Argument

High frequency trading created a race for data amongst small trading shops and established Wall Street banks. All of the firms wanted to place their computers as close to the exchange computer as they possibly could to receive information faster than their competitors. Spread Networks, a fiber-optic company, saw this opportunity and invested in a line that would connect Chicago firms to the exchanges in New Jersey that could save them about four milliseconds of time. Spread Networks aimed to have its line to be used by several firms on Wall Street because it could market quicker data times than its competitors.

Lewis investigates high frequency trading in his book with stories from big banks RBC and Goldman Sachs. He found that these banks were struggling to make transactions at the price they wanted. One trader was unable to explain how this was happening and that investors were getting robbed of money because of this computer glitch. He found that small high-frequency trading firms were “front-running,” they had access to market information faster than larger banks and would buy at a lower price and then sell the shares to an investor. The HFT firms were making profits off of investors who were making trades.

Traders from RBC realized this and set off to create an exchange that eliminated the advantages of HFT firms. They created the Investors Exchange and launched on October 25, 2013 (Lewis, 2014, p. 206). The goal of this new exchange was to have speed disadvantages disappear and have traders purchase and sell securities at the best prices for investors. They found that investors were losing billions every year because of HFT and wanted to create an exchange that gave them a fair transaction and price. The exchange is slowly being implemented into Wall Street firms, but it will take a while to gain a large market share.

These entities demonstrate that Wall Street has now become a competition of speed and whichever firm can get information the quickest, reaps in the profits. Some firms utilize their speed to profit from investors, others wanted to combat the unfairness of the market by creating an exchange that has delayed information distribution. Regardless of how businesses wanted to use speed, they all knew the importance of speed and had to incorporate it into their businesses and they must figure out how to simplify the ever increasingly complex market.