In today’s “rigged” U.S. stock market, large investors such as Greenlight Capital Inc.’s David Einhorn are like “dumb tourists” led to a casino where the card games are fixed, according to Michael Lewis, whose book “Flash Boys” has touched off a national debate about high-frequency trading.
“It’s very clear people are being front-run,” Lewis, whose book paints a portrait of markets rigged by insiders with advanced computers, said in a Bloomberg Television interview today with Erik Schatzker and Stephanie Ruhle.
Einhorn, whose Greenlight Capital hedge fund manages billions of dollars, didn’t initially understand what was going on, Lewis said. Einhorn’s reaction when he learned: “Oh my God. This I did not know,” Lewis said. Einhorn declined to comment on Lewis’s analogy.
Debate about whether equity exchanges are fair has raged for three days since “Flash Boys” was published. While Lewis sees exploitation rampant among the more than 50 public and private venues that make up the American stock market, his thesis has drawn rebuttals from executives such as Bill O’Brien, the president of exchange operator Bats Global Markets Inc.
Regarding his book’s revelations about the stock market, Lewis said, “I don’t think you can put it down and think it’s not rigged.”
High-frequency trading firms, however, aren’t all villains, Lewis said. They’re simply profiting off loopholes in the system.
Blaming HFT firms is “like blaming the lion for eating the antelope,” Lewis said. “They are wired that way. The system is screwed up.”
Man, Machine and the U.S. Stock Market
One of the heroes in the book, Brad Katsuyama, created market operator IEX Group Inc. that aims to curb the impact of the fastest trading firms and make trading more fair. Einhorn is one of IEX’s shareholders.
IEX, which has curbs that slow down the pace of buying and selling, aims to “surgically” remove the bad from the good services that high-frequency trading firms provide, IEX Chief Executive Officer Katsuyama said on
Separately, people familiar with the matter said Goldman Sachs Group Inc. is negotiating to sell its New York Stock Exchange floor-trading unit to Dutch firm IMC Financial Markets.