Lewis may be a solid guy -- I don't know him, so I can't say.

I can say with a great deal of certainty that he hasn't read, or doesn't understand, any of the contemporary literature on market quality. If he did, he'd know that the efficient realization of market impact (you buy and the price goes up) is a property of effective markets. In the absence of actors to ensure this process of price discovery, all traders will pay unfair prices as small changes in supply and demand remain undigested.

I would also suggest that "young people at the best schools want to go skimming in the market" is reductio ad absurdum at best and ad hominem at worst, which sours my opinion of his ability to make a cogent argument without resorting to the Wall-Street-bogeyman trope. Then again, I suppose that's his job as a writer -- a story about the meek Canadian David battling the establishment equities market Goliath makes for a better read than a nuanced look at the role of various players in a complex ecosystem.

(Throwaway because my views are not necessarily those of my employer.)

If an exchange was front-running customer orders, that would be unethical and illegal. So why is it suddenly OK for exchanges to enable front-running by third parties and profit on their actions by charging insane amounts for colocation and data services?

And - please do answer this - if what we care about is market efficiency and liquidity and there are no problems with front-running in principle, what is gained through the current division of labour except legal obfuscation? Shouldn't it be more efficient to let exchanges screw over their customers directly?

I'm not sure I understand your argument. Arbitrageurs help with price-discovery and are useful agents, though much maligned. HFT, as Lewis describes it, is not arbitrage, it's front-running. This doesn't add to market quality, it's just information theft.

HFTs are making price impact happen faster than big players can stop it. That's improving efficiency. That's exactly what Lewis is complaining about.

It's not front running since the HFT is not your agent.

http://www.chrisstucchio.com/blog/2014/fervent_defense_of_fr...

I'm not sure i follow the argument that introduction of information by a middleman is adding to market efficiency. Your note expressly suggests liquidity be be witheld...when trading with people who have information.

As a result, market makers try to focus on providing liquidity to people with consumption preference while avoiding (or charging higher prics to) the informed.

Only to usurp the information to benefit the market maker (or other intermediary party...fronting or not) at the expense of the person introducing information. Or, are you trying to say that person is actually 'witholding' information and by 'appropriating' it, you are then responsible for 'introducing' it?

Big players are hiding info about their trades and changes to the demand curve, at least until after their trade finishes. Predatory traders are revealing this info.

>I love how there's endless attempts to portray him as a sinister, self-interested actor.

I've found most people I talk to do not think he's sinister at all. I (and may others) think he's one of the best non-fiction writers of our time. But for this particular book, he seemed in over his head, which made him susceptible to believing misinformation or at least misinterpreting the significance of some information he came across. I still think he's great, and I'm sure I will devour his future books with as pleasure as I did with Liar's Poker and Moneyball.

Maybe he's not a sinister person, but he tells narratives in which his side is unambiguously good. What happened in this book was lazy research and poor journalism. There have been plenty of factual critiques, which should set off flags around a book that purports to be an expose. But he spends more of the book moralizing and appealing to pathos than actually explaining how things are. As an immigrant, I thought it was cheap how often race was brought up in the book (examples: at some point one of the protagonists had a "this is how we do it in America" moment, whereas several HFT programmers were noted to be Russian, and as I recall Lewis saying, Russia helped them because in addition to forcing them to write clever, efficient code, they had learned to take advantage of the corrupt system. I mean, come on. The one guy from the SEC who spoke up? An indian quant. I don't know how Michael Lewis surmised that he was a quant, rather than just someone else working for the SEC. But there you have it).

Used to not bother much about HFT's but after someone referred to it as "legalised scalping", there is no doubt on its effect.