Monday 26 September 2016

Books: Making millions in less than the blink of an eye

Flash Boys: Cracking the Money Code, Michael Lewis, Penguin €14.90

Published 13/04/2015 | 02:30

Wolves of Wall St: Michael Lewis's book lifts the lid on an extraordinary money-making system
Wolves of Wall St: Michael Lewis's book lifts the lid on an extraordinary money-making system
Flash Boys cover

Of all the things that sets genius apart, it is the ability to operate to extraordinary levels of excellence in a space or time barely visible to the rest of us which we perhaps find most bewildering.

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When Lionel Messi is at his most fluid, with the ball at his feet, ghosting past players, it's as if he is moving in a series of freeze frames while all around him is chaos. In the blink of an eye, Messi can create a moment which will live long in the memory.

A lot can happen in the blink of an eye; a lot can happen in an awful lot less than the blink of an eye. Billions of atomic collisions occur every microsecond; a microsecond is one millionth of a second. The average blink of an eye takes between 300 and 400 milliseconds; a millisecond is one-thousandth of a second. And, as it turns out, a millisecond is all the time you need to make millions of dollars on Wall Street.

There were two types of people on Wall Street, those who knew the value of a millisecond, and those who thought they knew. Brad Katsuyama, the central figure in Michael Lewis' non-fictional Flash Boys, which has now been published here by Penguin, thought he knew.

The book opens with the arrest of Sergey Aleynikov in 2009 for supposedly stealing computer code from his former employer Goldman Sachs. Aleynikov was a brilliant programmer whose codes open up trading to a scarcely imaginable world of money-making opportunities.

We then meet Dan Spivey, who figured out that if he could link a data centre in Chicago to a stock exchange in New Jersey with a new fibre optic cable he could reduce the time it took for a round trip of information from anywhere between 14.6 and 17 milliseconds to closer to 12. This line, all 827 miles of it, would cost €300m to construct and was kept secret until months before it was completed. When its existence was finally made public, the scramble for access to it generated billions of dollars for Spivey's company, Spread Networks. Genius operating in its own time and space.

At this point, Lewis - a man whose easy prose allows us access to the usually forbidding world of high finance - introduces us to Katsuyama a trader with the Royal Bank of Canada.

His genius was not so much that he was the first person on Wall Street to figure out something was wrong with his world (he wasn't), his genius wasn't even that he went further than anyone before him in uncovering exactly what was wrong, no, his genius was that he then assembled around him a team to revolutionise Wall Street.

First things first, what Katsuyama uncovered was that when he tried to make substantial trades, the cost of the deal to him (and therefore his client) would instantly go up. His investigation finally brought him deep into the world of high frequency trading and a system that allowed these traders to jump ahead of a bid, buy the stock first and then sell it to the bidder immediately at a slightly higher price. And all of this was happening in less than the time it takes to blink an eye. "People are getting screwed because they can't imagine a microsecond," Katsuyama tells Lewis.

Flash Boys is a thriller of sorts, with an ensemble cast led by Katsuyama, an understated Canadian who bothers Wall Street simply because he turned his back on the millions of dollars he would undoubtedly have made by not asking any questions. He surrounds himself with some very smart people - including one of the book's most memorable and colourful characters, Dubliner Ronan Ryan, and together they go on a remarkable voyage, convincing investors who control billions of dollars they are losing millions.

Why, you might imagine, should they care? Well, one of the reasons is that the investors control funds linked to the pensions and savings of ordinary citizens. It was they, ultimately, who were paying the price.

One investor, writes Lewis, "took a long look at this unlikely pair - a Candian Asian guy from this bank no one cared about, and this Irish guy who was doing a fair impression of a Dublin handyman - who had just told him the most incredible true story he had ever heard, and said, 'Your biggest competitive advantage is that you don't want to fuck me'."

Lewis has a gift for storytelling. He took the world of baseball statistics, in Moneyball, and made it compelling reading. He has done the same with Wall Street.

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