from NBC for my own use after I left (in 1977) and was stopped.  But times were very different then.



Update: May 6, 2014

Matt Krantz (America's Markets) has a video on USA Today "5 Things You Did Not Know About the Flash Crash" of 2010, link here.

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