Exclusive - Michael Lewis Extended Interview Pt. 2

  • Aired:  04/01/14
  •  | Views: 48,367

Author Michael Lewis describes the intricate ecosystem built around high-frequency trading and examines how questioning the nature of the stock market is a radical act. (5:25)

>> Jon: WELCOME BACK.

WE'RE HERE WITH MICHAEL LEWIS.

WE'RE TALKING ABOUT THIS GROUPOF EXBANGER AND HEDGE FUND GUYS

AND WALL STREET GUYS THAT FORMEDTHEIR OWN STOCK EXCHANGE BECAUSE

THESE HIGH FREQUENCY TRADERSWERE RIGGING THE MARKET.

WHAT IS THE BANK'S ROLE IN THISHIGH FREQUENCY TRADING SCAM?

>> YOU BACK AWAY FROM IT, THEWHOLE THING AND IT LOOKS

LIKE THERE'S AN ECOSYSTEMTHAT'S BUILT ITSELF

AROUND HIGH FREQUENCY TRADERSSKIMMING PROFITS. SCALPING

PEOPLE IN THE MARKET. THEYPAY THE EXCHANGES FOR

SPECIAL ACCESS, SPECIALINFORMATION THAT ORDINARY

INVESTORS DON'T HAVE. THEY PAYTHE BROKERS, THE PEOPLE WHO

HANDLE STOCK MARKET ORDERSFOR YOUR ORDER.

WHEN YOU PLACE AN ORDER YOU PAYA COMMISSION TO TRADE THE STOCK.

BUT THE INFORMATION ABOUT WHATYOU WANT TO DO GETS SOLD TO A

HIGH FREQUENCY TRADER AND THERIGHT TO TRADE AGAINST YOU GETS

SOLD. IT'S CALLED PAYMENT FORORDER FLOW.

THAT IN ITSELF.

WHY WOULD SOMEONE PAY TO EXECUTEYOUR STOCK MARKET ORDER?

YOU WOULD THINK SOMEONE WOULDASK THAT QUESTION.

>> Jon: THEY DO BECAUSE THISTRADER GETS A VOLUME.

THEY MAKE MONEY ON VOLUME.

>> THE HIGH FREQUENCY TRADERGETS A CHANCE TO TRADE AGAINST

YOU AT THE OLD PRICE.

>> Jon: AND YOU DON'T KNOWHE'S THERE.

AND YOU'VE NOT INVITED HIM IN.

>> YOU HAVE NOT INVITED HIM IN.

THERE'S DIFFERENT KIND OFSPREDATORY ACTIVITIES THAT THE

HIGH FREQUENCY TRADERS AREENGAGED IN.

BUT BASICALLY NONE OF THEM AREGOOD FOR US.

THEY ARE A TAX ON INVESTORS.

>> Jon: SO HERE NOW WE GET TOTHE SECOND PART OF THIS.

SO YOU WRITE THIS ANDIMMEDIATELY CNBC, FOX NEWS

THEY ALL JUMP UP TO DEFEND THISAS NO THIS HELPS US.

THIS IS ADDING LIQUIDITY.

THERE'S NOTHING WRONG WITH IT.

IT'S ACTUALLY GREAT.

EVEN THOUGH TO MY MIND ITCOMPLETELY DETERIORATES ANY

FAITH YOU WOULD HAVE IN THEFAITH IN THE SYSTEM.

IT'S NOT AMERICAN AND NOT EVENCAPITALISM.

IT'S CHEATING.

>> THEY'RE ATTACKING HIM TOO.AND IT'S AMAZING BECAUSE ALL HE

REALLY WENT TO DO WAS FIGURE OUTHOW THE STOCK MARKET WORKED.

IT WAS A BREATHTAKINGLYCOMPLICATED QUESTION.

IT BECAME COMPLICATED SO THATYOU WOULDN'T UNDERSTAND.

ALL HE'S TRYING TO DO IS RECTIFYTHAT PROBLEM.

>> Jon: HE DECONSTRUCTED

>> AND THE MERE FACT OF DOING ITWAS A RADICAL ACT.

THE REASON PEOPLE ARE SO UPSETIS IF YOU BACK AWAY FROM IT SO

HIGH FREQUENCY TRADERS AREESSENTIALLY MAKING MONEY FOR THE

WHOLE WALL STREET SYSTEM.

THEY ARE PAYING EXCHANGES,THEY'RE PAYING BANKS.

SO ANYBODY WHOSE LIVELIHOOD ISDEPENDENT ON WALL STREET PROFITS

WHICH PARTLY INCLUDES THE S.E.C.SINCE PEOPLE QUIT THE S.E.C.

TO GO WORK FOR WALL STREET ISSORT OF INVESTED IN THIS.

I THINK A LOT OF THIS -- ITSOUNDS LIKE A CONSPIRACY BUT

WHEN YOU LOOK AT HOW IT LAYSOUT.

THERE'S A CONSPIRACY EXISTS TOKEEP -- BUYERS OF STOCK AWAY

FROM SELLERS OF STOCK SO THESEPEOPLE CAN INSERT THEMSELVES

ARTIFICIALLY IN BETWEEN.

IT WAS LARGELY ACCIDENTAL BUTTHEN THE MONEY STARTED GETTING

MADE.

THE CONSPIRACY IS PREVENTING THECHANGE.

>> Jon: THEY FUNCTION ONVOLUME AND VOLATILITY.

WHAT I DON'T UNDERSTAND.SO IEX COMES IN AND

THEY ESTABLISH A PARAMETERFOR TRADING SPEED. THEY

GIVE YOU A SET YOU CANNOT JUMPTHIS AMOUNT OF TIME.

>> THEY BECOME FASTER THAN ALLTHE PEOPLE ON THE EXCHANGE.

THEY SLOW ITS DOWN THEHIGH FREQUENCY TRADERS.

>> Jon: CORRECT.

YOU CAN'T BUY LESS THAN A SHARE,RIGHT? THEY'VE SET A STANDARD ON

THAT. YOU CAN'T BUY 100th OF ASHARE.

SO IF THERE'S A STANDARD FORSHARE BUYING.

WHY ISN'T THERE A STANDARD FORFREQUENCY OF TRADING THAT IS

JUST THE STANDARD SO EVERYBODYIS ON THE SAME FIELD?

>> THAT WOULD BE IN A SANEWORLD, RIGHT?

THAT'S WHAT WOULDYOU DO. YOU WOULD SAY

THAT NOBODY IS GOING TOGET THE INFORMATION ABOUT PRICES

FASTER, BE ABLE TO TRADE FASTERTHAN ANYBODY ELSE.

>> Jon: YOU WOULD SET A HIGHSPEED.

YOU WOULDN'T MAKE IT LIKE YOUHAVE A HALF HOUR.

YOU MAKE IT FAST.

>> THEY MAKE IT REALLY FAST.

IT'S IMPERCEPTIBLE. THESPEEDS WE'RE TALKING ABOUT ARE

IMPERCEPTIBLE TO HUMANS BEINGS.IT ALL SEEMS INSTANTANEOUS. SO

THAT'S WHAT YOU WOULD DO, IN ASANE WORLD THAT'S HOW IT

WOULD BE STRUCTURED. WE DON'TLIVE IN THAT WORLD. WE LIVE IN

A DIFFERENT WORLD. WHAT IS COOLABOUT THIS AND WHAT MAKES IT SO

NEAT THEY HAVE CREATED THE PLACEWHERE IT'S FAIR.

IT'S THE ONE STOCK EXCHANGETHAT'S NOT RUN BY

INTERMEDIARIES, NOT RUN BY WALLSTREET PEOPLE.

IT'S FOR INVESTORS, SO AND THEYFIGURED IT OUT.

>> Jon: THERE'S NO NEED FORTHESE MIDDLE MEN.

THEY ARE UNNECESSARY TO THESYSTEM THEY DON'T PROVIDE THE

LIQUIDITY.

THE LIQUIDITY IS PROVIDED BY THEINVESTORS.

>> THIS IS ABSOLUTELY TRUE.

SO NOW WE HAVE A CHOICE.

FOR THE FIRST TIME IN THISMODERN STOCK MARKET

WE HAVE A CHOICE.

WHY ISN'T MY ORDER GOING TO THISEXCHANGE WHERE I WON'T GET

SCALPED? AND THAT'S GOING TOFORCE INVESTORS --

>> ARE YOU ALLOWED TO GET THATINFORMATION NOW? IS THAT

INFORMATION AVAILABLE TOTHE INVESTOR? ARE THEY ALLOWED

TO SAY TELL ME WHO MY ORDER WENTTO.

>> THEY ARE BEING TOLD NO BUTYES.

IEX ACTUALLY SET UP A WEB SITECALLED I AM AN INVESTOR.ORG

WHERE YOU CAN LEARN YOURRIGHTS AS AN INVESTOR. YOU CAN

DEMAND THAT YOUR ORDER BEHANDLED IN A CERTAIN WAY.

>> Jon: I'M GOING TO GO ONTHAT SITE.

IS THERE ALSO PORN? I LIKE ALITTLE SOMETHING EXTRA WHEN

I GO ON A SITE. CAN I WIN ANXBOX IF I CLICK ON SOMETHING.

WE'RE GOING TO COMEBACK. YOU'RE STAYING WITH ME

AND WE'RE GOING TO GO TO THEWEB BECAUSE I DO WANT

TO ASK THESE FINANCIAL NEWSNETWORKS THAT ARE COMPLICIT IN

THIS IS DRIVING MEINSANE. FLASH BOYS IS ON THE

BOOKSHELVES NOW. IT'SABOUT AN INCREDIBLYINTRICATE AND INTERESTING

TOPIC BUT IT'S SO WELL WRITTEN,BEAUTIFUL NARRATIVE.

MICHAEL LEWIS.

YOU GOTTA GET THIS. TREMENDOUS.

THANK YOU.

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