Is the stock market really rigged in favor of high frequency traders?
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In 24 hours, I plowed through Michael Lewis' new blockbuster Flash Boys: A Wall Street Revolt, a book about the huge changes that have occurred in financial markets in the last three
decades. It's compelling reading.
Since 1987's Black Monday, markets have become increasingly computerized. Change was gradual at first, but in the last decade it has become rapid. Today, computerized markets trade faster
than ever before — faster, literally, than the blink of an eye. Trading is not done just by humans mashing buttons, but also by algorithms, which are programmed to take specific actions
based on conditions in the markets.
These changes began to really accelerate in 2005, when at the behest of the Securities and Exchange Commission — responding to public protests about cronyism — public exchanges went from
being utilities owned by their members, to corporations run for profit. Once competition was introduced, an array of new exchanges sprung up. By early 2008, there were 13 different public
exchanges. And these exchanges are not auditorium-style spaces teeming with shouting traders a la the New York Stock Exchange. They're servers in data centers, most of them clustered in
northern New Jersey. Today, there are upwards of 40 public exchanges, as well as a variety of opaque private exchanges — such as Goldman Sachs' Sigma X and Citigroup's CitiMatch — that are
known as dark pools.
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and
Noahpinion.