U.S. stock markets are rigged, says author Michael Lewis

Comments (51)
relmasian1 wrote:

Too true. More than 70% of the NY Stock Exchange and Nasdaq shares traded are high frequency trading. This is does not add real liquidity and is highly dangerous. Simply adding a random interval of up to a minute before executing trades of a thousand or more shares would put a stop to the practice.

Mar 30, 2014 11:11pm EDT  --  Report as abuse
AltecLansing wrote:

“U.S. stock markets are rigged” …I’m shocked, truly shocked! Who would’ve thought?

Mar 30, 2014 11:34pm EDT  --  Report as abuse
Ubermenschen wrote:

War with Russia, fixed markets its shocking.

Mar 30, 2014 11:39pm EDT  --  Report as abuse
michael144 wrote:

and all major banks that take more than 2 minutes to post a deposit are also using high speed trades to make money off unknowing account holders.

Mar 30, 2014 11:41pm EDT  --  Report as abuse
kafantaris wrote:

“Katsuyama realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price.”
For sure, stock exchanges give HFT firms unfair advantages.
Gotta fix this.
As Katsuyama said, “we are selling trust, we are selling transparency.”

Mar 30, 2014 12:18am EDT  --  Report as abuse
rjmx201 wrote:

“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

How is this fair, the SEC is literally allowing these companies to siphon billions of dollars from investors. They are going to allow this because of efficiency? When I read the SEC’s mission mandate I see protecting investors and maintaining a fair market both falling before anything about an efficient market. The market has been around since before the advent of computers, apparently it wasn’t efficient back then? As far as I am concerned these companies taking this knowledge and acting on it is no different than insider trading, it is no different than the stealing of an intangible asset.

Mar 30, 2014 12:45am EDT  --  Report as abuse
euro-yank wrote:

The government(s) need to implement the “Robin Hood” tax on each and every one of those HFT aborted transactions to reduce the profitability of the phoney transactions.

Mar 31, 2014 1:23am EDT  --  Report as abuse

Does the calculus of the investor change if we call this “smart order routing” instead… after all, a rose by any other name; am I right?

Mar 31, 2014 5:01am EDT  --  Report as abuse
Bakhtin wrote:

This looks more like a technological advantage than being ‘rigged’.

Whether it is fair for those with the most money to spend on techology to dominate the market is a different question.

Mar 31, 2014 5:59am EDT  --  Report as abuse
LewGC wrote:

If we compare monetary system with blood circulation, imagine horror if our blood flaw would be controlled by some greedy sociopaths. As much as it sound incomprehensible, society should take this malignant money “industry” out of Bankster’s and Wall Street hands and put it under control of an ergonomic civil (NGO) institution or financial holocaust will never end.

Mar 31, 2014 8:15am EDT  --  Report as abuse
Overcast451 wrote:

This is why buy and hold in stable companies is the way to go. Invest wise and keep trades to a calculated minimum. And always… always use limit orders, never ‘buy at market’.

But yes, it’s rigged. One only has to be able to anticipate what the globalists are up to next and act accordingly.

Mar 31, 2014 8:23am EDT  --  Report as abuse
hootsie wrote:

The article should be titled: “Another way the markets are rigged.” Few small investors have any confidence that the markets are fair. And while the markets are currently up and the big investment houses are cleaning up, the fact is that there simply isn’t enough capital available for ventures and startups, which traditionally fuel job growth in recessionary times. The available capital is simply switching hands among the biggest players and isn’t out working in the economy where it should be.

Mar 31, 2014 10:49am EDT  --  Report as abuse
njglea wrote:

Kudos and thanks to Brad Katsuyama and Michael Lewis! “We are selling trust, we are selling transparency, and to think that trust is actually a differentiator in a service business, is actually a crazy thought, right?” said Katsuyama.” No, Mr. Katsuyama, trust is what we have always expected until Wall Street enthroned Ronald Reagan to gut anti-trust laws and regulation of all kinds. Most of us do not like the world they have created for themselves – and us – and would much rather have you and other like you in charge. Congress, pass laws against dark pools and other despicable practices Wall Street robbers use to steal from us every millisecond.

Mar 31, 2014 10:50am EDT  --  Report as abuse
njglea wrote:

In reponse to Overcast 451 who said, “One only has to be able to anticipate what the globalists are up to next and act accordingly.” Do you really think people who put their hard-earned money into a 401k have – or have time to acquire – skills like that? No, we do not. Thank God for Brad Katsuyama, Michael Lewis and Elizabeth Warren. There is hope.

Mar 31, 2014 10:55am EDT  --  Report as abuse
DURO wrote:

Indeed, but the US Xchange is the least crooked of them all

Mar 31, 2014 11:19am EDT  --  Report as abuse
JPHR wrote:

HFT is a combination of market manipulation, front running, insider trading and tilting the playing field.
Why do you think banks pay that much to have their servers as close as possible to the exchange servers and input those weird patterns of trade to have those retracted immediately again.

Mar 31, 2014 11:44am EDT  --  Report as abuse
brotherkenny4 wrote:

njglea: the specialization in one skill set leaves you unable to deny abuses by other professions. You need to branch out some, not necessarily to have multiple careers, although that’s good too, but mostly so your not so oblivious to the lies and corruption. Depending on experts always leaves you a victim. America under Reagan was a prime example. The generations of morons that were Reagan followers were the narrow of mind and skill that had no experience beyond their own little worlds and thus were prone to accept the decay Reagan instituted. There was no one who spoke up, because to do so was to disagree with the experts.

Mar 31, 2014 12:23pm EDT  --  Report as abuse
ineeditbad wrote:

Hear Hear! A real piece of news that supports the lowly poor investor…

Mar 31, 2014 12:24pm EDT  --  Report as abuse
JoeSchmoe123 wrote:

I have a rational idea how to solve the debt crisis in America. Find the wealthiest 500 people and take their stuff. Pay our debts. Have a surplus. Who knows, maybe it’ll turn out the wealthiest people got that way fleecing everyone and starting wars.

I’m not suggesting we should start a war nor spill a drop of blood. I’m just saying, the people who amassed all the wealth in the world? And the money sits used and the owners can’t get enough because they’re sick hoarders? Take their stuff. It’s that simple.

Mar 31, 2014 12:34pm EDT  --  Report as abuse
dd606 wrote:

The only people this really affects, are people who… they themselves are trying to make money from trading quickly. It’s kind of like being mad that some guy broke into a house before you did. Average people should just be doing long-term investing anyway, which makes this sort of thing pointless to little guys. But if you’re some idiot trying to get rich off day-trading, then you deserve what you get anyway. Most people who whine about the market, don’t even have any money in it.

Mar 31, 2014 12:38pm EDT  --  Report as abuse
agentinsure wrote:

no right minded capitalist was willing to stick their neck out in 2007 and pull in the reins to thwart a collapse in the mortgage market either

Mar 31, 2014 12:42pm EDT  --  Report as abuse
Kahnie wrote:

Really? What a surprise. Tell us something we didn’t know. This is old news. At least 100 years old.

Mar 31, 2014 1:30pm EDT  --  Report as abuse
divinargant wrote:

Someone here is claiming that this should be pointless to the little guy. How naive that is, not to mention misinformed, when you consider that broader implications and just how this very activity could very well imperil the structural integrity of the market which in turn would obviously have negative ramifications for the little guy caught in the wake who operates without an algo to front run a trade. O ye of so little understanding.

Mar 31, 2014 1:40pm EDT  --  Report as abuse
a-skeptic wrote:

Simple fix would be a law requiring that you own a stock for at least an hour (or even a day if that wouldn’t be too onerous on “Market Makers”) before you can sell it. Or they could just require that all transactions must involve post-settlement shares. The problem is that these “Front Runners” are likely compensating supportive lawmakers with campaign contributions and dark money campaigning on their behalf.

Mar 31, 2014 1:43pm EDT  --  Report as abuse
satv wrote:

This is a pure corruption backed by Government to rip off genral public or investors in the stock market.I have been trading since 2009 and always loose due to this technology.Lots of time the prices hit above your selling bid but it ends up selling zero units.On the buying and selling side I had experience an automated bid to block by one cent.If you press sell without wish price it most likely to hit 20 cents lower than the current and if you hit buy without bid it most likely to hit 20 cents higher.I think governments and banks should be punished to pay the Genral Public.Investorshave no choice other than paying tax on income and loose the left over or loose bank loans or equity in the stock market.This trading system is violation of FAIR PLAY since millions of people don’t even know about this technology.

Mar 31, 2014 1:48pm EDT  --  Report as abuse
paintcan wrote:

Won’t Katsuyama’s fix just become another adaptation of the HTF fix?

Mar 31, 2014 1:52pm EDT  --  Report as abuse
Kahnie wrote:

It doesn’t make a difference for the little guy. The Fix is in and has been since there was a stock market anywhere.

Mar 31, 2014 2:47pm EDT  --  Report as abuse
CDN_Rebel wrote:

To say the market is rigged is a misnomer; it’s really just banks grabbing fractions of a penny on every trade. At the end of the day all those fractions add to a huge number across all the banks (in the neighbourhood of $10B globally) and there should be some curb to it but let’s put it in perspective people and realize it’s NOT COMING OUT OF YOUR POCKET! If you had $100k and decided to buy Google at $1000, that’s 100 shares. Maybe the HFT buys it first at $999.9975 then sells to you at $1000 and makes a *cool* $0.0025 per share… which adds up to a quarter from your $100k. Granted, if you bought MicroSoft at $25 then it could add up to $10 – but is that $10 from 100k really keeping you up at night? It doesn’t even really affect small investors because you have no capability of buying at $24.9975 anyways – if your order says $25 it’ll be 25. The only ‘people’ or investors it really makes a difference too are super-rich that are moving around hundreds of millions constantly (and have floor traders working their accounts), or (really) other funds and banks doing so with hundreds of billions. This idea that HFT affects the 99% (or even the 99.9%) and that the 99% take it so seriously is laughable and shows how they are being ruled by slogans.

Mar 31, 2014 3:08pm EDT  --  Report as abuse
AlkalineState wrote:

Well if there’s still any doubt as to the free-ness of this free market system here in America, the fact that we have something called ‘proprietary trading firms’ on Wall Street should give you kind of a clue. That access is not free.

Because it is not free, we know there is a return on investment expected. Wall Street can only guarantee a return on investment by having those returns subsidized by non-proprietary traders (regular traders). So…..is it rigged. Uh duhh. You’d have to be an idiot to enter as a retail-level trader.

Mar 31, 2014 3:36pm EDT  --  Report as abuse
Harry079 wrote:

The whole financial system worldwide has become a pinball machine with the TILT switch basically disconnected.

Mar 31, 2014 3:37pm EDT  --  Report as abuse
AlkalineState wrote:

@CDN_Rebel who writes something like: “It’s not coming out of your pocket!!! Okay, a little bit is coming out of your pocket. But not very much and the billionaire’s deserve it, and you don’t need it anyway.”

Good stuff. While not convincing, it was entertaining.

Mar 31, 2014 4:02pm EDT  --  Report as abuse
rikfre wrote:

just look at the price of precious metals…they should be sky high…but they are not. Eventually, this will be the demise of all markets…and then, maybe, you can trade your high speed computer for a forkful of tofu.

Mar 31, 2014 4:20pm EDT  --  Report as abuse
Inertia wrote:

@JoeSchmoe123 – Taking every penny of the top 500 wealthiest won’t do a thing. There’s a video out there that shows how much $$ are used to get us through one year of government spending. If we took ALL of the sports salaries, ALL of the 1% assets, ALL of the Forbes top 100 companies assets… that all wouldn’t cover spending to get us through a year. We’re in sad shape.

Mar 31, 2014 4:48pm EDT  --  Report as abuse
diluded0000 wrote:

So these guys are paying for faster ping times to they can detect an order went in, then before a slower trader system can respond to complete the order, getting the faster order submitted.

The fix for this would be synchronizing the orders to UTC, or some central time server. You submit an order, it completes in the order it was received. The way it is now is the digital equivalent to cutting in line. Both parties need to ‘take a number’.

Mar 31, 2014 4:59pm EDT  --  Report as abuse

So there are high-speed traders. Their affect on the market for long-term investors is insignificant unless the investor try to “play their game”. If you want to buy a stock at a specific price, place a limit order; if you want to sell, do the same. The noise all around you can only help to add liquidity, increasing the chance that your order will be executed at your specified price.

If, on the other hand, you want to play 1980s-style day-trader, you’ll be eaten alive. The high-speed execution machines can run you over and leave you for dead in the middle of the road.

Mar 31, 2014 5:00pm EDT  --  Report as abuse

So there are high-speed traders. Their affect on the market for long-term investors is insignificant unless the investor try to “play their game”. If you want to buy a stock at a specific price, place a limit order; if you want to sell, do the same. The noise all around you can only help to add liquidity, increasing the chance that your order will be executed at your specified price.

If, on the other hand, you want to play 1980s-style day-trader, you’ll be eaten alive. The high-speed execution machines can run you over and leave you for dead in the middle of the road.

Mar 31, 2014 5:00pm EDT  --  Report as abuse

So there are high-speed traders. Their affect on the market for long-term investors is insignificant unless the investor try to “play their game”. If you want to buy a stock at a specific price, place a limit order; if you want to sell, do the same. The noise all around you can only help to add liquidity, increasing the chance that your order will be executed at your specified price.

If, on the other hand, you want to play 1980s-style day-trader, you’ll be eaten alive. The high-speed execution machines can run you over and leave you for dead in the middle of the road.

Mar 31, 2014 5:00pm EDT  --  Report as abuse

So there are high-speed traders. Their affect on the market for long-term investors is insignificant unless the investor try to “play their game”. If you want to buy a stock at a specific price, place a limit order; if you want to sell, do the same. The noise all around you can only help to add liquidity, increasing the chance that your order will be executed at your specified price.

If, on the other hand, you want to play 1980s-style day-trader, you’ll be eaten alive. The high-speed execution machines can run you over and leave you for dead in the middle of the road.

Mar 31, 2014 5:00pm EDT  --  Report as abuse
dryfly wrote:

If this was news you should not be trading.

Mar 31, 2014 5:08pm EDT  --  Report as abuse
JoeSchmoe123 wrote:

Thanks Inertia. Bummer.

Mar 31, 2014 5:32pm EDT  --  Report as abuse
cheeze wrote:

Nothing has really changed over the years. The crooks are just high tech today. Stuff your pockets as quickly as you can, and let granny eat cat food when all her 401k is depleted.

Mar 31, 2014 6:39pm EDT  --  Report as abuse
carlmartel wrote:

This is one mechanism for turning markets into casinos. Make rapid, big purchases of small stocks causing them to rise. Small investors buy thinking that “someone knows something profitable.” Make rapid, big sales of the kited stocks. Small investors and small companies lose money; no value for the US is created; but there are fewer small investors and companies. The US has fewer new ideas and inventions and becomes less competitive in economics, politics, and military capabilities.

In the article’s RBC case, it is almost like NSA spying with computers telling HFT users about stock purchase orders to let HFT users buy more quickly and sell at higher prices to original purchasers to lower their profit margins and raise HFT user profit margins. Either way, people who want to make real investments lose money to big banks with faster computers at physically close locations to take advantage of milliseconds. US government tolerance of these devious and possibly illegal methods leads some businessmen with new ideas and technology to go to other countries and let the US fall behind.

Mar 31, 2014 6:49pm EDT  --  Report as abuse
dgss36a wrote:

The particulars of the story are old news as of several years past. The generality of the story is as old as the market to the degree any edge has been available.

Mar 31, 2014 7:37pm EDT  --  Report as abuse
Bunker555 wrote:

Quant Beats Anti-High Frequency Trading Guy To A Pulp And Makes HFT Look Awesome

Read more: http://www.businessinsider.com/irene-aldridge-andrew-stoltman-2010-6#ixzz2xacaKWb8

Mar 31, 2014 8:24pm EDT  --  Report as abuse
RolloTomasii wrote:

Brad Katsuyama is a hero. I greatly admire this dude. I would trust this guy with my life savings.

Mar 31, 2014 11:05pm EDT  --  Report as abuse
paintcan wrote:

What happens to “market makers” and the guys who used to scream at each other on the exchange floors? If the day traders and guys who liked to invest without a broker are outpaced, or prevented from placing orders at the price they want by “robotic” bids it almost sounds like exchange seat holders are out too, or nearly so? They would be in competition with the high-speed computers too. It can’t be working well for them either unless they manage their own HFT programs? My father used to complain about what were essentially trades that seemed to break into line and made his patient waiting pointless. He could sometimes figure out what the programmed trades were doing and still manage to get what he wanted. They weren’t all that sophisticated in the 80s. But human beings, unaided, can’t compete with machines for long. Don’t brokers cold call etc. to get people in off the streets to invest in favored stocks? Don’t they mislead them into thinking they can really aid them?

There were limits in the late 80′s to program trades that could melt down in unison? The big drop in 85? or 86? (so long ago I forget) was one of those but that limit was placed by exchange regulations and not state or federal law. They may not be there anymore?

Is it possible the high speed programs have been engineered to prevent the kinds of steep drops – over 500 points in a day – that shut the exchange down that day? A few years ago it came close to that again. It might be one thing for the Federal Reserve to regulate the supply of the nations money but something else if a private market does that. Why doesn’t the market move nearer to collapse more often? If a private market place is doing that – isn’t that a kind of collusion on the part of the banks and major brokerage houses? If that is the case, how is that different than Apple talking to the big publishing houses regarding a higher price for online books that doesn’t force them to accept the purposely low price of Amazon – a price Amazon may not actually expect to make any profit on and could be called a variation on dumping??? If an upper tier of trading can exist that somehow feeds on less suspecting traders below, that is predation. How is that legal or even ethical? What happens to concepts of consumer protection? In the old pre-computer days – it really was every man for himself, not every man with a machine (except for a ticker tape machine) for himself. The machine will win and the man will loose. It was possible then for very large investors to be ruined but there was drama and even a sense of justice in it. The stock market was always predatory. Now are their own machines eating the predators? It was wasteful and inefficient but also matched a time when men had to risk their lives en masse in war. It was more than appropriate. What dose the stock market mean now? Does “too big to fail” mean the banks are now like human organs regulating blood supply?

It may not be a “free market” but is heavily engineered not to collapse. Isn’t it wrong – unethical- if it is to the advantage of the biggest traders and forces all others into dependency on them? It is one thing for engineering to create safe conditions in buildings and on roads but not so fine if it ensures that certain major players, with the preponderance of wealth and technical sophistication, can make all others irrelevant or that prevents “free men” from exchanging on the market without middlemen, agents or handlers and their commissions. The lords (and if they aren’t now they easily could become permanent and hereditary lords) of Wall Street and elsewhere in the world could force everyone else into a kind of serfdom, or at least a second-class citizenship or as paying passengers in the bus. To big to fail makes them like quasi-governmental entities but capable of making a profit on their citizens. They can even engage in rapacious practices with the mass of investors. The markets work in a world that crosses political and philosophical lines and the rights of the smallholder or investor might not always matter to them as much, if at all. For example China does not have the same attitude or expectation of individual rights as someone in the US does. The cross border trading affects citizenship rights (or expectations) everywhere, and that is being masked by rhetoric mostly. And the winners could make as many losers as they care too, eventually. They just might occasionally loose a whole bus or planeload of investors? It might be expedient to do so and might even ensure than an elite can never be unseated. It can easily be expected. It’s so like human history.

The knights get the high-speed armor while almost no one else can afford it? The expression was always “the man who represents himself has a fool for a lawyer”. It was never an expression “the man who invests for himself has a fool for a broker”. Maybe so, but the winners won’t be quite so wealthy when all the fools find out.

I for one am anxious to see if the Russians come up with their own credit card companies. There is a weakness in mono-culture in agriculture. Why wouldn’t the same be true for money or economic product lines? It’s never foolish to be suspicious of too few controlling hands of too many things or systems.

@Bunker – your sentence doesn’t make any sense but I really hope someone else can make a better stab at these thoughts than I can. I had to write an exhausting paper in High School about the robber barons and I never thought they’d still be around over 100 years later and a lot of the new ones are living in China and Russia.

Mar 31, 2014 11:17pm EDT  --  Report as abuse
Earthtourist wrote:

What about the Forex market ? It is the most rigged of all.

Apr 01, 2014 2:49am EDT  --  Report as abuse
BartFargo wrote:

In other news, the sky is blue.

Apr 01, 2014 3:21am EDT  --  Report as abuse
boonteetan wrote:

Stock markets are rigged. This has been an open secret, especially with modern hi-tech, HFT and the like. Those in-the-know have all the advantages. Somehow small investors are often being led by the nose.

Apr 01, 2014 4:22am EDT  --  Report as abuse
GSRyder wrote:

The market was a place for the disgustingly wealthy to steal away wealth, in good and bad times . When the powers that be allowed “the masses in”, we who knew our loss limit stayed away . Those who bought into the scam, had their holding taken from them . Dahhhhh are we the residents of the US that stupid, that after the fact, someone needs to write a book telling the losers how it happened and that it was legal …

Apr 01, 2014 6:04am EDT  --  Report as abuse
kpk wrote:

No kidding, just like they have rigged the entire country so that the rest of us will continue to rely on them. They take our homes and sell to their investors for a small fraction, then lease it back out for more than a mortgage payment with annual rent increases, as our salaries stagnate. Our kids start college and are indebted to them for life by the time they are 21, 30 yr loans they can’t afford to pay and eat at the same time. Of course, they keep those salaries in line. As the cost of living rises into their pockets, minimum wage remains the same and a bachelor degree will get you 10 bucks an hour, while the corporation flourishes. How bad before we wake up?

Apr 06, 2014 3:18pm EDT  --  Report as abuse
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