The Global Economy in Turbulent Times

CHAPTER 83 Wall Street Stock Market Rigged: HFT “Cheetahs” Only Take 13,000ths of a Second to Turn a Profit¹

I am inundated with requests to help unravel the mysteries surrounding high-frequency trading (HFT). The Commodities Future Trading Commission (CFTC) calls its traders (HFTs) “cheetahs”—they are always first to the kill in the markets: “If markets are going to be efficient and effective and less volatile, we need to cage the cheetahs.”² Most readers are not familiar with their dealings—who are they? How different are they in making deals? Is what they do legal? Do they play fair? and so on.

Recent interest in them was generated by Michael Lewis’s new book, Flash Boys—A Wall Street Revolt, which I read recently while in Melbourne.³ Lewis is doubtless a compelling storyteller. His new nonfiction thriller unfolds the complex, fascinating world of this largely invisible market icon. Indeed, he alleges that the enabling policies of Wall Street exchanges and regulators did little to discourage what HFTs do best. More bluntly, Lewis (of Liar’s Poker and The Big Short fame) claimed on CBS’s 60 Minutes in early April that the United States’ $22 trillion stock market is rigged by HFTs. It’s not surprising that some Wall Street titans, including Charles Schwab (founder of the old, established discount brokerage house), agreed, describing the practice of HFT as “a cancer undermining confidence in the free enterprise system.”⁴

To be fair, other high profiles on Wall Street also insist ...