According to author Michael Lewis, the answer to that question is a resounding yes. In his soon-to-be-released book Flash Boys: A Wall Street Revolt and in a March 30 “60 Minutes” segment, Lewis explained how high-speed traders can legally get out in front of even the largest and most sophisticated institutional investors to make a few pennies. This, Lewis estimates, amounts to tens of billions in losses to ordinary investors.
Lewis’ book and the “60 Minutes” report tout Investors’ Exchange (IEX), a startup company led by former RBC trader Brad Katsuyama, who got frustrated when his trades seemed to be front-run and therefore costlier. Katsuyama likened it to a consumer finding four tickets on Stub Hub to a game that cost $20 — while he was able to buy the first two for $20, the other tickets cost $25 apiece because someone front-ran him. Katsuyama found a way to subvert the front runners by actually slowing down his trades so that everything arrived at the same time. Risking everything, he left his job and started IEX, which now boasts some of the largest investors as clients.
Last year, I met the former head trader at one of the largest mutual fund companies on a plane. He told me that he took all his money out of the market because he believed it was rigged by high-speed traders. I thought he was overreacting and being eccentric. Now I’m not so sure.
