Author Michael Lewis says it is. 60 Minute’s March 30th expose on the subject may be of interest to you. Lewis’s new book Flash Boys was released on Monday.
What’s the thumb nail version of the story? Clever traders were manipulating the market by gaining a speed advantage over everyone else—including unsuspecting industry veterans. In the industry it’s called ‘front running’. The advantage (pennies per trade) times gazillions of trades resulted in some serious money—measured in the billions. The impact to the average investor was small but still ‘didn’t feel right’ to Brad Katsuyama the hero of the story.
Brad, a former employee of the Royal Bank of Canada, ran the New York trading desk for RBC in Manhattan when he discovered the problem. Long story short, he eventually started his own exchange to counteract ‘front running’. Big players in the financial services world are taking notice—with some having invested in the new exchange.
Katsuyama notes, “We’re selling trust. We’re selling transparency. To think that trust is actually a differentiator in a service business is kind of a crazy thought, right?’ Arguably a number guy, Katsuyama learned first-hand how the absence of trust is like a cancer to an industry that depends on it.
When asked why he left his cushy (and very lucrative) job at RBC to start a risky new exchange, Katsuyama noted, ‘it felt like a sense of obligation” to fix a troubling problem that was negatively impacting millions of unsuspecting people.
Katsuyama is all about doing his part in restoring trust to the financial markets. I’m really grateful he did. To many he’s a hero. To me, he’s the consummate professional. —the ultimate compliment in my book.