Tie down a hungry dog and start jabbing it with a stick and you get a sense of what went down on CNBC yesterday afternoon when Bats Exchange President Bill O’Brien faced off with Brad Katsuyama and Michael Lewis over high-frequency trading. O’Brien, apparently operating on the notion that the best defense is a good offense, verbally lunged at Katsuyama at the first moment, accusing the chief executive officer of IEX Group of “trying to build a business on the planks of fear, mistrust and accusation,” telling both of them they should be ashamed, as if they were in a conspiracy of some kind -- and then it got uglier. He hectored, he badgered, he sulked, interrupted and ridiculed. There were insinuations that Lewis had money in IEX, which Lewis denied. (For the record, Lewis is an occasional columnist for Bloomberg, although no one’s really sure what he looks like.) If electronic exchanges aren’t doing all they should to ensure market-making is fair for everyone, as asserted by Lewis and Katsuyama -- whose IEX was designed to blunt the price advantages inherent in HFT -- O’Brien’s vitriol overshadowed his message, which, to us, was that electronic trading isn’t bad per se, that stock markets can still be trusted, and that more fairness within them is possible. Maybe this has something to do with why Goldman is finally leaving the floor of the NYSE.
For a moment they sounded like two guys at a Flyers game. “If you want to do this, let’s do this,” said Katsuyama, sometimes eliciting cheers from traders on an NYSE floor that came to a halt as O’Brien went full-metal jacket. So, what just happened? This won’t be the end of it, of course. Virtu Financial’s IPO is an early victim of the collateral damage in the HFT fight, Lewis will be on Bloomberg Television today, and his book tour is just getting under way. Will the outside world, the retail investors, latch onto this moment in the future of market structure, “an accidental conspiracy” and “a problem that is at the heart of capitalism,” as Lewis said on CNBC? Because this fight is headed for Washington where, it is to be hoped, the lawmakers are more aware of the issue than was Ron Wyden, the Oregon Democrat and chairman of the Senate Finance Committee, during his appearance on CNBC moments after the guests had finished shredding one another. When all is said and done (probably years from now, if Dodd-Frank is anything to go by), whoever tells the best story wins.