Regulators have sharpened scrutiny of high-speed trading in the wake of criticism that architects of the cutting-edge practice have rigged the market against ordinary investors. The issue was vaulted to the forefront of public debate by best-selling business author Michael Lewis, who published a book Monday arguing that the stock market has been "rigged" against small investors by stock exchanges, large Wall Street banks and high-speed traders.
The FBI acknowledged that it has undertaken a probe of high-speed trading, while the head of the Securities and Exchange Commission pointed to its own probes a day later on Tuesday. The New York attorney general and the Commodities Futures Trading Commission are also investigating.
In "Flash Boys: A Wall Street Revolt," Lewis recounts the story of Brad Katsuyama, a Royal Bank of Canada trader who was puzzled about why his stock transactions became more costly after they were ordered. After investigating the trades, Katsuyama blamed high-speed traders, who employ algorithmic formulas and whip-speed transmission lines to buy and sell stock.
"It all happens in infinitesimally small amounts of time," Lewis said in an interview about his book Sunday on the "60 Minutes" television news program.
"They're able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price." Lewis joins a chorus of critics who say high-speed trading firms have tilted the market to win commissions and guaranteed profits at the expense of average investors.
Critics argue that high-speed trading firms have succeeded by building computer servers in close proximity to key trading hubs in New York and Chicago and, in some cases, in the exchanges themselves.
"The US stock market was now a class system of haves and have-nots, only what was had was not money but speed (which led to money). The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value," Lewis wrote in the book.
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