For anyone interested in code, networking, and finance, Flash Boys is a real page turner. For me personally, with interests in all three, it sent chills up my spine. I could not put it down!!!
Flash Boys is a fascinating, informative, and thoroughly done edge of your seat ride through the modern world of technology driven high frequency trading. I really enjoy Michael Lewis’ works and this is the best so far. This being his latest work, published March 2014.
The Back Story:
Since the mid 1980’s trading has been increasingly handled by computers instead of people. Starting around 2007 there was a huge disruption in the way stocks are traded on exchanges. It was precipitated by new SEC rules and advances in fiber optic networking. This lead to a surge in trading volume, all of it automated by computer. Clever ‘high frequency’ traders figured out how to exploit the slower players (everyone else) based on network latency and order manipulation. In a fine example of capitalism’s creative destruction, the high frequency trading firms were able to exploit a weakness in the market and shave billions in profit. It is unfortunate for investors that the new players in the market did not correct the inefficiency, but instead used it for exploitation and in some senses made the problem even worse.
I don’t want to give away any of the story because it was such an enjoyable read. You won’t be disappointed by the way tech talk is presented. Some of the heroes in this true story are developers and systems administrators. Go nerds!
Lessons for all Software Professionals:
One issue the book brings to light is the economic consequences of ignoring software quality and long term vision when it comes to system maintenance. Many of the trading platforms and exchanges out there were not written to cope with the complexity and speed of today’s world. This may not come as a surprise, but non-technical wall street managers are driven by short term personal gain in the form of fat bonuses. As such they end up with core systems that are done completely piecemeal, each feature bolted onto the next. Sound familiar?
The piecemeal approach to building software is commonly found in any non-technology company that uses technology. All companies in today’s world are forced to use technology to stay competitive, but few are good at managing that technology for the long term. On wall street it has become a systemic problem and is to blame for what are becoming consistent ‘system glitches’ that send markets spiraling for ‘inexplicable reasons’. The Knight Capital ‘glitch’ that lost $440 million is a great example. NASDAQ and other exchanges routinely have serious flaws that are now looked at as the cost of doing business. It is SCARY to think how much money flows through these systems each day. The planet’s economic security depends on these systems. Technology is easy to blame (especially for managers who don’t understand it). What is actually to blame is the way in which the technology is being managed. The book goes into this issue in detail from multiple view points and I was refreshed to see it brought up.
Hope you enjoy reading Flash Boys!