The buzz around Michael Lewis' new book, "Flash Boys," and his appearance on CBS's "60 Minutes" Sunday night was palpable.
While high-frequency trading has been a hot topic among capital markets professionals for half a decade, and though it has often drawn public scrutiny since the global financial crisis, the mass appeal of Lewis' books has the potential to turn the market structure debate into a very public trial of Wall Street in general.
As anticipated, the Twitterverse was afire with comments both in support of and assailing Lewis and HFT during and immediately following his interview with "60 Minutes" correspondent Steve Kroft.
And it wasn't just market structure experts weighing in; average investors already seem to have taken up Lewis' anti-HFT rallying cry. But regardless of whether you think HFT is a manipulative behavior that should be banned or a necessary function of efficient markets, the hype generated by "Flash Boys" already has revealed some important themes in the controversy.
1. The general public understands very little about how Wall Street really works. To the average investor, computerized trading, algorithmic trading and high-frequency trading are all one in the same. Educating the public about the inner workings of the markets may be a monumental task, but it is necessary if the public is to form a fair opinion of HFT.
2. Even the market experts disagree on the role of HFT in the capital markets and its fairness. It's not just the regulators who don't understand HFT; market participants of all types and sizes continue to struggle with how to come to grips with it. And the battle lines appear pretty clear.
3. Haim Bodek, the original HFT "whistleblower," now comes across as a moderate in the high-frequency trading debate. Though he is popularly known as one of the leaders of the anti-HFT movement, Bodek's positions on computerized trading actually are much more nuanced than most observers realize.
4. Just in case it wasn't clear what New York Attorney General Eric Schneiderman thinks of HFT, his tweets after Lewis'interview on "60 Minutes" made it obvious:
5. Amid the hype for "Flash Boys," Brad Katsuyama shouldn't be confused with Michael Lewis. Lewis is sensationalizing a controversy to sell books. It is unclear whether he has any real, altruistic motive to improve the capital markets. But Katsuyama and IEX have skin in the game.
6. C- for CBS. "60 MInutes" did a great job explaining one side of the story, but the report was absent any point of view other than that presented in "Flash Boys." "60 Minutes" presented the argument that the markets are rigged as fact. Better journalism would have provided a forum for both sides of the debate.
7. A little information can be dangerous (see No. 6, above). As "60 Minutes" pointed out, less than half of Americans currently trust financial institutions. While everyone agrees we should continue to work to make the markets more efficient and more fair, the one-sided "60 Minutes" HFT report gives the average investor no reason to change his mind, and may even erode confidence further. It is unlikely to add any real value to the HFT debate, and this is bad in the long term for investors and the industry.
—Les Kovach is the editorial director of Tabb Forum. Read the original post here.