Michael Lewis: Programmers Have Replaced Traders

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April 3 (Bloomberg) -- “Flash Boys” Author Michael Lewis and IEX President and CEO Brad Katsuyama discuss information tech on Wall Street on Bloomberg Television’s “Bloomberg Surveillance.” (Source: Bloomberg)

We also have with us brad katsuyama, who figures prominently in "flash boys." i want to start with the collusion of tech and wall street.

You give us the inside look at the i.t. guys, the computer programmers, offering from russia, who have become the market.

Explain to us how russian computer programmers became everything.

This is what got me interested in the story in the first place, the arrest of the goldman high-frequency trading -- the broad picture is wall street has become increasingly about technology.

The technologists are displacing traders.

The people who program the computer, their status has gone through the roof.

What is interesting -- i would love to hear brad's thoughts on this -- it appears the big banks have a hard time getting their mind around the technologists, the i.t. guys being the same stature as the traders.

There is a kind of collision and they do not speak the same language.

They do not interact well.

Part of the reason i think high-frequency trading is happening outside the banks is that the shops that elevate the technology are going to do the best.

It is about slicker technology.

A way the industry has evolved is a direct result of the capacity of the banks to appreciate the technologists.

Brad, when you look at the solution, you check with the i.t. guys.

They were able to figure it out.

I think there is a big divide.

Acknowledge us want to understand how the business works, but the business might not always be incentivized to let them know.

A guy by the name of rob park, who is kind of a right-hand man in technology, became my interpreter into that world, and i became his interpreter into the business world.

Technologists want purpose.

If you put them in a box and say make this box faster, it is hard to serve that purpose.

It creates a much greater -- one of the interesting things in telling the story was how often people walked into brad's life, who came in with some piece of useful information on how the system worked, who had detailed, specialized knowledge about one piece of the system and no sense of their context in the larger system.

It was like a headless beast in some ways.

I want to go back to your work -- you are in our history major, london school of economics.

You have expressed incredulity about that fact before.

Stephen roach, formerly with morgan stanley, now with yale university.

This is pure journalistic -- the idea that the market is rigged makes it sound like some computer is in a backroom conniving to squeeze this guy or that guy.

The distorted system is because the elites are rigged.

You are one of the elites.

How do you get your world, wall street, back in trust with main street?

The heart of the story is how do you restore trust in the financial system that nobody trusts anymore.

What brad katsuyama is doing his part of the answer.

When someone walks in and behaves in a trustworthy faction -- in a trustworthy fashion and exposes wrongdoing in the market, all of a sudden people start to trust him.

This is the idea of the little guy can trade wherever and get a fair trade, but indirectly the little guy is getting taken in his pension fund.

Do you agree with mr.

Lewis on that?

I think there are opportunities for them to get taken both ways.

Even in the little trade?


A little trays are being sold off to high-frequency trading firms.

The reason the high-frequency trading firms by the flow -- the reason the high-frequency trading firms buy the flow -- i think it is a complicated topic to get into.

There is a smoke machine going off everywhere.

What we are trying to do and what michael has done is he has increased the broader level of education.

As you mentioned before, what points do clifford and arthur score when they say your world needs fixing?

What needs fixing is there are bills-in, unnecessary structural inefficiencies in the market that should not exist.

What we are trying to do is highlight the inefficiencies and fix them at iex.

When the house has termites, you do not burn down the house and sleep on the streets, you get rid of the termites.

The system becomes unstable when you are constantly introducing things that have nothing to do with the investment process or trading.

Name while, there is an arbitrage that is happening.

According to larry todd, spreads are 1/7 of what they were three years ago.

You disagree with that?

In three years, spreads have dropped by -- 85%, is what he says.

This text has been automatically generated. It may not be 100% accurate.


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