Monday, March 31, 2014

Undergraduate Upsets Wall Street

A college student is the most fascinating character in Michael Lewis’ new book claiming the US stock market is “rigged” by computers trading in nanoseconds.

On “Sixty Seconds” (an old-media eternity) this weekend, the author of “Flash Boys” explains how it works: “The complexity disguises what is happening. If it's so complicated you can't understand it, then you can't question it.”

In countering this “dark market” that serves brokers rather than customers, opponents found a key ally in the resume of a Stanford junior named Dan Aisen, “Winner of Microsoft’s College Puzzle Challenge,” an annual contest in 2007.

“There’s some element of mechanical work and some element of ‘Aha!’ ” says Aisen, who got a job and a nickname, the Puzzle Master, soon shortened to Puz, who helped dissidents create their own stock exchange powered by a system called Thor.

It takes patience and concentration to read through Lewis’ narrative and its compelling conclusion that, when it comes to protecting customer interests and their own, the most trusted names on Wall Street don’t hesitate.

Yet embedded in its tortuous tale of cables twisting through a crucial few miles in suburban New Jersey is more than another story about how in our society, speed can not only kill but steal big.

“Taking advantage of loopholes in some well-meaning regulation introduced in the mid-2000s,” Lewis concludes, “some large amount of what Wall Street had been doing with technology was simply so someone inside the financial markets would know something that the outside world did not. The same system that once gave us subprime-mortgage collateralized debt obligations no investor could possibly truly understand now gave us stock-market trades involving fractions of a penny that occurred at unsafe speeds using order types that no investor could possibly truly understand.”

His book is unlikely to bring down Wall Street’s rich and powerful, but it’s comforting to know that the brain power of a college undergraduate is giving them some anxious moments.

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