Tuesday, April 22, 2014

Flash Boys -- halfway there

Well one thing for sure, Lewis knows is "shit".  This book is even better than I thought, no wonder Wall Street is pissed off,via their surrogate: FOX news.  The hubbub has now died down, but I've got to tell you that all the stuff in that book is a roadmap for regulators who want to take action.

My favourite part so far is the 2010 Flash crash explanation.  It merges very well with my own issue with HFT which is the price discovery mechanism (lots of small order that test the market prices -- and disappear quickly -- microseconds).  The SEC report was complete BS because they could not get the data on what happened because they were limited to seconds of trade -- the HFT were working in 1,000 of a second -- the SEC didn't see the trading pattern.

I remember very well that day, I was on the options desk and nobody understood what had happened, first the "fat figure" reason was given (but it turned out there was no such massive trade anywhere in the market.  There was a general shock in the room (and trust me our dealing room was top notch).  Again, were were affected in the periphery (being in Canada where the rules are different than in the US).  We all knew something was wrong (it happened many times afterwards) but we didn't know what was wrong and why the market was doing that (like the characters in ML's book) they had the need and the tools to find out some of the reason for the flash crash.

Today, the market is all math, the genius (trust me they are smart) who created HFTs understand math, understand the underlying market and how it actually operates (as opposed to how we think it works).  The book is even better than I thought.  Although it must be a slog for those who don't understand finance -- and the intricacy of pricing discovery.

Aside from that, spring is finally here for good!


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