This has always been about the institutional investors and never about the individual/retail investor. Lewis never claimed it was. Katsuyama never claimed it was. Absolutely nobody is saying the retail investor is being harmed. If they are they are making up their own premise because it’s not part of the actual discussion. Retail investor are sub 5% of the volume.
1. HFT doesn’t prey on small mom-and-pop investors. In his first two TV appearances, Lewis stuck to a simple pitch: Speed traders have rigged the stock market, and the biggest losers are average, middle-class retail investors—exactly the kind of people who watch 60 Minutes and the Today show. It’s “the guy sitting at his ETrade (ETFC) account,” Lewis told Matt Lauer. The way Lewis sees it, speed traders prey on retail investors by “trading against people who don’t know the market.”
The idea that retail investors are losing out to sophisticated speed traders is an old claim in the debate over HFT, and it’s pretty much been discredited. Speed traders aren’t competing against the ETrade guy, they’re competing with each other to fill the ETrade guy’s order. While Lewis does an admirable job in the book of burrowing into the ridiculously complicated system of how orders get routed, he misses badly by making this assumption.
If that's the findings of the original research then the point was lost before the media ran with it. This story is being portrayed as a betrayal of "the little guy":
Financial Post: (Flash Boys: Former RBC trader hero of Michael Lewis’s new book on how U.S. stock markets are rigged) "SEC Commissioner Daniel Gallagher said on March 28 that individuals are concerned that high-frequency traders detract from fairness in the marketplace. “The problem with high-frequency trading right now is that there’s a perception that for the little guy, the markets aren’t fair,” Gallagher told CNBC during an interview. “That perception to me is a reality. It’s something we need to address.”
Yes the market is rigged. So what?- MSN Money 'You're going to get crushed': Is Wall Street rigged? MSN Money 1 day ago - The little guy will always be at a disadvantage, but there's never been a ... But if the big reveal of "Flash Boys" is that the stock market is rigged ..'You're going to get crushed': Is Wall Street rigged? Sydney Morning Herald - 21 hours ago Whether the practice is market rigging, as Lewis claims, is open to ... "The little guy is going to say, 'Why isn't the regulator doing their job and ...
Not a Good Day to Be a Stock Exchange - Stocks To Watch ... blogs.barrons.com/.../not-a-good-day-to-be-a-stock-exchange/ Barron's 1 day ago - Raymond James analysts Patrick O'Shaughnessy and Cory Dlugozima called the argument that the market is rigged against the little guy ...
The U.S. stock market is rigged to hurt the average investor and...finance.yahoo.com/.../ These HFTs give the big guys an edge that the little guys cannot compete with, says Michael Lewis, ...
etc. etc.
OK, we agree that the hype is wrong about HFT's being harmful to traders in general. Maybe we can also meet on the idea that no proof has been presented to the affect that HFT's are criminal. Bottom line here (imho) is that anyone who doesn't like HFT's needs to show proof of a crime, or show how even more state control of the marketplace could possibly do more good than harm.