The floor of the New York Stock Exchange went still on Tuesday as two investment gurus and the author of “Moneyball” clashed on CNBC over a controversial question: Is the stock market “rigged”? Traders stopped what they were doing and stood glued to their TV screens.
But what’s it all about?
How’d that Moneyball guy dominate CNBC?
It started on Monday. Michael Lewis, the author of “The Big Short” and “Moneyball,” put out a new book called “Flash Boys: A Wall Street Revolt” in which he claims that the U.S. stock market is “rigged” in favor of traders that use specialized technology to buy and sell stocks in a flash.
What are high-frequency trades anyway?
High-frequency traders use sophisticated trading strategies and computer programs that allow them to make split-second decisions on buying and selling shares. These traders can process far more information at much faster speeds than any individual human investor ever could. The technology that underlies the trading process is entirely legal, and the markets these firms trade on are closely regulated.
Watch more: Full 23-minute feud on CNBC
How does it work?
Many investors buy shares and hold them for a long time, hoping that the stocks appreciate over time as the companies grow their profits. That’s not what high-frequency trading is all about. Traders using the techniques of electronic trading observe tremendous amounts of information culled from stock prices to the number of shares traded along with other data. They can move to buy or sell a stock faster than anyone else.
What happened Tuesday on CNBC?
In brief: Two big-money guys in nice ties went head to head about whether the practice of high-frequency trading skews the stock market against the ordinary human investor. Brad Katsuyama from IEX and BATS Global Markets president William O’Brien clashed over the model of high-frequency trading, and whether it provided an unfair advantage in the market. As they did, traders stood transfixed on the floor of the New York Stock Exchange.
What are the downsides of high-frequency trades?
Critics say that high-frequency trading pushes Main Street out of the stock market, making it impossible for ordinary investors without access to the technology to have a fair chance. Some have called for stronger regulations on high-frequency trading.
--- Matthew DeLuca and CNBC’s Mark Koba, with NBC News’ Sarah Bourassa and Reuters.
First published April 1 2014, 3:13 PM