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Friday, March 17, 2017

Friday Feature Book Review: Flash Boys by Michael Lewis フラッシュ・ボーイズ: 10億分の1秒の男たち: マイケル ルイス

Michael Lewis knows how to tell an entertaining story to anybody, and "Flash Boys" is no different. Curiously, on March 3, 2017, the Japanese Diet released a Bill called FIEA (Financial Instruments Exchange Act). The aim is to help control high frequency trading by overseas hedge funds. You could argue that this is a direct result of this book in many ways. No previous interest in finance or trading is actually needed to enjoy this book. The author tells a very compelling story about people involved, and never gets lost in trading terms or jargon.

In this book, the focus is on the professional education and financial coming of age, of a Canadian trader in New York City, Brad Katsuyama, the lead character. It is a David and Goliath style story, but also an emotional roller coaster of truth, ethics and the moral choices made in any financial market. Just like his many other enjoyable reads like "Moneyball" and "The Blind Side", his latest book could easily be a movie as well. It is non-fiction and packs a punch. 

We learn about 2 main sub-stories that collide and learn so much from the destruction. Brad is sent from Toronto, where he works for a Canadian Bank, RBC, to increase trading profits in New York. At the same time, there is a investment banking driven technology plot to lay down fast fiber for a growing high frequency trading industry. The two stories develop in parallel until they collide, dramatically. However, what we observe is a test of character and the system that tries to crush that type of person.

The people described in both of these stories are written about very well, and given just the right amount of detail. We are given a case to consider, and left to wonder if the stock market is indeed fair or rigged by fast technology driven investment banks. It stimulates the reader when the case is made. There are rules but they can or they should be re-written sometimes. 

However, it is the unfolding of a trading mystery to prices and what later happens to trading markets, that hooks you in. It is not financial markets, but the technology behind it, that opens your eyes, and sucks you into the story fully. In many ways, it has very wide appeal, and is not just for people working in finance. You can see this as a detective story with a financial theme, not the other way around. The story described has mass appeal and is not just for people familiar with the markets.

The Top 3 Takeaways from this book that really impact any reader are:

1) There is a lot to learn about how the retail investor often gets a price that is "gamed" by market traders with very high speed.

2) The impact of high frequency trading is not so much the trading charge that retail investors pay, but the institutions that runs pension funds, and ultimately the retail investor who draws on them. 

3) The top investment banks have always been at the cutting edge of many new trading technologies, and this is no different. It is certainly legal to focus on, but hardly beneficial to the retail investor's accounts overall.

The book has certainly made an impact to markets, and does make an interesting case. Time will tell how much will change as a result of this "shining sunlight on a dark secret" within finance. UK and US banks have since come under fire soon afterwards with dark pool doings, so it is a story that will continue to evolve. It is well written, even more easily explained, and a wonderful read for anyone in finance or not.  Highly recommended!


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