Michael Lewis: Wall Street Is Cheating The System With Computers

Michael Lewis claims Wall Street has the system rigged and is ripping off investors with the way the computerized trading systems are designed.

In a related report by The Inquisitr, ironically enough the movie The Wolf On Wall Street inspired people to look into becoming stockbrokers based upon the extravagant lifestyle the characters were able to live. The website Indeed.com saw a 79.6 percent increase in stockbroker job searches in the United States. In the United Kingdom, that figure was around 44 percent.

Ever since stock trading went completely digital it’s allowed high end investors to make trades at lightning speeds, literally exchanging billions of dollars in seconds if need be. Fast high volume trades that occur in less than a second now account for about half of all the volume of all the stock trading on Wall Street. Computers have also changed the game because complicated software models can attempt to predict short term and long term actions by stock traders, which can make winners and losers in less than a second.

Now author Michael Lewis is claiming Wall Street rigged the whole system with the newer methods:

“The United States stock market, the most iconic market in global capitalism, is rigged. It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing.”

The trick is to be the fastest, with supercomputers parked right next to Wall Street being the optimal goal. The idea is that computers can analyze the current data stream on what trades investors are making, predict which direction stocks are likely to go, and then make fast trades before humans could ever react. Lewis says that companies take this concept so seriously that one company spent $300 million just to increase their reaction time by three milliseconds. To give you an idea, the average human reaction time is usually somewhere between 150 to 300 milliseconds.

Unfortunately, this gives the richest of the Wall Street big wigs an unfair advantage over the average joe trying to save up money for retirement. Lewis also claims the prices are artificially driven up by these practices:

“The insiders are able to move faster than you. They’re able to see your order and play it against other orders in ways that you don’t understand. They’re able to front run your order…. There’s speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it”s enough for them to identify what you’re gonna do and do it before you do it at your expense…. So it drives the price up, and in turn you pay a higher price.”

While regular insider trading is illegal, Joe Saluzzi, co-head of equity trading at Themis Trading LLC, says Federal regulators are aware of this unfair loophole but have hesitated to do anything about changing the laws and regulations. But he believes Michael Lewis may change all this:

“We believe Lewis’s book can have a big impact on complex market-structure issues that have been simmering for years. Hopefully this type of publicity will finally force regulators to take action on issues that they’ve been sitting on for way too long.”

What do you think about the allegations of Michael Lewis claiming Wall Street is cheating the system?