Themis Trading’s Take On “Flash Boys”

As expected, Michael Lewis’ book “Flash Boys” caused quite a firestorm of comments yesterday.  The pro-HFT community was well-prepared and launched a consolidated effort to undermine the book even before most of them had even read it.  Our old nemesis, Irene Aldridge, even resorted to launching a personal attack against Michael Lewis even though she had not even read the book yet.  While the pro-HFT gang was quick to jump on the word “rigged” that Lewis used in his “60 Minutes” interview, they didn’t seem to understand the main point of the book.  Flash Boys is not necessarily the story of HFT but more about an overly complex system, the US stock market, that has forgotten its true purpose.  Stock exchanges, broker dark pools and regulators are in the middle of Lewis’ crosshairs and rightfully so.  Lewis digs deep into the unnecessary stock market complexity that has fostered smart order router conflicts, payment for order flow and special order types.  While most loyal readers of our morning note and blog will be familiar with much of the material in Flash Boys, Michael Lewis weaves the material into a well-structured narrative that will get your blood boiling.

We think this one line from Flash Boys best summarizes the book:

The hidden passages and trapdoors that riddled the exchanges enabled a handful of players to exploit everyone else; the latter didn’t understand that the game had been designed precisely for the former.”

We were pleasantly surprised to find two very gracious references to our work in Flash Boys:



We also took to the airways yesterday to explain what we think the key takeaways should be from the Michael Lewis book.

Joe CNBC interview 

Sal Bloomberg television interview

Expect to hear more complaints from the pro-HFT crowd particularly about the word “rigged”.  We don’t think Michael Lewis was saying the stock market was rigged in the penny stock/boiler room way.  He was saying that the market was rigged because the overly complex system contains trapdoors and hidden passages which were designed for the HFT’s to succeed.