The truth of the matter, however, is that the list of activities described by Lewis have been for a long time the elephant in the room of the world financial system. Maybe few people has ever heard of them, but High Frequency Trading (HFT) is used in around 70 percent of stock transactions in the United States and in 30 percent in the European Union.
Dark pools and other alternative markets have been eroding the power of the big exchanges to the extent that, today, the venerable NYSE and Nasdaq accumulate less on the 50 percent of stock transactions (these percentages are relative to the number of shares; in terms of capital, the market share of HFT and dark pools is smaller, since the transactions they do are of an order of magnitude smaller than the traditional operations in traditional markets).
Lewis says that the US stock market is rigged by a few big firms that have the infrastructure (read: capital) to trade faster than, not only their competitors, but also their clients.
Trading at the speed of light (literally) using communications systems that are the stuff of NASA (or better than NASA’s) in markets that do not ask questions about who is buying and selling (or even how much is buying or selling) is not bad in itself although, certainly, it is dangerous. But it becomes a serious problem when it is performed by proprietary desks agains the banks’ clients.
It also opens the door to rattle one market at expense of, again, the competitors and the financial institution’s clients.
Again, this is no surprise. Nine months ago, US and British regulators fined HFT firm Panther Energy for flooding the oil market with ‘buy’ orders that cancelled immediately, thereby creating a false impression of liquidity.
If anything, Lewis’ account could be considered too meek–or not too well informed. He only mentions once in his books the words ‘Exchanged Traded Funds’ (ETF), a new area for the HFT and Dark Pools. The elephant in the room keeps on growing.