Michael Lewis’s latest book, Flash Boys, is about high-frequency trading and the evident corruption in the U.S. financial market. For a former coder like me, Flash Boys is fascinating, because high-frequency trading is all about information technology and the geeks (I use that word as a title of respect) that make it happen.
High-frequency trading is the latest incarnation of middlemen who make trades happen. At the same time, they look for inefficiencies and/or holes that can be exploited to their advantage. It has always been thus–except that today, things happen much faster.
As I read the book (which I highly recommend), I recalled something from a computer programming class I took way back in the 1970s. I was learning COBOL and the teacher told us a story that, at the time, I thought was apocryphal. After reading Flash Boys, I’m not so sure.
The story: a programmer was working for a bank. As he was testing his code he saw that dividing one number into another often resulted with fractions of cents. He saw an inefficiency that he decided to exploit: he rounded results down to the lowest cent and moved the remainder to his own account. Over time these fractions of cents added up.
Since we know the story, this potentially fictional programmer was caught. Even so, what he did is remarkably similar in concept to what the high-speed traders are doing and they’re doing it in broad daylight with the blessing of the Securities and Exchange Commission.
Who knew that something I learned about so long ago and done in something so antiquated as COBOL continues today with state-of-the-art technology? The moral of the story: the more things change, the more they stay the same.
Lewis is a master of telling complex stories in an easy-to-understand way and in finding the right players in the field to focus on as he tells the story. Flash Boys is no exception.
Have you read Flash Boys, or do you have a comment to add about high-frequency trading? Leave your thoughts here!