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View Count: 97 |  Publish Date: April 07, 2014
PhillyDeals: Area connections in book on stock-market manipulation
Joseph N. DiStefano Posted: Monday, April 7, 2014, 1:08 AM
Is the stock market rigged by high-frequency traders using high-powered software to ping-pong share prices and squeeze instant profits before other investors know what hit them?
Writer Michael Lewis book Flash Boys, which makes that claim while depicting HFTs and their critics in entertaining detail, is flying off warehouse shelves. A couple of Philadelphians play key roles in the book. They dont sound panicked.
You can read about Rich Gates, cofounder of the $2 billion money management firm TFS Capital, of West Chester, in Flash Boys, on pages 114-118. (I wrote about Gates and his partners preemptive fight against a Federal Energy Regulatory Commission investigation in this space last month.)
Lewis calls Gates a keenly analytical math geek who, in 2008-09 when prices were collapsing, was startled by pitches to buy killer algorithms with gangster names: Citis Dagger, Deutsche Banks Slicer, Credit Suisses Guerrilla. More coverageHow high frequency trading impacts investorsAG: U.S. probing high-speed tradesIs high-frequency trading hurting global economy?High-Frequency Trading Benefits Every Investor
These programs were supposed to defend against trading threats that werent obvious to Gates. He ran tests, buying little-traded stocks in the dark pool markets organized by Goldman Sachs and other firms - and found that some third party was exploiting orders and slicing pennies off what should have been his profits.
Gates told the Securities and Exchange Commission and the Wall Street Journal. In Lewis telling, the story died. He leaves Gates and spends much of the rest of the book depicting the birth of IEX, a market that offers an ingenious price-protection mechanism to investors who dont want to be gang-traded.
And now? Im not going to say the market is rigged, Gates said. Michael Lewis book is a big marketing pitch for IEX, and Gates likes IEX. But the SEC has stamped out a lot of the abuse Lewis writes about. There are still practices that are not ideal. But the SEC is on it.
The other local isnt identified by Lewis, but his shadow falls across the book. His name is Daniel Hawke, and Ive written about him, too. He heads SECs Market Abuse Unit from his Philly office.
I asked Hawke about Flash Boys. He suggested I review the record: The SEC has not chased down all potentially rogue high-speed traders. Its not equipped to. It has leaned on the markets and brokerages that traders use. Since 2010, it fined the New York Stock Exchange $5 million for selling special extra-fast pricing data to favorite customers, Nasdaq $10 million for blowing the Facebook IPO because its trading technology was weak. It busted the main Chicago options exchange and two private exchanges for failing to police members.
Also, consider that the high-speed traders arent just trading their own money. Their clients include pension funds, mutual funds, brokerages. America is on both sides of these high-speed trades.
JoeD@phillynews.com
(215)854-5194
@PhillyJoeD
www.inquirer.com/phillydeals
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 book   Gates   icon   important   Lewis   market   SEC   speed   traders   trading   Michael Lewis book   Flash Boys 
Time: 13:50  |  News Code: 396964  |  Site: philly.com
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