Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio

by Sal Arnuk, Joseph Saluzzi

The markets have evolved at breakneck speed during the past decade, and change has accelerated dramatically since 2007's disastrous regulatory "reforms." An unrelenting focus on technology, hyper-short-term trading, speed, and volume has eclipsed markets have been hijacked by high-powered interests at the expense of investors and the entire capital-raising process. A small consortium of players is making billions by skimming and scalping unaware investors -- and, in so doing, they've transformed our markets from the world's envy into a barren wasteland of terror. Since these events began, Themis Trading's Joe Saluzzi and Sal Arnuk have offered an unwavering voice of reasoned dissent. Their small brokerage has stood up against the hijackers in every their daily writings are now followed by investors, regulators, the media, and "Main Street" investors worldwide. Saluzzi and Arnuk don't take prisoners! Now, in Broken Markets , they explain how all this happened, who did it, what it means, and what's coming next. You'll understand the true implications of events ranging from the crash of 1987 to the "Flash Crash" -- and discover what it all means to you and your future. you will get angry (if you aren't already). But you'll know exactly why you're angry, who you're angry at, and what needs to be done!

Genres: Finance, Business, Economics, Nonfiction, Ebooks

320 pages, Paperback

First published May 8, 2012

Reviews

[Louann Carroll · Rating 5 out of 5]

Wonder where the confidence went? Look no farther than Broken Markets. While it is a difficult subject, the authors have done well in explaining high frequency trading better than anyone else I've encountered.

Market melt-ups on low volume days? I've wondered and now I know. HFTs enter the market and freely trade between themselves driving prices higher.

Wonder why the retail investor is no longer investing? They will tell you and in a way that makes sense.

Yes, some of the material has been seen and/or written before, but this puts everything into one well-written book that may serve to depress rather than inspire you.

You will wonder where the SEC is and why they are not investigating. Where does all that money go? Eventually you will wonder, what is money anyway? Just paper? Or is it confidence in our country?

How fast does data travel? When the HFT traders have computers sitting next to Nasdaq computers we're talking nanoseconds. MUCH faster than what you and I receive. Wonder why the market jumps or lowers before you even hear the news? That's why.

Sal Arnuk and Joseph Saluzzi are well-versed in stock market jargon and they should be--both of them come from an equity trading background.

I would recommend BROKEN MARKETS for every American interested in how our stock market has changed. I found it informative, challenging, yet easy to read.

Kudos to the authors.

[Thomson Kneeland · Rating 2 out of 5]

Seriously biased to the author's views on what constitutes a "rigged" market. Citing Zerohedge as a bastion of truth leaves something seriously desired; the markets have been stacked for years in favor of market makers and pit operators making money off of huge spreads and skimming investors' orders for decades. Now you can get pinched for a penny by an HFT while paying $5/trade instead of $30/trade and paying a 5 cent spread on your orders. But I should feel bad for a pension trying to buy 100,00 shares of a single security getting front run? That's the market auction folks, try to buy 100k shares of a security, and by nature the value of the security is run up because someone is willing to pay more. Now there certainly are issues regarding the maker/taker model in terms of the exchanges' obligations to shareholders/profits vs a fair market. But for colocation, any CTA is getting offers for colocation at $600/month, so it's not simply reserved for the elite. And the market is a Darwinian survival game...HFT's profits have been sinking for years as the competition and speed steps up. Too much to discuss in an small blurb here; the book is worth reading to get a sense of the history, and some issues, but I'd read Dark Pools to get a better overview of the history of algos/dark pools and more rather than this biased account towards their own trading practices. As an individual trader, I am quite happy operating in present markets rather than those of ten years ago, HFT/algos and all. If you're getting picked off by algos, then your trading system is flawed and you ned to adjust to an evolving environment.

[Dan Korth · Rating 4 out of 5]

Everybody in America is impacted by the quality of our equity markets whether they are an investor or not. I felt this book was masterfully written in that the authors did a good job of making their important message understandable and relevant to everyone: traders, regulators, investors, entrepreneurs and publicly traded companies. This opened my eyes to some of the failings in the current structure of America's stock markets and some of the serious structural economic problems being caused or exacerbated by those failings. I hadn't previously understood or been aware of how our poorly structured markets were damaging companies currently listed on the exchanges or, even worse, what a roadblock they've become to successful IPO's in the last 15-20 years.

I would recommend this book especially to entrepreneurs and investors with the recommendation that you start by reading the table of contents and picking out the chapters you feel are relevant to you. There are several chapters with a lot of technical detail that I didn't need as an investor but others would find interesting and relevant. Definitely read the first few chapters and the last three. Other than that I'd say pick and choose

[Jennifer · Rating 4 out of 5]

This book is a must-read for anyone who invests in stocks, whether on your own or through a mutual fund or other institutional investment entity. Michael Lewis referenced Broken Markets in this year's Flash Boys, and it delves more deeply into the ways that high frequency trading is harming investors and the stock market overall. I found particularly interesting the authors' insights into the way HFT has undermined the system of Initial Public Offerings, which has put a damper on innovation and entrepreneurship in the U.S. Though the style of the book sometimes varies too sharply between folksy and overly technical, it's worth the effort to understand what Arnuk and Saluzzi have uncovered.

[Mario Cianfarani · Rating 2 out of 5]

There is a tremendous amount of information in this book with a good historical overview of how markets evolved to their current incarnation.

My problem with it though, much like Flash Boys, is that it continually preaches and pounds the table that "markets are rigged". They are not. But if you want to compete with HFTs on their time frame then it might feel that way unless you are willing to invest the same resources to technology and human ingenuity as they do. Markets evolve with technology and the intended and unintended consequences of regulatory reform. Participants must do the same.

Much prefer the book Dark Pools.

[Jacek · Rating 3 out of 5]

I was lead to this book by the praise in Michael Lewis's "Flash Boys", which is to me a much better and more accessible presentation of the theme in layman's terms. Despite being often too technical and filled with jargon, this must have been an extremely valuable, pioneering book as it first came out and the authors deserve much respect for all the work that lead to its publication.

[Lime Street Labrador · Rating 2 out of 5]

By and large a verbose collection of histories, government hearings, and superficial descriptions.

[Dee Renee Chesnut · Rating 4 out of 5]

This was a free ebook from BN.com, and it is no longer free.
I'm glad I read for it explained to my satisfaction why one of my sell limit orders sold on the Boston exchange when its trigger price never reached that price on NYSE that day. It explained to my satisfaction why high volume occurs when the price drops lower than 7-8% intraday and yet it can be higher by the end of the day. It explained to my satisfaction why I rarely see volume exceed 50% of its Average Daily Volume on dramatic price up days. There are High Frequency Traders, arbitragers, and Dark Pools who can read my orders between the time it takes to submit and to execute, and who act on that information.
An analogy the authors frequently use in this book has this shopper ready to checkout at the grocery store. I head for a checkout line, and suddenly there are 9 other carts in front of me. I head for another line, and 9 more carts are there. And so on.
So much has changed in the last 15 years in stock markets and SEC rules, and this book explains much of it. The stock markets were previously not-for-profit with rules for self-governance and the SEC helped the investor. Now they are for-profit corporations and the rules of the SEC have been helping traders rather than investors.
I recommend it for readers with portfolios, even if your portfolio is managed by others. I don't give it the fifth star for too much of it is repetitious.

[Stephen Hackney]

The authors are old hands at stock trading, having worked for Instinet, one of the earliest high speed high volume trading firms in the 1990s. They lay out very clearly and concisely the ruination of trading stocks, the dishonesty, the corruption of the system, due to the introduction of technological high frequency trading. They inform and define for the reader such activities as front-loading, spoofing, maker-taker charges, co-location, decimalization, and more, explaining how each of these activities has turned the stock market into a giant casino for the institutional investors (you know, like the ones you have your mutual funds invested with, all you who have 401K, 403B, 457 Plans, etc.) Their is an urgent need to institute serious structural changes in the market by the SEC and Congress . . . but of course that is not going to happen. Bernie Sanders, in his railing against Wall Street, has only touched upon the tip of the iceberg. The problem is so much bigger. For all of us, yes, you, if you have your investments in mutual funds, will continue to be the fodder upon which the HFTs, hedge fund operators, and those controlling the more than 40 Exchanges will continue to feed upon.

[Anandh Sundar · Rating 4 out of 5]

The book is a good read on HFT, while does not pretend to be objective(as evident from the title), it still gives both sides of the story. The book's small size goes in its favour, and after studying market structure in Bschool from Prof Ajay Pandey, it was even easier to understand. If you want to understand HFT in plain english, this is the book for you.

[Phil Toop · Rating 4 out of 5]

An interesting look at how the SEC has allowed the exchanges to give HFT firms an edge through access to data not available to the wider market. Once can only hope that in the 4 years since the book was written there is greater awareness of the issues and there may one day be enough pressure to level the playing field.

[Steven Gilchrist · Rating 4 out of 5]

This book is a real eye opener to the true nature of stock markets. Guys at Themis do an excellent job explaining how we have gotten to the place we are today with crazy computers controlling our capital markets.

[Michael]

Interesting book, a bit biased dismissing a lot of the positives of current market structure. but if you want to understand how we got to where we are right now this is as good a documentary as any other out there.

[Yosia Sugialam · Rating 4 out of 5]

A bit biased and losing focus toward the end. Nevertheless, still a very good book on HFT, especially regarding the conditions that lead to their birth and unfair advantages. The book is not so clear and comprehensive though about the HFTs itself.

[James · Rating 5 out of 5]

The authors understand better than anyone else I know how HFT affects the markets.

Should be a must read for everyone at the SEC

[Adebowale Adebusuyi · Rating 5 out of 5]

The author did a great job. It was a fantastic reading on high frequency trade

[Freddie Barr-Smith · Rating 3 out of 5]

A bit doom-mongering, ill-informed and pessimistic but overall a good read

[Chris Jarrett · Rating 4 out of 5]

great and informative guide to understanding HFT and timeline