Flash Boys: Not So Fast: An Insider's Perspective on High-Frequency Trading Kindle Edition

I wanted to like this book. The author has an interesting background in the industry at well-known high frequency trading firms. I wanted to like it, but I was stopped short by many significant errors:

1) "More than a decade ago, all individual stocks traded solely on one of two stock exchanges, either the New York Stock Exchange (NYSE) or the NASDAQ Stock Market."

This statement alone is a good reason to go no further in this book. It is flatly incorrect. At no point in well over 100 years - perhaps even 150 years - has it been true that all stocks traded solely on NYSE or Nasdaq. It's no small mistake. To anyone who knows the stock market it's just strange and wrong, as if the author said cats lay eggs.

Let's go through this to show how remarkable the author's error really is. 10 years ago there were more than a half-dozen stock exchanges in the U.S., including NYSE, Nasdaq, Arca, Amex, Boston, Philly, Cincy/National, and Chicago. Back then (2004) Nasdaq alone was struggling to hang on to a 25% market share in its own listed stocks, with the rest dispersed among very active exchanges (Arca), ECNs, and OTC market makers. So now let's look back 20 years ago. Was the author's claim true then? Not at all - swap in the Pacific Exchange for the Arca Exchange and there were still more than a half-dozen exchanges in the U.S. And throughout this period of course there was the Third Market, OTC market makers trading stock quite competitively and vigorously.

2) And then immediately after that remarkably incorrect sentence, we get another: "Only a limited number of brokers were able to submit orders directly to the exchanges."

If by "a limited number" you mean hundreds and hundreds, then OK.Read more ›

Well, I really enjoyed Michael Lewis' book "Flash Boys". Lewis has a flowing style and he endows his characters (who, I guess, are real people) with larger-than-life personalities that really make them pop off the page.

That said, I felt that Lewis was really missing a character. We never got to know who the "High Frequency Traders" were - Lewis never introduced us to his villain and I think his book suffers for it.

That's why I was interested in Peter Kovac's "Flash Boys" - finally, we get to meet a voice from the shadowy HFT, and straight up, it is absolutely worth reading. Kovac has a very fact-forward style, but with a lot of smart humor. Whereas Lewis is telling a story and has great characters, Kovac is a user of logic and a master of analogies, using understandable, often funny, examples to explain some of the more complicated situations that Lewis brushes over or just gets wrong. Wait till you read what he has to say on breakfast cornflakes.

The really great part about Kovac's book is the lightbulbs that go off. Kovac will refer to a passage from Lewis' book and you'll think, "Yeah, I remember that. So?". Then he'll map out exactly why the passage is false, and like that movie plot twist that caught you unawares, suddenly you're wondering how you missed that yourself! Kovac's book is non-stop lightbulbs - he does an excellent and convincing job of adding the missing "insiders" dimension to the Flash Boys' experience.

Absolutely read both Lewis' and Kovac's Flash Boys. Read Lewis for the fantastic characters and breakneck speed story, and read Kovac to slow it down, and seriously (and humorously) look at Lewis' arguments. It's amazing, you will certainly not look at Flash Boys the same way again.

Peter Kovac's book presents a thoughtful, measured review of Michael Lewis' arguments from the (unfortunately rare) perspective of someone with deep industry knowledge and experience in this relatively new and largely misunderstood arena.

Lewis is unquestionably a smooth and skilled storyteller, and Flash Boys is an entertaining book that reads like a mystery novel. The end result, though, is that the reader is encouraged to simply come along for the ride and accept all of its contents as truth, especially the unveiling of the supposed culprits and their nefarious activities. This is fine as entertainment, but hazardous for real understanding or, worse, as a jumping off point for policy.

Kovac's counterpoint is a useful reality check, allowing the reader to step back and recognize which of Lewis' statements are factual, which are conjecture and which are simply inaccurate. Kovac calls out where generalizations are made, where leaps in logic occur and where errors in math are made and obscured in Lewis' Flash Boys, but does a good job staying focused on getting to truth over proving his point. The measured tone and simple explanation of complex facts and issues provide much needed light and reason to an area fraught with politicking and posturing.

From regulators to policy makers, stock market participants to casual industry watchers, this book should be required reading for anyone wanting to gain a meaningful understanding of high frequency trading and its place in the market.