What was Flash Boys about, and what is the IEX speed bump?
A book about traders racing to shave milliseconds off a cable made famous an exchange that deliberately slows every order with a 38-mile coil of fiber.
Flash Boys is a 2014 book by Michael Lewis arguing that high-speed traders use their speed to ordinary investors, and it tells the story of the people who built an exchange to slow them down. Lewis investigated (HFT) by interviewing people who worked on Wall Street. He concluded that HFT is used as a method to front run orders placed by investors. Front running means trading ahead of a large pending transaction on advance, nonpublic knowledge of it, and it is considered a form of market manipulation in many markets.
The book's opening is about a cable. Spread Networks spent $300 million to lay 827 miles of fiber-optic cable from Chicago to New Jersey, cutting the data time between the Chicago Mercantile Exchange and Nasdaq from 17 to 13 . At the centre of the story is Brad Katsuyama, a financial executive who discovered how access to such technology and special arrangements between HFT firms, exchanges and big banks let insiders profit at the expense of retail investors.
His answer was IEX, an exchange founded in 2012 to mitigate the effects of HFT. Its main innovation is a 38-mile coil of optical fiber placed in front of its trading engine. That extra cable creates a delay of 350 , called a , and the round trip of 0.0007 seconds is designed to negate certain speed advantages used by some high-frequency traders. The SEC approved IEX as an official exchange on 17 June 2016.
Step 1: Orders arrive
Traders send orders to IEX.
Step 2: 38 miles of fiber
A coil adds a 350 microsecond delay.
Step 3: Everyone waits equally
Tiny speed advantages shrink.
Step 4: Matching engine
Orders are then matched.
Not everyone agreed with the diagnosis. Manoj Narang, who ran a firm, called the book more fiction than fact, and an advocacy group for fast traders argued that a market limiting speed would be illiquid. On 29 April 2014 the SEC chair, Mary Jo White, told Congress that US financial markets are not rigged.
Try it
How long a coil makes a 350-microsecond delay?
y = 5x + 0
Challenge · Tune the delay per mile so a 38-mile coil gives 350 microseconds. How long a coil would double that?
Quiz me
0/3
Recap
Lewis argued speed is used against ordinary investors; critics and regulators disputed it.
💡 A trick to remember it · One side says the market is a race with a secret shortcut; the other says the fast runners keep the track open.
Surprising fact · IEX's speed bump is a 38-mile coil of fiber that adds 350 microseconds.
Connects to
- 🌑 What is a dark pool, and how does it match orders nobody can see?
- ⚖️ Which dark pools were fined, and for what: Barclays, Credit Suisse, UBS and ITG?
- 🪨 Why does selling a huge pile of shares push the price down?
- 🐋 Why can a prediction market get it wrong?
- ⏱️ Why does the speed of light limit how fast the internet can be?
- ⚡ What happened when the stock market lost a trillion dollars in minutes, and got most of it back?
Sources (4)
No source, no claim. Every fact in this lesson (19 claims) cites at least one of these.