5 stars for Flash Boys: A Wall Street Revolt by Michael Lewis.
A well written and compelling read.
As far as my memory serves me, this is the first time I am reading a Business book and attempting to write a review related to financial market, stock exchanges, big Wall Street banks, high-frequency trading and people from every corner of Wall Street. By myself, I will never have chosen to read such a serious, heavy-duty topic. I read it because it comes highly recommended by my mentor - David Wang, thank you! - at work. That and having worked in a stock broking firm before, this book piques my interest enough for me to have a go.
Having never dabble in U.S. stocks directly, I have no idea how the U.S. stock exchange works. I did not even know that the U.S. stock market has thirteen public exchanges and forty-four private ones (commonly termed as dark pools). So many! And this is just the tip of the iceberg - one of the many surprises in store for me - as I embark on my journey along Wall Street to uncover the ugly truths hidden within the inner workings of the U.S. financial markets.
This book is about a small group of idealistic, like-minded people who put together what they know collectively, in a bid to fix a financial system that has over the years become increasingly entrenched in unscrupulous monetary gains. The book provides details to the why, how, what, where, and the many challenges faced by the group as they set out to go against the majority. As it is oft said "A lie doesn't become truth, wrong doesn't become right and evil doesn't become good, just because it's accepted by a majority." This minority group, some of them, left their high-flying, high-paying jobs, to do what is right because that is the right thing to do.
If I am to sum this whole book with a single word, the first that comes to my mind is "speed". Here in this book, speed is not measured by the seconds. It is also not speed that is within the span of "in the blink of an eye" (on average, the human blink lasts a tenth of a second which is 0.1 seconds/100 milliseconds/100,000 microseconds). Instead, the unit of time that the author is talking about is roughly one-thousandth of the blink of an eye: 350-microsecond (0.3 milliseconds). That is the kind of speed where the stock market predator set its eyes on. After all, there is big money for those who have the resouces to create speed. So then, what is the thing about speed that makes it so important?
Well, the truth is that the stock prices that people see on the U.S. stock market and the numbers running across the bottom of the CNBC screen, are not reflective of market demand and supply. Traders are not able to execute their orders because someone else is able to identify what the traders/brokers are trying to do and race ahead of them to the other exchanges. The bottomline is, the U.S. stock markets are rigged. Opportunities have been created which enable high-frequency traders to front-run brokers. And that is where speed comes into the picture.
This book set out to reveal how loopholes in regulations are exploited by high-frequency traders to predict most accurately where brokers will send their customers' orders, and how high-frequency traders are ripping off the retirement savings of the entire country through systematic fraud without the people knowing it. As this small group of people digs deeper and deeper, they go back to earlier events leading to new regulations implemented to curb corruption on a certain loophole, and that loophole brings them back to even older events from 2013 to 2007, to 2004, to the 1987 stock market crash - which gave rise to the very first, though less sophisticated, form of high-frequency trading - and ultimately all the way to the late 1800s, where the history of Wall Street is nothing but scandals. To quote "Every systematic market injustice arose from some loophole in a regulation created to correct some prior injustice." Indeed, it is a never-ending vicious cycle where the man in the streets, small investors, ordinary Americans, are getting their life savings ripped off.
The interesting thing about this book is that not everything in it is about stocks and trading. Because this is Wall Street, the author includes some accounts of the event that shocked the world on September 11, 2001. There is a first-hand encounter by one of the Wall Street technologists who witnessed the explosion as the second plane hit the South Tower. Then there is the sound to be heard where bodies hit the ground, and papers fluttering down from above the World Trade Center, and people crying, people screaming and people puking.
After reading pages and pages of what is wrong and what feels right and all those big Wall Street banks such as Bank of America, Goldman Sachs, Morgan Stanley, J.P. Morgan, Credit Suisse to name a few, I finally reach the end of the book. The ending is unexpected, not that I have any expectations to being with but I like the way the author ends off his book, by posing a riddle that does its job perfectly to bring across his message - if you care enough to find out, you will, since information is now easily available in cyberspace. Change will come only if you care enough to want the change, to find out, to talk about it and to push for the change.
To quote, Flash Boys closes with this paragraph:
"I noticed, before we left, a metal plate attached to the fence around the tower. On it was a Federal Communications Commission license number: 1215095. The number, along with an Internet connection, was enough to lead an inquisitive person to the story behind the tower. The application to use the tower to send a microwave signal had been filed in July 2012, and it had been filed by … well, it isn’t possible to keep any of this secret anymore. A day’s journey in cyberspace would lead anyone who wished to know it into another incredible but true Wall Street story, of hypocrisy and secrecy and the endless quest by human beings to gain a certain edge in an uncertain world. All that one needed to discover the truth about the tower was the desire to know it."
So, who owns the Pennsylvania tower with FCC license number 1215095? What is the answer to the author's riddle? I am sure most, if not all, of those who have read Flash Boys, will have done what I have done, by typing FCC license number 1215095 in any of the search engines. I get the answer easily enough from just a few taps on my keyboard. With that, the author has succeeded in concluding his book on a memorable and fitting note.
Sometimes ignorance is bliss. Having read this book that is on all counts, informational and educational, I'm not sure to be glad or worried or alarmed. The fact that the people who have the most to gain, to make the most money, want the least clarity possible in this deeply screwed-up of a financial system is totally not what I have expected when I start out on my journey with Flash Boys. The most scary thing is, this story can happen to anyone, you or me, him or her, as long as we have any contact with the market, directly or indirectly.
