April 1, 2014 - Michael Lewis

  • 04/01/2014

CNN desperately struggles to fill its news cycle with Flight 370 developments, and Michael Lewis discusses the rigged Wall Street system detailed in his book "Flash Boys."

>> Jon: WELCOME TO "THE DAILYSHOW

MY NAME IS JON STEWART.

WE'VE GOT A GOOD ONE FOR YOUTONIGHT.

MICHAEL LEWIS IS GONNA BEJOINING US WRITTEN A BOOK ABOUT

HIGH FREQUENCY TRADINGING ONWALL STREET AND JUST HOW

MISUNDERSTOOD AND INCREDIBLYFAIR IT REALLY IS AND HOW IT AND

IT ALONE IS WORKING TO MAKE THISWORLD A BETTER PLACE FOR YOU AND

ME.

[ LAUGHTER ](bleep).

BUT FIRST IT'S BEEN THREE WEEKSSINCE THE DISAPPEARANCE OF

MALAYSIAN FLIGHT 370.

THREE WEEKS FILLED WITH DISPAIRAND ANGER FOR THE FAMILIES.

CONFUSION AND FRUSTRATION FORTHE INVESTIGATORS AND RATINGS

FOR CNN.

YES, IN THESE THREE WEEKS CNNHAS BEEN MUCH LIKE OUR NATIVE

ANCESTORS USING EVERYPART OF THE TRAGEDY.

[LAUGHTER]WITH NON-STOP BREAKING NEWS

REENACTMENT, EXPERT PANELGRAPHIC SIMULATION, WITH

JUST A SOUCIANT OF POPCULTURE RELEVANCE.

>> THERE'S ONE THEORY OUTTHERE WITH A CHILLING SO-CALLED

ZOMBIE PLANE THEORY.

>> Jon: BECAUSE ZOMBIES AREHOT, YO!

OR MAYBE THE PLANE WAS COOKINGMETH IN A NEW MEXICO TRAILER.

[LAUGHTER]BUT THE REAL QUESTION IS HOW DID

THE PLANE MEET YOUR MOTHER?

[LAUGHTER]THE POINT IS WHILE OTHER NEWS

NETWORKS HAVE BEEN SOMEWHATWILLING TO MOVE ON TO OTHER NEWS

CNN HAS STEADFASTLY REMAINED ONTHE RAMPART OCCASIONALLY

POINTING AT (bleep) ANDWONDERING WHAT IT IS.

>> COULD THEY BE CLOSE TOFINALLY FIND A SCRAP, A SCRAP OF

DEBRIS.

>> THIS LOOKS LIKE THE DEBRISFIELD FROM AN AIRPLANE CRASH.

IT MAY NOT BE BUT IT HAS THESIGNATURE LOOK OF IT.

>> PERHAPS IT REALLY WASN'T THEDEBRIS WE THOUGHT IT WAS.

>> BREAKING NEWS, A THAISATELLITE SPOTS 300 OBJECTS.

>> PIECES OF DEBRIS WHETHER THEYARE FROM THE PLANE OR NOT WE

SIMPLY DON'T KNOW.

>> THE OCEAN IS ALSO FILLED WITHA LOT OF TRASH.

SO IT'S HARD TO TELL ONE THINGFROM ANOTHER.

>> POSSIBLE DEBRIS SPOTTED.

THE SEARCH MOVES 700 MILESNORTHEAST.

>> COULD THAT BE A PIECE OF THEMISSING PLANE?

>> SOME OBJECTS FLOATING IN THEWATER.

NO WORD YET ON WHAT THOSE THINGSARE.

>> ANYTHING THAT'S BEENRETRIEVED AND LOOKED AT IN ONE

OF THESE SHIPS HAS TURNED OUTTO BE NOT CONNECTED TO 370.

>> ANOTHER DAY.

NO CONFIRMED PLANE DEBRIS.

[LAUGHTER]>> BASICALLY CNN HAS BECOME THIS

GUY.

[ LAUGHTER ]YEAH, I GOT SOMETHING.

I GOT BREAKING NEWS.

I GOT BREAKING NEWS.

HOLD ON I THINK I FOUNDBLACKBEARD'S TREASURE ALRIGHT

IT'S JUST A POP TOP.

SORRY.

AFTER THREE WEEKS OF NON-STOPCOVERAGE, WHAT HAVE WE LEARNED?

>> WE'RE GETTING A LESSON IN THETRASH, ALL OF THE TRASH AND ALL

OF THE OBJECTS FLOATING IN THEINDIAN OCEAN.

>> WHO KNEW THE OCEAN WAS SUCH ABIG MESS?

[LAUGHTER]>> Jon: YEAH, WHO KNEW THE

PLACE WHERE WE DUMP A TREMENDOUSAMOUNT OF OUR TRASH --

[LAUGHTER]-- IS FILLED WITH A TREMENDOUS

AMOUNT OF OUR TRASH?

[LAUGHTER]WHAT DO YOU THINK HAPPENS WHEN

YOU FLUSH THE TOILET?

[LAUGHTER]WHERE DOES IT GO?

POOP HEAVEN?

SO THE OCEANS ARE SOMEWHATPOLLUTED.

GIVE US ANOTHER SCOOP!

>> WEIGH IN ON HOW -- WHAT WEKNOW ABOUT WHAT HAPPENS WITH

GARBAGE AND HOW IT SETTLES.

>> TRADITIONAL FORMS OF MARINEDEBRIS LIKE BUOYANT PLASTICS

MOST COMMON OUT IN THE OCEAN ACERTAIN PERCENTAGE DO FLOAT.

HEAVIER MATERIALS DENSER THANSEA WATER WILL SINK.

[ LAUGHTER ]>> Jon: LET'S RECAP CNN'S LAST

WEEK OF MISSING MALAYSIANAIRLINER COVERAGE.

THERE'S A LOT OF NONMALAYSIANAIRLINER GARBAGE IN THE OCEAN.

THE HEAVIER OF WHICH SINKS.

[ LAUGHTER ]THE LIGHTER OF WHICH FLOATS --

[LAUGHTER]-- LET US GO NOW TO WOLF BLITZER

IN THE NEW DUH ROOM.

[ LAUGHTER ]YOU KNOW, WE TALKED A LOT

ABOUT --[CHEERS AND APPLAUSE]

(bleep) WE'VE TALKED A LOT ABOUTHOW HARD IT IS TO SPOT SMALL

DEBRIS FIELDS FLOATING ON TOPOF GIANT OCEANS. IS THERE ANY

WAY YOU COULD AT CNN DEMONSTRATETHE DIFFICULTY OF FINDING

THINGS THAT SUNK USING ONLYTRADITIONAL EYESIGHT METHODS?

>> FLY DOWN UNDERNEATH THEWATER HERE AND TALK ABOUT THE

DIFFERENCE IN CIRCUMSTANCES.BY THE TIME YOU GET TO THE

BOTTOM OF THE INDIAN OCEAN,ANYWHERE OUT HERE YOU'RE GOING

TO BE SO DEEP THERE'S REALLY NOLIGHT

WHATSOEVER, IT'S FLAT OUT DARKDOWN THERE IN THOSE ENVIRONMENTS

YOU CANNOT LOOK THE WAY DO YOUFROM A SHIP OR A PLANE.

[ LAUGHTER ]>> Jon: AND THAT, LADIES AND

GENTLEMEN S WHAT IT'S LIKE UNDERTHE SEA.

[ LAUGHTER ]BUT LET'S SAY YOU WANTED TO BE

UP WHERE THE PEOPLE ARE, UPWHERE THEY WALK, UP WHERE THEY

RUN ON WHAT DO YOU CALL THEM?

LEGS.

♪ UP WHERE THEY STAY PART OFTHEIR WORLD ♪

[LAUGHTER]FOR MORE ON THAT WE GO OUT TO

URSULA AT THE BOTTOM OF OCEAN.

THANK YOU FOR JOINING US.

CNN HAS SPENT A GREAT DEAL OFTIME AND MONEY SCOURING OUR

WORLD FOR ANY SIGN OF THISPLANE.

IT'S A NOBLE GOAL IF THEY HADDONE IT IN A REASONABLE NON-DID

ALIENS MAYBE TAKE IT FASHION.

THE WITH ONE PLACE THEY HAVEN'TLOOKED FOR THE PLANE AS FAR AS I

CAN SEE IS UP THEIR OWN(bleep).

>> ONE OF MOST DEDICATED MEMBERSOF CNN'S TEAM DURING THE

SEARCH FOR FLIGHT 370 HASBEEN MARTIN SAVIDGE. HE HAS

SPENT ALMOST A MONTH SITTING INFLIGHT SIMULATOR IN CANADA.

IT HASN'T ALWYS BEEN THE EASIESTASSIGNMENT.

SO JEANNE MOOS WENT FOR THESTORY.

>> Jon: THERE IT IS.

WITH A LACK OF NEW DEVELOPMENTSCNN IS ABOUT TO DO A STORY

COVERING THEIR COVERAGE OF THEMALAYSIAN PLANE STORY.

>> SOMEONE STARTED#FREEMARTINSAVIDGE.

THE PHARSE WAS TRANSFORMED INTOTHE SHAPE OF AN AIRPLANE.

SOMEONE TWEETED BLINK THREETIMES IF YOU ARE BEING HELD

AGAINST YOUR WILL. A PUBLICFASCINATION WITH THE PLAID

SHIRTS MITCH ALWAYSSEEMED TO BE WEARING.

MITCH'S PLAID SHIRT EVEN STARTEDITS OWN TWITTER ACCOUNT.

>> Jon: IT'S THE SUBJECT OFOUR TWO HOUR SPECIAL REPORT

CNN PRESENTS THE SEARCH FOR THEFAKE TWITTER FEED OF THE REAL

GUY FAKE SEARCHING FOR THE REALPLANE. A CNN EXCLUSIVE CNN

REPORT. I HATE TO SAY IT, CNNNEEDS A REAL DISASTER TO SAVE IT

FROM THIS MANMADE ONE.

>> DOZENS OF AFTERSHOCKS HITSOUTHERN CALIFORNIA AFTER A 5.1

MAGNITUDE EARTHQUAKE.

>> Jon: THERE YOU GO.

NOW THAT'S A REAL THING THAT ISACTUALLY HAPPENING.

>> WE'RE GETTING A BIT OFINFORMATION JUST FOR

CLARIFICATION. WE UNDERSTANDFROM THE USGS THAT THE CENTER OF

THE QUAKE WAS IN WESTWOOD,CALIFORNIA, 4.7 ON THE RICHTERSCALE.

>> Jon: BEAUTIFUL, SHORT,

FACTUAL NOT FILLED WITH BASELESSSPECULATION.

DOESN'T THAT FEEL RIGHT?

>> IS A BIGGER EARTHQUAKEON THE WAY?

[LAUGHTER]>> Jon: GO ON.

>> COULD THIS BE A SEASON OF BIGEARTHQUAKES?

>> PLENTY OF CONCERN THAT THEBIG ONE COULD BE NEXT.

>> IS THIS A SIGN OF WHAT SOMANY PEOPLE FEARED.

>> AN 86% CHANCE OF A MAGNITUDE7.0 OR GREATER EARTHQUAKE

HITTING CALIFORNIA INTHE NEXT 30 YEARS.

>> THE DAMAGE AND LOSS OF LIFEIN THE HEART OF LOS ANGELES

COULD BE CATASTROPHIC.

>> SO IF THE BIG ONE HAPPENSIT'S GOING TO POP, LITERALLY POP

LOS ANGELES UP LIKE A CORK.

>> Jon: I MEAN TALK ABOUT ABUNCH OF UNIDENTIFIEDABLE

(bleep) FLOATING IN THE OCEAN,AM I RIGHT.

THAT'S ALL FROM THE ARRRGH ROOM.BACK TO YOU IN THE DUH ROOM.

CNN ACTUALLY SEEMS TO BE BOREDWITH THE IDEA OF REPORTING REAL

THINGS THAT HAVE HAPPENED.THEY'VE DECIDED THEY NO

LONGER WANT TO BE PIGEONHOLED IN THE NONFICTION SECTION.

CNN IS NOT THE FUTURE OF NEWS.

CNN IS NEWS OF THE FUTURE!

WE'LL BE RIGHT BACK.

[CHEERS AND APPLAUSE]>> Jon: WELCOME BACK MY GUEST

TONIGHT A BEST SELLING AUTHORWHOSE NEW BOOK IS CALLED FLASH

BOYS A WALL STREET REVOLT.

PLEASE WELCOME BACK TO THEPROGRAM MICHAEL LEWIS.

SIR.

[CHEERS AND APPLAUSE]ALL RIGHT.

WELCOME.

FIRST OFF, LET ME JUST SAY THIS: YOU WRITE PRETTY.

THIS BOOK IS SO GOOD.

IT -- FIRST OF ALL WE'LLBACKTRACK.

THIS IS ABOUT THIS THING CALLEDHFT, HIGH FREQUENCY TRADING.

WHAT IS THAT?

>> VERY FAST COMPUTERIZEDTRADING ON THE STOCK MARKET.

>> Jon: TO GET AN ADVANTAGE.

>> TO GET AN ADVANTAGE RIGHT. SOTHERE ARE

13 PUBLIC STOCK EXCHANGES SELLTHE RIGHT TO ADVANCE INFORMATION

TO HIGH FREQUENCY TRADERS ANDTHEY DO THIS BY SELLING THEM

THE RIGHT TO LOCATE THEIRCOMPUTERS.

THEY'RE TRADING THE HIGHFREQUENCY TRADING COMPUTERS

RIGHT NEXT TO THE STOCKEXCHANGE COMPUTER.

SO THAT -->> Jon: SO IT'S A QUESTION OF

MILLISECONDS?

>> YES. I MEAN

THE DIFFERENCE BETWEEN THEINFORMATION THAT A HIGH

FREQUENCY TRADER SEES AND WHATMOST INVESTORS SEE IS A COUPLE

OF MILLISECONDS.>> Jon: IT'S A COMPUTER.

>> IT'S ENOUGH FOR A COMPUTER. ACOUPLE OF MILLISECONDS IS

A LOT OF TIME FOR ACOMPUTER.

THERE'S ENOUGH TIME FOR THECOMPUTER TO REACT TO WHAT DO

YOU.

>> Jon: SO THE COMPUTER FINDSOUT YOU PLACE AN ORDER FOR A

STOCK.

>> YES.

>> Jon: THE COMPUTER JUMPS INAND SAYS YOU ARE BUYING THAT

STOCK.

LET ME JUMP IN, BUY THAT STOCK,AND SELL IT RIGHT BACK TO YOU.

>> THAT WILL DO.

>> Jon: THAT IS WHAT THEY DO?

>> NO, BUT THAT WILL DO.

>> Jon: THEY INSERT THEMSELVESAS A MIDDLE MAN IN A TRANSACTION

THEY HAVE NO BUSINESS BEINGIN.

>> IN MANY WAYS, YES. THAT'SEXACTLY RIGHT.

THEY ARE TRADING AS IF THEY KNOWTHE PRICES BEFORE YOU DO.

IF YOU COME IN TO BUY, THEY MAYKNOW THAT THEY CAN BUY IT

CHEAPER BECAUSE THE PRICE HASMOVED BUT YOU DON'T KNOW THAT SO

THEY BUY IT CHEAPER AND SELL ITTO YOU.

IT'S TOTALLY UNNECESSARY WALLSTREET INTERMEDIATIONS.

THEY ARE PUTTING THEMSELVESIN THE MIDDLE OF THE MARKET

WHERE THEY ARE NOT NEEDED.

>> Jon: THERE'S SOMETHINGCALLED FRONT RUNNING THAT IS

ILLEGAL.

IF DO YOU IT WITH JUSTINFORMATION.

IF YOU FIND OUT INFORMATIONABOUT SOMETHING AND IT ALLOWS

YOU AN ADVANTAGE TO BUY ITBEFORE SOMEONE ELSE DOES THAT IS

CALLED FRONT RUNNING AND IT'SILLEGAL, YES?

>> BECAUSE IT'S A COMPUTER IT'SOKAY.

>> Jon: OH, BUT FRONTRUNNING AS A PERSON IS

ILLEGAL.

BUT AS A COMPUTER EH?

>> I THINK IT'S MORE GENERALLY APROBLEM.

PEOPLE DO THINGS WITH COMPUTERSTHEY WOULD NEVER DO AS PEOPLE.

>> Jon: WHY ARE YOU LOOKING ATME WHEN YOU'RE SAYING THAT?

SO THIS BOOK -- HERE IS WHAT ISGREAT.

THIS BOOK ISN'T JUST ABOUT THEWORLD OF HIGH FREQUENCY TRADING.

WHAT I DIDN'T EXPECT FROM THISBOOK IS A KIND OF GROUP OF HEROS

TO EMERGE.

THAT'S REALLY WHAT THIS ISABOUT.

THIS GROUP OF INDIVIDUALS THATGOT TOGETHER TO DO SOMETHING

ABOUT IT.

>> IT'S -- IT'S SUCH A STRANGESTORY BECAUSE IT REALLY IS --

IT'S ABOUT A GROUP OF PEOPLE WHOARE ACTUALLY ON WALL STREET WHO

FIGURE OUT, KIND OF AROUND 2008THAT THE STOCK MARKET IS --

SOMETHING FUNNY IS HAPPENING.

IT'S NOT JUST THE FINANCIALCRISIS. ALL OF A SUDDEN

THEY LOOK AT THEIR SCREENSAND THE STOCK MARKET SAYS

IT'S -- YOU CAN BUY 50,000SHARES OF MICROSOFT AT $20 A

SHARE.

THEY GO TO BUY IT AND IT GOESAWAY AND THE STOCK PRICE GOESUP.

IT'S AS IF THE MARKET KNOWS WHATTHEY ARE GOING TO DO BEFORE THEY

DO IT.

ONE CHARACTER. IT'S A CANADIAN.

A GUY NAMED BRAD KATSUYAMA WHORUNS THE STOCK MARKET AT THE

ROYAL BANK OF CANADA.

BECAUSE HE IS CANADIAN HE HAS ASENSE OF DECENCY.

[LAUGHTER]AND HE IS NOT LIKE SOME RADICAL.

>> Jon: HE IS A WALL STREETGUY.

>> HE IS NOT EVEN REALLY THATMUCH OF A WALL STREET GUY.

HE IS KIND OF A CANADIAN GUY.

[LAUGHTER]IT'S ODD THAT HE IS IN THIS

SITUATION BECAUSE HE ISCONFORMIST EVEN BY CANADIAN

STANDARDS. ALL HE WANTS

TO DO IS BE LIKE DOING GOOD WORKAT HIS WALL STREET FIRM.

BUT ALL OF A SUDDEN THE MARKETLOOKS RIGGED AND HE STARTS TO

ASK HOW IS IT RIGGED.

THE STORY IS THE STORY OF HIMTURNING OVER ROCKS AND FINDING

SOMETHING NEFARIOUS UNDER EVERYROCK UNTIL HE ASSEMBLED A

PICTURE OF THE STOCK MARKETWHICH NO ONE HAS REALLY

ASSEMBLED. INSTEAD OF TAKINGADVANTAGE OF IT TO MAKE MONEY OR

THE ROYAL BANK OF CANADA ORHIMSELF, HE TELLS INVESTORSABOUT IT.

WHICH IS ALSO ANOTHERKINDA CANADIAN THING TO DO.

THERE'S A CANADIAN DIMENSION TOTHIS STORY THAT RUNS THROUGH IT,

RIGHT.

>> Jon: I DON'T WANT TO SAY THENAME DUDLEY DO RIGHT BUT IT'S

HARD NOT TO SEE THE COMPARISONS.

[ LAUGHTER ]>> THE DISADVANTAGE THE STORY

HAS IS THE HERO ISCANADIAN BECAUSE EVERYBODY

KINDA GOES CANADIAN. BUT THE

>> Jon: HEASSEMBLES LIKE A RAG TAG TEAM.

OCEANS 11 TYPE GUYS.

>> YES.

>> Jon: LET ME PITCH THE MOVIEFOR YOU.

>> IT'S BEEN DONE.

>> Jon: THEY GET TOGETHER ANDTHEY START THEIR OWN STOCK

EXCHANGE THAT RUNS THINGS RIGHT.

>> THEY GO TO INVESTORS.

PEOPLE RUNNING THE SAVINGS OFTHIS COUNTRY AND SAY LOOK THIS

IS BASICALLY WHAT ISHAPPENING. THE INVESTORS --

YOU WOULD THINK THE INVESTORSWOULD KNOW WHAT IS GOING ON

IN THE STOCK MARKET AND THEYKIND OF DO.

THEY KIND OF KNOW SOMETHING ISWRONG.

THEY GO TO THE HEDGE FUNDMANAGER BILL ACKMAN WHO IS

ALWAYS BUYING COMPANIES ANDSELLING COMPANIES.

HE THOUGHT.

HE THOUGHT THEY HAD A LEAK ANINSIDER TRADING LEAK.

THE MARKET WAS SO ABLE TOANTICIPATE WHAT HE DID IN THE

MARKET HE THOUGHT SOMEONEINSIDE HIS SHOP WAS LEAKING

INFORMATION ABOUT WHEN HE WASDOING.

>> Jon: WHICH WOULD BEILLEGAL.

>> IT WOULD BE ILLEGAL.

>> Jon: BUT IF A COMPUTER DOESIT.

>> IT'S OKAY.

ESPECIALLY IF IT'S A MAC.

[LAUGHTER]BUT SO -- SO -- THIS HE GOES --

HE EDUCATES PEOPLE.

THEY SAY TO HIM CREATE A FAIRPLACE FOR US TO TRADE.

SO IN A WAY HE WAS ANSWERING ACALL.

>> Jon: AND THEY DO IT ANDPEOPLE GO AFTER THEM IN

INCREDIBLY VICIOUS WAYS, TRYINGTO RUIN THEM AND BREAK THEM.

AND THEY CREATE THIS IEX ANDIT'S WORKING.

IT'S STILL GOING ON THOUGH.

YES.

THE PROBLEM IS -- DO WE HAVETIME HERE.

>> Jon: HERE IS WHAT WE'LL DO.

I WANT TO TALK ABOUT THEFINANCIAL NEWS NETWORKS AND

THEIR RESPONSIBILITY IN THISAND WHY THEY ABDICATED AND WHY

THEY ARE ATTACKING YOU LIKECRAZY FOR JUST WRITING THIS

STORY. WHEN WE COMEBACK WE'LL TALK ABOUT.

THAT WE'LL BE BACK WITH MOREFROM MICHAEL LEWIS.

>> Jon: WELCOME BACK.

WE'RE HERE WITH MICHAEL LEWIS.

WE'RE TALKING ABOUT THIS GROUPOF EXBANGER AND HEDGE FUND GUYS

AND WALL STREET GUYS THAT FORMEDTHEIR OWN STOCK EXCHANGE BECAUSE

THESE HIGH FREQUENCY TRADERSWERE RIGGING THE MARKET.

WHAT IS THE BANK'S ROLE IN THISHIGH FREQUENCY TRADING SCAM?

>> YOU BACK AWAY FROM IT, THEWHOLE THING AND IT LOOKS

LIKE THERE'S AN ECOSYSTEMTHAT'S BUILT ITSELF

AROUND HIGH FREQUENCY TRADERSSKIMMING PROFITS. SCALPING

PEOPLE IN THE MARKET. THEYPAY THE EXCHANGES FOR

SPECIAL ACCESS, SPECIALINFORMATION THAT ORDINARY

INVESTORS DON'T HAVE. THEY PAYTHE BROKERS, THE PEOPLE WHO

HANDLE STOCK MARKET ORDERSFOR YOUR ORDER.

WHEN YOU PLACE AN ORDER YOU PAYA COMMISSION TO TRADE THE STOCK.

BUT THE INFORMATION ABOUT WHATYOU WANT TO DO GETS SOLD TO A

HIGH FREQUENCY TRADER AND THERIGHT TO TRADE AGAINST YOU GETS

SOLD. IT'S CALLED PAYMENT FORORDER FLOW.

THAT IN ITSELF.

WHY WOULD SOMEONE PAY TO EXECUTEYOUR STOCK MARKET ORDER?

YOU WOULD THINK SOMEONE WOULDASK THAT QUESTION.

>> Jon: THEY DO BECAUSE THISTRADER GETS A VOLUME.

THEY MAKE MONEY ON VOLUME.

>> THE HIGH FREQUENCY TRADERGETS A CHANCE TO TRADE AGAINST

YOU AT THE OLD PRICE.

>> Jon: AND YOU DON'T KNOWHE'S THERE.

AND YOU'VE NOT INVITED HIM IN.

>> YOU HAVE NOT INVITED HIM IN.

THERE'S DIFFERENT KIND OFSPREDATORY ACTIVITIES THAT THE

HIGH FREQUENCY TRADERS AREENGAGED IN.

BUT BASICALLY NONE OF THEM AREGOOD FOR US.

THEY ARE A TAX ON INVESTORS.

>> Jon: SO HERE NOW WE GET TOTHE SECOND PART OF THIS.

SO YOU WRITE THIS ANDIMMEDIATELY CNBC, FOX NEWS

THEY ALL JUMP UP TO DEFEND THISAS NO THIS HELPS US.

THIS IS ADDING LIQUIDITY.

THERE'S NOTHING WRONG WITH IT.

IT'S ACTUALLY GREAT.

EVEN THOUGH TO MY MIND ITCOMPLETELY DETERIORATES ANY

FAITH YOU WOULD HAVE IN THEFAITH IN THE SYSTEM.

IT'S NOT AMERICAN AND NOT EVENCAPITALISM.

IT'S CHEATING.

>> THEY'RE ATTACKING HIM TOO.AND IT'S AMAZING BECAUSE ALL HE

REALLY WENT TO DO WAS FIGURE OUTHOW THE STOCK MARKET WORKED.

IT WAS A BREATHTAKINGLYCOMPLICATED QUESTION.

IT BECAME COMPLICATED SO THATYOU WOULDN'T UNDERSTAND.

ALL HE'S TRYING TO DO IS RECTIFYTHAT PROBLEM.

>> Jon: HE DECONSTRUCTED

>> AND THE MERE FACT OF DOING ITWAS A RADICAL ACT.

THE REASON PEOPLE ARE SO UPSETIS IF YOU BACK AWAY FROM IT SO

HIGH FREQUENCY TRADERS AREESSENTIALLY MAKING MONEY FOR THE

WHOLE WALL STREET SYSTEM.

THEY ARE PAYING EXCHANGES,THEY'RE PAYING BANKS.

SO ANYBODY WHOSE LIVELIHOOD ISDEPENDENT ON WALL STREET PROFITS

WHICH PARTLY INCLUDES THE S.E.C.SINCE PEOPLE QUIT THE S.E.C.

TO GO WORK FOR WALL STREET ISSORT OF INVESTED IN THIS.

I THINK A LOT OF THIS -- ITSOUNDS LIKE A CONSPIRACY BUT

WHEN YOU LOOK AT HOW IT LAYSOUT.

THERE'S A CONSPIRACY EXISTS TOKEEP -- BUYERS OF STOCK AWAY

FROM SELLERS OF STOCK SO THESEPEOPLE CAN INSERT THEMSELVES

ARTIFICIALLY IN BETWEEN.

IT WAS LARGELY ACCIDENTAL BUTTHEN THE MONEY STARTED GETTING

MADE.

THE CONSPIRACY IS PREVENTING THECHANGE.

>> Jon: THEY FUNCTION ONVOLUME AND VOLATILITY.

WHAT I DON'T UNDERSTAND.SO IEX COMES IN AND

THEY ESTABLISH A PARAMETERFOR TRADING SPEED. THEY

GIVE YOU A SET YOU CANNOT JUMPTHIS AMOUNT OF TIME.

>> THEY BECOME FASTER THAN ALLTHE PEOPLE ON THE EXCHANGE.

THEY SLOW ITS DOWN THEHIGH FREQUENCY TRADERS.

>> Jon: CORRECT.

YOU CAN'T BUY LESS THAN A SHARE,RIGHT? THEY'VE SET A STANDARD ON

THAT. YOU CAN'T BUY 100th OF ASHARE.

SO IF THERE'S A STANDARD FORSHARE BUYING.

WHY ISN'T THERE A STANDARD FORFREQUENCY OF TRADING THAT IS

JUST THE STANDARD SO EVERYBODYIS ON THE SAME FIELD?

>> THAT WOULD BE IN A SANEWORLD, RIGHT?

THAT'S WHAT WOULDYOU DO. YOU WOULD SAY

THAT NOBODY IS GOING TOGET THE INFORMATION ABOUT PRICES

FASTER, BE ABLE TO TRADE FASTERTHAN ANYBODY ELSE.

>> Jon: YOU WOULD SET A HIGHSPEED.

YOU WOULDN'T MAKE IT LIKE YOUHAVE A HALF HOUR.

YOU MAKE IT FAST.

>> THEY MAKE IT REALLY FAST.

IT'S IMPERCEPTIBLE. THESPEEDS WE'RE TALKING ABOUT ARE

IMPERCEPTIBLE TO HUMANS BEINGS.IT ALL SEEMS INSTANTANEOUS. SO

THAT'S WHAT YOU WOULD DO, IN ASANE WORLD THAT'S HOW IT

WOULD BE STRUCTURED. WE DON'TLIVE IN THAT WORLD. WE LIVE IN

A DIFFERENT WORLD. WHAT IS COOLABOUT THIS AND WHAT MAKES IT SO

NEAT THEY HAVE CREATED THE PLACEWHERE IT'S FAIR.

IT'S THE ONE STOCK EXCHANGETHAT'S NOT RUN BY

INTERMEDIARIES, NOT RUN BY WALLSTREET PEOPLE.

IT'S FOR INVESTORS, SO AND THEYFIGURED IT OUT.

>> Jon: THERE'S NO NEED FORTHESE MIDDLE MEN.

THEY ARE UNNECESSARY TO THESYSTEM THEY DON'T PROVIDE THE

LIQUIDITY.

THE LIQUIDITY IS PROVIDED BY THEINVESTORS.

>> THIS IS ABSOLUTELY TRUE.

SO NOW WE HAVE A CHOICE.

FOR THE FIRST TIME IN THISMODERN STOCK MARKET

WE HAVE A CHOICE.

WHY ISN'T MY ORDER GOING TO THISEXCHANGE WHERE I WON'T GET

SCALPED? AND THAT'S GOING TOFORCE INVESTORS --

>> ARE YOU ALLOWED TO GET THATINFORMATION NOW? IS THAT

INFORMATION AVAILABLE TOTHE INVESTOR? ARE THEY ALLOWED

TO SAY TELL ME WHO MY ORDER WENTTO.

>> THEY ARE BEING TOLD NO BUTYES.

IEX ACTUALLY SET UP A WEB SITECALLED I AM AN INVESTOR.ORG

WHERE YOU CAN LEARN YOURRIGHTS AS AN INVESTOR. YOU CAN

DEMAND THAT YOUR ORDER BEHANDLED IN A CERTAIN WAY.

>> Jon: I'M GOING TO GO ONTHAT SITE.

IS THERE ALSO PORN? I LIKE ALITTLE SOMETHING EXTRA WHEN

I GO ON A SITE. CAN I WIN ANXBOX IF I CLICK ON SOMETHING.

WE'RE GOING TO COMEBACK. YOU'RE STAYING WITH ME

AND WE'RE GOING TO GO TO THEWEB BECAUSE I DO WANT

TO ASK THESE FINANCIAL NEWSNETWORKS THAT ARE COMPLICIT IN

THIS IS DRIVING MEINSANE. FLASH BOYS IS ON THE

BOOKSHELVES NOW. IT'SABOUT AN INCREDIBLYINTRICATE AND INTERESTING

TOPIC BUT IT'S SO WELL WRITTEN,BEAUTIFUL NARRATIVE.

MICHAEL LEWIS.

YOU GOTTA GET THIS. TREMENDOUS.

THANK YOU.

[CHEERS AND APPLAUSE]>> Jon: THAT'S OUR SHOW.

HERE IT IS YOUR MOMENT OF ZEN.

>> JUST HOW DANGEROUSEARTHQUAKES CAN BE.

PART OF THAT IS THIS EARTHQUAKESIMULATOR WHICH ATTEMPTS TO

REPLICATE A QUAKE MUCH STRONGERTHAN THE NORTHRIDGE QUAKE!

[CHEERS AND APPLAUSE]>> Jon: WELCOME BACK MY GUEST

TONIGHT A BEST SELLING AUTHORWHOSE NEW BOOK IS CALLED FLASH

BOYS A WALL STREET REVOLT.

PLEASE WELCOME BACK TO THEPROGRAM MICHAEL LEWIS.

SIR.

[CHEERS AND APPLAUSE]ALL RIGHT.

WELCOME.

FIRST OFF, LET ME JUST SAY THIS: YOU WRITE PRETTY.

THIS BOOK IS SO GOOD.

IT -- FIRST OF ALL WE'LLBACKTRACK.

THIS IS ABOUT THIS THING CALLEDHFT, HIGH FREQUENCY TRADING.

WHAT IS THAT?

>> VERY FAST COMPUTERIZEDTRADING ON THE STOCK MARKET.

>> Jon: TO GET AN ADVANTAGE.

>> TO GET AN ADVANTAGE RIGHT. SOTHERE ARE

13 PUBLIC STOCK EXCHANGES SELLTHE RIGHT TO ADVANCE INFORMATION

TO HIGH FREQUENCY TRADERS ANDTHEY DO THIS BY SELLING THEM

THE RIGHT TO LOCATE THEIRCOMPUTERS.

THEY'RE TRADING THE HIGHFREQUENCY TRADING COMPUTERS

RIGHT NEXT TO THE STOCKEXCHANGE COMPUTER.

SO THAT -->> Jon: SO IT'S A QUESTION OF

MILLISECONDS?

>> YES. I MEAN

THE DIFFERENCE BETWEEN THEINFORMATION THAT A HIGH

FREQUENCY TRADER SEES AND WHATMOST INVESTORS SEE IS A COUPLE

OF MILLISECONDS.>> Jon: IT'S A COMPUTER.

>> IT'S ENOUGH FOR A COMPUTER. ACOUPLE OF MILLISECONDS IS

A LOT OF TIME FOR ACOMPUTER.

THERE'S ENOUGH TIME FOR THECOMPUTER TO REACT TO WHAT DO

YOU.

>> Jon: SO THE COMPUTER FINDSOUT YOU PLACE AN ORDER FOR A

STOCK.

>> YES.

>> Jon: THE COMPUTER JUMPS INAND SAYS YOU ARE BUYING THAT

STOCK.

LET ME JUMP IN, BUY THAT STOCK,AND SELL IT RIGHT BACK TO YOU.

>> THAT WILL DO.

>> Jon: THAT IS WHAT THEY DO?

>> NO, BUT THAT WILL DO.

>> Jon: THEY INSERT THEMSELVESAS A MIDDLE MAN IN A TRANSACTION

THEY HAVE NO BUSINESS BEINGIN.

>> IN MANY WAYS, YES. THAT'SEXACTLY RIGHT.

THEY ARE TRADING AS IF THEY KNOWTHE PRICES BEFORE YOU DO.

IF YOU COME IN TO BUY, THEY MAYKNOW THAT THEY CAN BUY IT

CHEAPER BECAUSE THE PRICE HASMOVED BUT YOU DON'T KNOW THAT SO

THEY BUY IT CHEAPER AND SELL ITTO YOU.

IT'S TOTALLY UNNECESSARY WALLSTREET INTERMEDIATIONS.

THEY ARE PUTTING THEMSELVESIN THE MIDDLE OF THE MARKET

WHERE THEY ARE NOT NEEDED.

>> Jon: THERE'S SOMETHINGCALLED FRONT RUNNING THAT IS

ILLEGAL.

IF DO YOU IT WITH JUSTINFORMATION.

IF YOU FIND OUT INFORMATIONABOUT SOMETHING AND IT ALLOWS

YOU AN ADVANTAGE TO BUY ITBEFORE SOMEONE ELSE DOES THAT IS

CALLED FRONT RUNNING AND IT'SILLEGAL, YES?

>> BECAUSE IT'S A COMPUTER IT'SOKAY.

>> Jon: OH, BUT FRONTRUNNING AS A PERSON IS

ILLEGAL.

BUT AS A COMPUTER EH?

>> I THINK IT'S MORE GENERALLY APROBLEM.

PEOPLE DO THINGS WITH COMPUTERSTHEY WOULD NEVER DO AS PEOPLE.

>> Jon: WHY ARE YOU LOOKING ATME WHEN YOU'RE SAYING THAT?

SO THIS BOOK -- HERE IS WHAT ISGREAT.

THIS BOOK ISN'T JUST ABOUT THEWORLD OF HIGH FREQUENCY TRADING.

WHAT I DIDN'T EXPECT FROM THISBOOK IS A KIND OF GROUP OF HEROS

TO EMERGE.

THAT'S REALLY WHAT THIS ISABOUT.

THIS GROUP OF INDIVIDUALS THATGOT TOGETHER TO DO SOMETHING

ABOUT IT.

>> IT'S -- IT'S SUCH A STRANGESTORY BECAUSE IT REALLY IS --

IT'S ABOUT A GROUP OF PEOPLE WHOARE ACTUALLY ON WALL STREET WHO

FIGURE OUT, KIND OF AROUND 2008THAT THE STOCK MARKET IS --

SOMETHING FUNNY IS HAPPENING.

IT'S NOT JUST THE FINANCIALCRISIS. ALL OF A SUDDEN

THEY LOOK AT THEIR SCREENSAND THE STOCK MARKET SAYS

IT'S -- YOU CAN BUY 50,000SHARES OF MICROSOFT AT $20 A

SHARE.

THEY GO TO BUY IT AND IT GOESAWAY AND THE STOCK PRICE GOESUP.

IT'S AS IF THE MARKET KNOWS WHATTHEY ARE GOING TO DO BEFORE THEY

DO IT.

ONE CHARACTER. IT'S A CANADIAN.

A GUY NAMED BRAD KATSUYAMA WHORUNS THE STOCK MARKET AT THE

ROYAL BANK OF CANADA.

BECAUSE HE IS CANADIAN HE HAS ASENSE OF DECENCY.

[LAUGHTER]AND HE IS NOT LIKE SOME RADICAL.

>> Jon: HE IS A WALL STREETGUY.

>> HE IS NOT EVEN REALLY THATMUCH OF A WALL STREET GUY.

HE IS KIND OF A CANADIAN GUY.

[LAUGHTER]IT'S ODD THAT HE IS IN THIS

SITUATION BECAUSE HE ISCONFORMIST EVEN BY CANADIAN

STANDARDS. ALL HE WANTS

TO DO IS BE LIKE DOING GOOD WORKAT HIS WALL STREET FIRM.

BUT ALL OF A SUDDEN THE MARKETLOOKS RIGGED AND HE STARTS TO

ASK HOW IS IT RIGGED.

THE STORY IS THE STORY OF HIMTURNING OVER ROCKS AND FINDING

SOMETHING NEFARIOUS UNDER EVERYROCK UNTIL HE ASSEMBLED A

PICTURE OF THE STOCK MARKETWHICH NO ONE HAS REALLY

ASSEMBLED. INSTEAD OF TAKINGADVANTAGE OF IT TO MAKE MONEY OR

THE ROYAL BANK OF CANADA ORHIMSELF, HE TELLS INVESTORSABOUT IT.

WHICH IS ALSO ANOTHERKINDA CANADIAN THING TO DO.

THERE'S A CANADIAN DIMENSION TOTHIS STORY THAT RUNS THROUGH IT,

RIGHT.

>> Jon: I DON'T WANT TO SAY THENAME DUDLEY DO RIGHT BUT IT'S

HARD NOT TO SEE THE COMPARISONS.

[ LAUGHTER ]>> THE DISADVANTAGE THE STORY

HAS IS THE HERO ISCANADIAN BECAUSE EVERYBODY

KINDA GOES CANADIAN. BUT THE

>> Jon: HEASSEMBLES LIKE A RAG TAG TEAM.

OCEANS 11 TYPE GUYS.

>> YES.

>> Jon: LET ME PITCH THE MOVIEFOR YOU.

>> IT'S BEEN DONE.

>> Jon: THEY GET TOGETHER ANDTHEY START THEIR OWN STOCK

EXCHANGE THAT RUNS THINGS RIGHT.

>> THEY GO TO INVESTORS.

PEOPLE RUNNING THE SAVINGS OFTHIS COUNTRY AND SAY LOOK THIS

IS BASICALLY WHAT ISHAPPENING. THE INVESTORS --

YOU WOULD THINK THE INVESTORSWOULD KNOW WHAT IS GOING ON

IN THE STOCK MARKET AND THEYKIND OF DO.

THEY KIND OF KNOW SOMETHING ISWRONG.

THEY GO TO THE HEDGE FUNDMANAGER BILL ACKMAN WHO IS

ALWAYS BUYING COMPANIES ANDSELLING COMPANIES.

HE THOUGHT.

HE THOUGHT THEY HAD A LEAK ANINSIDER TRADING LEAK.

THE MARKET WAS SO ABLE TOANTICIPATE WHAT HE DID IN THE

MARKET HE THOUGHT SOMEONEINSIDE HIS SHOP WAS LEAKING

INFORMATION ABOUT WHEN HE WASDOING.

>> Jon: WHICH WOULD BEILLEGAL.

>> IT WOULD BE ILLEGAL.

>> Jon: BUT IF A COMPUTER DOESIT.

>> IT'S OKAY.

ESPECIALLY IF IT'S A MAC.

[LAUGHTER]BUT SO -- SO -- THIS HE GOES --

HE EDUCATES PEOPLE.

THEY SAY TO HIM CREATE A FAIRPLACE FOR US TO TRADE.

SO IN A WAY HE WAS ANSWERING ACALL.

>> Jon: AND THEY DO IT ANDPEOPLE GO AFTER THEM IN

INCREDIBLY VICIOUS WAYS, TRYINGTO RUIN THEM AND BREAK THEM.

AND THEY CREATE THIS IEX ANDIT'S WORKING.

IT'S STILL GOING ON THOUGH.

YES.

THE PROBLEM IS -- DO WE HAVETIME HERE.

>> Jon: HERE IS WHAT WE'LL DO.

I WANT TO TALK ABOUT THEFINANCIAL NEWS NETWORKS AND

THEIR RESPONSIBILITY IN THISAND WHY THEY ABDICATED AND WHY

THEY ARE ATTACKING YOU LIKECRAZY FOR JUST WRITING THIS

STORY. WHEN WE COMEBACK WE'LL TALK ABOUT.

THAT WE'LL BE BACK WITH MOREFROM MICHAEL LEWIS.

>> Jon: WELCOME BACK.

WE'RE HERE WITH MICHAEL LEWIS.

WE'RE TALKING ABOUT THIS GROUPOF EXBANGER AND HEDGE FUND GUYS

AND WALL STREET GUYS THAT FORMEDTHEIR OWN STOCK EXCHANGE BECAUSE

THESE HIGH FREQUENCY TRADERSWERE RIGGING THE MARKET.

WHAT IS THE BANK'S ROLE IN THISHIGH FREQUENCY TRADING SCAM?

>> YOU BACK AWAY FROM IT, THEWHOLE THING AND IT LOOKS

LIKE THERE'S AN ECOSYSTEMTHAT'S BUILT ITSELF

AROUND HIGH FREQUENCY TRADERSSKIMMING PROFITS. SCALPING

PEOPLE IN THE MARKET. THEYPAY THE EXCHANGES FOR

SPECIAL ACCESS, SPECIALINFORMATION THAT ORDINARY

INVESTORS DON'T HAVE. THEY PAYTHE BROKERS, THE PEOPLE WHO

HANDLE STOCK MARKET ORDERSFOR YOUR ORDER.

WHEN YOU PLACE AN ORDER YOU PAYA COMMISSION TO TRADE THE STOCK.

BUT THE INFORMATION ABOUT WHATYOU WANT TO DO GETS SOLD TO A

HIGH FREQUENCY TRADER AND THERIGHT TO TRADE AGAINST YOU GETS

SOLD. IT'S CALLED PAYMENT FORORDER FLOW.

THAT IN ITSELF.

WHY WOULD SOMEONE PAY TO EXECUTEYOUR STOCK MARKET ORDER?

YOU WOULD THINK SOMEONE WOULDASK THAT QUESTION.

>> Jon: THEY DO BECAUSE THISTRADER GETS A VOLUME.

THEY MAKE MONEY ON VOLUME.

>> THE HIGH FREQUENCY TRADERGETS A CHANCE TO TRADE AGAINST

YOU AT THE OLD PRICE.

>> Jon: AND YOU DON'T KNOWHE'S THERE.

AND YOU'VE NOT INVITED HIM IN.

>> YOU HAVE NOT INVITED HIM IN.

THERE'S DIFFERENT KIND OFSPREDATORY ACTIVITIES THAT THE

HIGH FREQUENCY TRADERS AREENGAGED IN.

BUT BASICALLY NONE OF THEM AREGOOD FOR US.

THEY ARE A TAX ON INVESTORS.

>> Jon: SO HERE NOW WE GET TOTHE SECOND PART OF THIS.

SO YOU WRITE THIS ANDIMMEDIATELY CNBC, FOX NEWS

THEY ALL JUMP UP TO DEFEND THISAS NO THIS HELPS US.

THIS IS ADDING LIQUIDITY.

THERE'S NOTHING WRONG WITH IT.

IT'S ACTUALLY GREAT.

EVEN THOUGH TO MY MIND ITCOMPLETELY DETERIORATES ANY

FAITH YOU WOULD HAVE IN THEFAITH IN THE SYSTEM.

IT'S NOT AMERICAN AND NOT EVENCAPITALISM.

IT'S CHEATING.

>> THEY'RE ATTACKING HIM TOO.AND IT'S AMAZING BECAUSE ALL HE

REALLY WENT TO DO WAS FIGURE OUTHOW THE STOCK MARKET WORKED.

IT WAS A BREATHTAKINGLYCOMPLICATED QUESTION.

IT BECAME COMPLICATED SO THATYOU WOULDN'T UNDERSTAND.

ALL HE'S TRYING TO DO IS RECTIFYTHAT PROBLEM.

>> Jon: HE DECONSTRUCTED

>> AND THE MERE FACT OF DOING ITWAS A RADICAL ACT.

THE REASON PEOPLE ARE SO UPSETIS IF YOU BACK AWAY FROM IT SO

HIGH FREQUENCY TRADERS AREESSENTIALLY MAKING MONEY FOR THE

WHOLE WALL STREET SYSTEM.

THEY ARE PAYING EXCHANGES,THEY'RE PAYING BANKS.

SO ANYBODY WHOSE LIVELIHOOD ISDEPENDENT ON WALL STREET PROFITS

WHICH PARTLY INCLUDES THE S.E.C.SINCE PEOPLE QUIT THE S.E.C.

TO GO WORK FOR WALL STREET ISSORT OF INVESTED IN THIS.

I THINK A LOT OF THIS -- ITSOUNDS LIKE A CONSPIRACY BUT

WHEN YOU LOOK AT HOW IT LAYSOUT.

THERE'S A CONSPIRACY EXISTS TOKEEP -- BUYERS OF STOCK AWAY

FROM SELLERS OF STOCK SO THESEPEOPLE CAN INSERT THEMSELVES

ARTIFICIALLY IN BETWEEN.

IT WAS LARGELY ACCIDENTAL BUTTHEN THE MONEY STARTED GETTING

MADE.

THE CONSPIRACY IS PREVENTING THECHANGE.

>> Jon: THEY FUNCTION ONVOLUME AND VOLATILITY.

WHAT I DON'T UNDERSTAND.SO IEX COMES IN AND

THEY ESTABLISH A PARAMETERFOR TRADING SPEED. THEY

GIVE YOU A SET YOU CANNOT JUMPTHIS AMOUNT OF TIME.

>> THEY BECOME FASTER THAN ALLTHE PEOPLE ON THE EXCHANGE.

THEY SLOW ITS DOWN THEHIGH FREQUENCY TRADERS.

>> Jon: CORRECT.

YOU CAN'T BUY LESS THAN A SHARE,RIGHT? THEY'VE SET A STANDARD ON

THAT. YOU CAN'T BUY 100th OF ASHARE.

SO IF THERE'S A STANDARD FORSHARE BUYING.

WHY ISN'T THERE A STANDARD FORFREQUENCY OF TRADING THAT IS

JUST THE STANDARD SO EVERYBODYIS ON THE SAME FIELD?

>> THAT WOULD BE IN A SANEWORLD, RIGHT?

THAT'S WHAT WOULDYOU DO. YOU WOULD SAY

THAT NOBODY IS GOING TOGET THE INFORMATION ABOUT PRICES

FASTER, BE ABLE TO TRADE FASTERTHAN ANYBODY ELSE.

>> Jon: YOU WOULD SET A HIGHSPEED.

YOU WOULDN'T MAKE IT LIKE YOUHAVE A HALF HOUR.

YOU MAKE IT FAST.

>> THEY MAKE IT REALLY FAST.

IT'S IMPERCEPTIBLE. THESPEEDS WE'RE TALKING ABOUT ARE

IMPERCEPTIBLE TO HUMANS BEINGS.IT ALL SEEMS INSTANTANEOUS. SO

THAT'S WHAT YOU WOULD DO, IN ASANE WORLD THAT'S HOW IT

WOULD BE STRUCTURED. WE DON'TLIVE IN THAT WORLD. WE LIVE IN

A DIFFERENT WORLD. WHAT IS COOLABOUT THIS AND WHAT MAKES IT SO

NEAT THEY HAVE CREATED THE PLACEWHERE IT'S FAIR.

IT'S THE ONE STOCK EXCHANGETHAT'S NOT RUN BY

INTERMEDIARIES, NOT RUN BY WALLSTREET PEOPLE.

IT'S FOR INVESTORS, SO AND THEYFIGURED IT OUT.

>> Jon: THERE'S NO NEED FORTHESE MIDDLE MEN.

THEY ARE UNNECESSARY TO THESYSTEM THEY DON'T PROVIDE THE

LIQUIDITY.

THE LIQUIDITY IS PROVIDED BY THEINVESTORS.

>> THIS IS ABSOLUTELY TRUE.

SO NOW WE HAVE A CHOICE.

FOR THE FIRST TIME IN THISMODERN STOCK MARKET

WE HAVE A CHOICE.

WHY ISN'T MY ORDER GOING TO THISEXCHANGE WHERE I WON'T GET

SCALPED? AND THAT'S GOING TOFORCE INVESTORS --

>> ARE YOU ALLOWED TO GET THATINFORMATION NOW? IS THAT

INFORMATION AVAILABLE TOTHE INVESTOR? ARE THEY ALLOWED

TO SAY TELL ME WHO MY ORDER WENTTO.

>> THEY ARE BEING TOLD NO BUTYES.

IEX ACTUALLY SET UP A WEB SITECALLED I AM AN INVESTOR.ORG

WHERE YOU CAN LEARN YOURRIGHTS AS AN INVESTOR. YOU CAN

DEMAND THAT YOUR ORDER BEHANDLED IN A CERTAIN WAY.

>> Jon: I'M GOING TO GO ONTHAT SITE.

IS THERE ALSO PORN? I LIKE ALITTLE SOMETHING EXTRA WHEN

I GO ON A SITE. CAN I WIN ANXBOX IF I CLICK ON SOMETHING.

WE'RE GOING TO COMEBACK. YOU'RE STAYING WITH ME

AND WE'RE GOING TO GO TO THEWEB BECAUSE I DO WANT

TO ASK THESE FINANCIAL NEWSNETWORKS THAT ARE COMPLICIT IN

THIS IS DRIVING MEINSANE. FLASH BOYS IS ON THE

BOOKSHELVES NOW. IT'SABOUT AN INCREDIBLYINTRICATE AND INTERESTING

TOPIC BUT IT'S SO WELL WRITTEN,BEAUTIFUL NARRATIVE.

MICHAEL LEWIS.

YOU GOTTA GET THIS. TREMENDOUS.

THANK YOU.

>> Jon: ALL RIGHT SO HERE WE GO.

HERE IS THE PART THAT I DON'TUNDERSTAND.

SO THESE TRADERS, THIS CANADIANFELLA AND OTHER GUYS THAT COME

TO THIS CONCLUSION AT THE SAMETIME.

THEY FIND EACH OTHER AND FORMTHIS GROUP THAT DECIDES TO NOT

BE SOCIALISTS OR COMMUNISTS ORREDISTRIBUTE WEALTH OR CAUSE A

REVOLUTION BUT TO TRY A CLEANERVERSION OF CAPITALISM THAT IS

A FAIRER VERSION.

WHY IS IT THAT THE 24-HOURFINANCIAL NEWS NETWORKS CANNOT

HAVE THAT SAME TENACITY OFSPIRIT AND INTEGRITY OF PURPOSE?

I DO NOT UNDERSTAND WHY THEY AREDEFENDING CLEARLY UNUSUAL AND

UNSAVORY DARK POOL BUSINESSPRACTICES?

>> YOU WATCH A LOT MORE OF THEMTHAN I DO.

>> Jon: I WATCH A LOT OF IT.

>> YES YOU DO. SO, YOU GET ALITTLE MORE WORKED UP.

JUST TURN IT OFF.

>> Jon: OK SO THERE'S A BUTTON.>> THERE'S A BUTTON.

SO WHY?

WHY WOULD THAT BE?

CAN BE SPECULATE.

>> Jon: SPECULATE!

>> SO WHO IS PAYING FOR THE ADSON THE -- WHO ARE THEIR GUESTS?

WHO IS THE SOCIAL -- THE WHOLESOCIAL WORLD IS --

>> Jon: THERE'S NO ROOM FORTHE MUCK RAKING?

>> NO NOT REALLY.

THE PROBLEM IS -- I THINK THEBIGGER PROBLEM IS WALL STREET

NEEDS TO SHRINK A LOT.

THE TECHNOLOGY HAS -- HAS SORTOF ELIMINATED THE NEED FOR A LOT

OF WHAT WALL STREET DOES.

YOU DON'T NEED HUMAN BEINGS TOBRING BUYERS AND SELLERS

TOGETHER FOR STOCK. EVERYONECAN PUSH THE BUTTON AND WE ALL

GO IN THE SAME BLACK BOX ANDTRADE. WE SHOULD ALL BE IN THE

SAME PLACE. WE SHOULDN'T BE AT13 DIFFERENT PUBLIC EXCHANGES

AND 40 DIFFERENT DARK POOLSAND ALL THE REST.

THAT'S A ROLE THAT WALL STREETUSED TO MAKE A LOT OF MONEY

PLAYING.

NOW THEY DON'T PLAYIT. SO THEY'VE CREATED THIS

ARTIFICIAL ROLE FOR THEMSELVESTO GENERATE THE FUNDS.

BUT IT'S PAINFUL FORINDUSTRY TO SHRINK.

IT'S ESPECIALLY DIFFICULT TO DOIT WHEN THE GOVERNMENT HAS BEEN

PROPPING IT UP FOR LAST FIVEYEARS, RIGHT?

I THINK -- I DON'T KNOW THEFEELING ON WALL STREET, THINK

IS A FEAR OF STUFF BEINGTAKEN AWAY.

THE FINANCIAL NEWS TELEVISIONSHOWS THAT ARE AROUND WALL

STREET ARE ONE WAY OR ANOTHERKIND OF OWNED BY WALL STREET.

THERE'S A LIMIT TO HOW RADICALYOU CAN BE.

BUT THE CRAZY THING IS YOURPOINT IS WELL TAKEN. THIS ISN'T

OCCUPY WALL STREET.

THIS IS A MARKET -- IT'S ANACT OF ENTREPRENEURSHIP.

THE SORT OF THING THAT HAPPENSIN SILICON VALLEY EVERY DAY.

SOMETHING NEW COMES IN THAT ISBETTER AND FAIRER, IT'S MORE

HONEST AND PEOPLE WANT IT ANDTHE OLD BUSINESS GOES AND DIES.

>> Jon: ULTIMATELY THE VALUEOF IT IS RUINED BY THE

DISSIPATION OF THE

INTEGRITY OF IT.IF YOU REINSTATE THE INTEGRITY

OF IT SO THAT INVESTORS DOFEEL THEY ARE NOT ENTERING

A CASINO THAT SOMEBODY HAS TAKENHALF THE PROFITS OUT

THE DOOR. I SAW ONE GUY ONCNBC -- SO THESE GUYS COME IN

THESE HIGH FREQUENT TRADERSTHEY CLIP A PENNY HERE AND A

PENNY THERE OFF OF EACH END OFTHE TRADE AND NOBODY GETS HURT?

>> YEAH, THAT'S NOT -- SO LET'SSAY THERE THE SKIM OR THE SCALP

IS $20 BILLION.

WHATEVER IT IS. THERE'S THAT

THE TRUST IS A MUCH BIGGERISSUE.

>> Jon: RIGHT.

>> THIS INSTABILITY IN THESYSTEM WHERE THERE ARE FLASH

CRASHES BECAUSE THE TECHNOLOGYIS RIGGED.

IT'S DESIGNED NOT FOR STABILITYBUT TO ENABLE HIGH FREQUENCYTRADERS TO MAKE MONEY.

>> Jon: RIGHT.

>> BUT THE PRICE OF THE MISTRUSTIS HUGE BECAUSE IT MEANS THAT

THE COMPANIES THAT ACTUALLY NEEDCAPITAL PAY MUCH MORE FOR ITBECAUSE

INVESTORS ARE WARY.

THE PRICE OF THAT IS VERY HARDTO MEASURE.

YOU WOULD THINK THAT SOMEONEWOULD TWIG TO THAT.

>> Jon: IS THE COMPLEXITY OFTHE SYSTEM WHAT KEEPS IT ABLE TO

METASTASIZE THE WAY IT HAS?

>> YEAH.

>> Jon: IT TOOK THESE REALLYBRIGHT GUYS A REALLY LONG TIME

TO DECONSTRUCT THE SYSTEM.

AND THE WAY THAT THEY DO IT ISFASCINATING IN AND OF ITSELF.

THE GUY THAT COMES IN ANDDESIGNS IT THROUGH PICTURES SO

YOU CAN SEE, VISUALIZING WHERETHE TRADES ARE GOING, WHAT IS

HAPPENING IS INCREDIBLE.

>> THIS IS A REPRISAL OF THEFINANCIAL CRISIS.

THE SUBPRIME MORTGAGE MARKET.WHAT HAPPENED THERE IS

A LOT OF BAD LOANS WERE MADEBECAUSE THEY WERE DISGUISED WITH

REALLY COMPLICATED WALL STREETCREATIONS CALLED COLLATERALIZED

DEBT OBLIGATIONS.

>> Jon: RIGHT.

>> THIS IS PART TWO.

IT'S A MARKET MADE -- SEEMINGLYTRANSPARENT.

YOU CAN GO FIND OUT EVERYTHINGSORT OF, IF YOU DIG A LOT, AND

YOU ARE A DETECTIVE AND HAVETEAMS OF PEOPLE TO DO IT BUT

IT'S ACTUALLY OPAQUE BECAUSEIT'S SO COMPLICATED. SO THE

COMPLEXITY IS A TOOL, IT'SESSENTIALLY A TOOL FOR CREATING

A SITUATION WHERE SOMEONE ONWALL STREET KNOWS SOMETHING

YOU DON'T SO THEY CANTAKE ADVANTAGE OF YOU.

I THINK IT IS THE RESPONSEOF A SICK SYSTEM.

NOT SICK, COOL.

[ LAUGHTER ]SICK --

>> Jon: THAT IS SOMEONE WITHKIDS.

I'M GONNA TELL YOU THIS SYSTEMIS FAT, YO!

I MEAN FAT, SERIOUSLY, IT'SMORBIDLY OBESE.

[ LAUGHTER ]BUT WHAT IS INCREDIBLE TO ME IS

THAT THE LACK OF AGILITY IN THEREGULATORS IS AGAIN ONE

OF THE BIGGEST ISSUES. THERE ISCOMMON SENSE IN ALL THIS.

I BELIEVE THERE ARE REALLY GOODACTORS ON WALL STREET.

EVEN NOW GOLDMAN IS SWITCHINGAND FLIPPING TO THIS IEX.

THERE ARE GOOD ACTORS WHOWILL WORK WITH WHAT THEY

THOUGHT WERE AGILE ENOUGH ANDSMART ENOUGH REGULATORY

TEAMS, SEAL TEAM 6'S OFREGULATION THAT WOULD

NOT BURDEN THEM. BECAUSE THETRUTH IS THESE LARGER

FIRMS DINE OFF OF HEAVYREGULATION BECAUSE THEY ARE THE

ONLY ONES THAT CANKEEP UP WITH IT.

THEY HAVE HUGE LAW TEAMS THATPOUR THROUGH IT.

>> ALL TRUE.

>> Jon: THE YOUNG START-UPS THEYWEED OUT A TREMENDOUS AMOUNT OF

COMPETITION FROM THEIR PRODUCTSBY KEEPING REGULATIONS

BURDENSOME BECAUSE YOUNGCOMPANIES CAN'T COMPETE.

>> TRUE.

THE PROBLEM IS -- I THINKTHAT -- LOOK, IT'S VERY HARD TO

REGULATE AN INDUSTRY IN WHICHTHE PEOPLE ARE PAID SO MUCH MORE

THAN THE REGULATORS.

IF YOU ARE SITTING AT THE S.E.C.

AND YOU ARE A YOUNG PERSON YOUARE NOT THINKING I WANT TO GROW

UP AND BECOME BOSS OF THE S.E.C.

YOU ARE THINKING I WANT A JOB ATGOLDMAN SACHS. I WANT A JOB

AT A HIGH FREQUENCY TRADINGFIRM. ONE OF THE FIRST THINGS

WHEN BRAD KATSUYAMA, THE HERO OFSTORY FIGURES OUT THE MARKET IS

RIGGED AND HE'S GOING TOTELL AMERICAN INVESTORS

ABOUT IT THE PEOPLE IN CANADASAY WE SHOULD LET THE

AMERICAN GOVERNMENT KNOW ABOUTTHIS BEFORE WE GO AND DO THIS

BECAUSE WE DON'T WANT TO UPSETTHE AMERICAN GOVERNMENT.

SO HE GOES TO THE S.E.C. ANDEXPLAINS WHAT HE FOUND AND THEY

ARE LIKE SO WHAT?

HALF OF THEM ARE WORRIED ABOUTIT AND HALF OF THEM THINK, WHY

CHANGE THAT?

IT'S JUST GUYS BEING SMART ONWALL STREET KIND OF THING.

HE GOES BACK TO HIS OFFICE ANDTHE BANK COMMISSIONS A STUDY TO

FIGURE OUT HOW MANY PEOPLE FROMTHE S.E.C. HAVE GONE TO WORK AT

HIGH FREQUENCY TRADING FIRMS THEPREVIOUS LIKE THREE YEARS IT WAS

200 AND SOMETHING S.E.C.STAFFERS HAD GONE TO HIGH

FREQUENCY TRADING FIRMS ORLOBBYISTS WORKING FOR HIGH

FREQUENCY TRADING FIRMS.I MEAN IN THAT SITUATIONI MEAN REALLY WHAT

IS GONG TO CHANGE. SO THEREASON THEY BUILT THE EXCHANGE

AND TRY TO DEAL WITH IT IN THEMARKETPLACE AS A BUSINESS IS

THEY'D GIVEN UP REGULATORSWE'LL FIX IT BY CREATING THIS

FAIR EXCHANGE AND WE DON'T NEEDTHE REGULATORS.

>> Jon: HAS THE TIDE TURNED?

>> I'LL TELL YOU IN A WEEK.

>> Jon: WILL YOU?

>> YEAH, I WILL.

>> Jon: PLEASE LET ME KNOWBECAUSE I'M ALWAYS INTERESTED IN

TIDES.

MAN, I REALLY DON'T KNOW HOW YOUDO IT.

YOU FIND THE STORIES RIGHT INFRONT OF EVERYBODY'S EYES.

AND HIGH FREQUENCY TRADING ISNOT A BRAND NEW, YOU KNOW ALONG

WITH THE DERIVATIVESTRADING THEY WERE NOT

BRAND NEW BUT YOU FOUND A WAY TOFOCUS ON IT IN A

VERY ACCESSIBLE MANNER ANDA VERY COMPELLING MANNER.

AND I APPRECIATE IT.

>> THANKS FOR HAVING ME ON.

>> Jon: FLASH POINT IS ON THEBOOKSHELVES NOW.

[CHEERS AND APPLAUSE]