Monday, March 31, 2014

Entrepreneurs Beat Regulators

Michael Lewis has written a book entitled Flash Boys which exposes the shady world of "Dark Pools" which capitalize on inefficiencies in market trading down to the level of milliseconds -- where a stock can experience about 500 quote changes and about 150 trades in the time it takes a single pixel on a high-end TV to change color, or one beat of a tsetse fly's wings. Large stock trading institutions could be ripping off smaller traders to the tune of $160 million a day,  Lewis says in an adaptation of his book in the New York Times Magazine.

If you think government regulators can compete with high-speed Wall St. sharks, fuggitaboutit. International Business Times reports,
the regulators don’t seem prepared to handle or to even understand the nature of the risk – “it’s over their heads,” says one former bank executive. “They have no idea what is really happening.”
Once a bureaucrat gets sharp enough to figure out what's going on, the regulator knows there's more money to be made in the market than in civil service.

Lewis tells the amazing story of how a geeky entrepreneur with an ethical sense of fairness (Brad Katsuyama) figures out how the big boys are trading, and actually creates his own stock exchange, which now competes with the majors, saving smaller traders billions of dollars. 

The Free Market regulates itself better than the government does.

Don't ask me for stock tips. I'm willing to admit I don't know what I'm talking about. The problem is, government regulators and politicians are not.