Flash Boys - Impact of a "flash" in trading world

This is my 3rd book from Michael Lewis. Michel has an ability to talk about finances, economics and investments in a language that is easily understandable including its finer nuances.

Michael Lewis is back with its dark stories within the financial & investment community, this time focusing on the "high-frequency" trading firm. The first thing that hits you is "speed". The power of milli, micro, nano seconds. Well, how much can happen in a second... you may ask? But then you realize entire busines models (and of course "billions") are being built around these. High Frequency Trading firms or simply put HFTs survive on sophisticated (read complex) algorithms that play on arbitrage of speed. It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012. The ability to race first to the stock exchange and read the data better than others thus playing to your advantage. You might think what's wrong with that. It's not wrong as long as you play speed to your advantage only. Once you start using it to hurt others, you are on a borderline of unethical & immoral practices.

One of the most brilliant example often used in the book is that even if you trade with yourself, a HFT will come in between, buy from you and sell you back at a higher price simply because the speed with which your trade should have happened is biased towards HFTs.

Michael first establishes the basics, then the wrongs and then start building up the chracaters who are trying to clean the system. It is also interesting that Michael & the "good" characters clearly indicate that they are not in this only for "high moral grounds". They are in here still to make money but on good & fair principles. So you are not reading about some saints but investors who should do their jobns properly in the interest of the people whose money they represent. Flash Boys is about the founders of 'Investors Exchange' or IEX. They deviated from the normal practice and instead of being pushing towards "speed" intentionally introducesda "lead time" to deter the high frequency trading algorithms. They additionally decided not to give anyone unfair advantage for instance Refusing to pay for order flow or no colocation to any specific broker etc.

It covers the founders Brad Katsuyama, Ronan, Schwall, etc and their search for more people who believes in the same philosphy. It traces their journey to the breakeven point of 50 mn trades (which they achieved in 6 months of opening).

As per wiki, they now trade around 200mn daily accounting for just over 1.4% market share.
The novel is an excellent read. Well, we always know that the investment world is not a fair world and a bit of gambling is involved. What this novel further highlights is the extent of gambling and corrupt practices involved. HFTs without taking any position in any stock have been making billions. The high-frequency trader Virtu Financial disclosed in March 2014 that during five years it made profit 1277 out of 1278 days, losing money just one day. No wonder, because you are never trading fairly but exploiting the weaknesses of others. Kudos to Michael for also naming the people involved. I am a bit surprised that no one filed any lawsuit considering so many big wall street firms have been named & shamed. At least, the day after the book's release FBI announced an investigation into high frequency trading, in particular about possible front running, market manipulation, and insider trading. On May 1, the SEC announced a $4.5 million fine for the New York Stock Exchange and two affiliated exchanges, on charges related to Lewis's book. The exchanges neither admitted, nor denied the charges.

So at least some good came out of it. By the way, the book boosted the trade over IEX by as much as 40% (quoting an article from barrons.com)

What remained unclear to me is the sudden motivation change of Golman Sachs. Till the last chapter, they are shown as the bad boys and then suddenly they have a change in heart... difficult to believe.

3 days in Catania

Sicily is the largest island in the Mediterranean Sea. Though it is within Italy, Sicilians love to have their own independent culture & identity. We recently spent a few days on the east coast of Sicily with a base in Catania.

There are lots of tourism websites which list a host of tourist attractions. When you have limited days in hand, often the overload of information on tourist websites can leave you more confused about what to see and do. Here’s hoping that a real experienced itinerary might benefit some fellow travelers who plan to enjoy this UNESCO world heritage site.

DAY 1: Tour of Catania City

Most of Catania city attractions are within walking distance. So I would not recommend using any public transport or buying any travel card.

Catania is called "The City of the Elephant". Hence it makes sense to start your day with a visit to Piazza Duomo, or what is also referred to as the square of the ‘Elephant Fountain’. This is the central square of Catania and always crowded with tourists and tour guides. With lots of restaurants and cafés around this place, the square has a relaxed touristic atmosphere. You may like to spend some time here enjoying the local delicacies in one of the cafes. The key attraction “Elephant Fountain” is built from lava rocks and dates back to Roman era. Seemingly elephants had a worthy contribution to the history of those times, as they were used to defend the city. Hence they have become a symbol of the city.

The Piazza also hosts the Cathedral of Sant’Agata, a beautiful Roman Catholic Cathedral with a rich history.

Piazza Duomo serves as the entrance to the main shopping street, Via Etnea. Approx. 3kms long, Via Etnea can become your central axis of tourism in Catania. The street has all the famous shopping chains, many cafes & restaurants and lots of churches. It is always busy with tourists.

Next to Piazza Duomo, you can start with the university compound and then move further up to Piazza Stesicoro which contains the ruins of Roman amphitheater. While this might not look like a spectacular sight if you have been to Rome or other parts of Italy, it is still worth spending some time here. The same square also hosts the marble monument of Vincenzo Bellini. Vincenzo Bellini, born in Catania was a famous Italian composer from the early 19^th century. The monument is has seven steps symbolizing the 7 musical notes. On the four sides of the column are his 4 famous works: Norma, I Puritani, La Sonnambula and Il Pirata.

Continue walking north till you hit Villa Bellini, which is a beautiful garden. You may like to go up and have wonderful views from the top.

There are many attractions which are not directly at Via Etnea but on perpendicular streets like Via Vittoria Emmanuelle and Via Antonio di Sangiuliano. Both streets have old buildings and many cafes / restaurants. One such attraction is theTeatro Massimo Bellini, the opera house which performs all of Bellini's work. After an earthquake destruction, it took almost 200 years to build it.

Similarly, on the other side of Via Etnea is Via Crociferi connecting Vittoria Emmanuelle and Via Antonio di Sangiuliano. This road has many churches and museums in old baroque architecture.
From the Elephant Fountain, if you move south, you can see the busy food & fish markets. Further down is the Castello Ursino which also houses the Museo Civico. This has an entrance fee and we didn’t go inside.

Based on your pace, Catania can be easily covered within a day with sufficient time to relax for food, coffee or the delicious Gelato ice creams.

DAY 2: Mt Etna

Reserve the second day to explore the tallest active volcano on the European continent (3300m+). It is the highest mountain in Italy south of the Alps and included in the list of UNESCO World Heritage Sites. Mt Etna has the longest period of documented eruptions in the world. The last eruption was as close as in May 2015. However the last disruptive explosion was in Apr 2014 which also generated impressive night pictures and affected flight traffic.

There are multiple ways to reach Mt Etna. The cheapest being the public transport. The bus AST departs from Piazza Papa Giovanni XXIII at 8.15, and arrive at the Rifugio Sapienza in Nicolosi.

Please note irrespective of your means (bus, car, private tour), Rifugio Sapienza remains the base which is approx. 2000m. From here, you need to take a cable car (approx. €30 per person) to a height of 2500m. And for enthusiastic folks, you can hike further up or take a 4x4 for another 33€.

We took a tourist bus service to Rifugio Sapienza simply because of the time convenience. Rifugio Sapienza has The Silvestri Craters, which are no longer active but are the most visited. They are easily accessible, and hence worked better for us as we had a stroller with us. These craters will provide you with impressive landscape and visually demonstrate the power of volcanic destruction. 15-20 mins before reaching the base, you can start seeing beds of lava rocks which provides a very clear impression of how the lava rivers would have flown. You may feel as if you are visiting a coal mine because all you can see is black sand & rocks.

You can easily spend a couple of hours going around the crater. Especially look at the color of stones which varies depending upon how old the rock is. The darker the stone, the more recent it is. If you wish to hike, there are some other craters nearby however the level of hike is tough and not advisable with little children or with strollers.

There are some restaurants nearby and shops offering tastings of a variety of flavored honey.

If you are not going up, you can easily be back to Catania in the afternoon to enjoy a relaxing dinner or the fun-filled night life. Going up will easily consume additional 3-4 hrs.

DAY 3: Taormina

Taormina is a beautiful town, approx. 1 hr. from Catania. It is definitely more touristy than Catania. Taormina can be reached by trains or buses. However please note the train station in Taormina, Taormina-Giardini is 2km below the town centre. Hence the bus option is preferable. There are 2 bus services that connect Taormina – Interbus & Etna.

We took the Etna bus from Piazza Michelangelo. However I believe it comes from Via Liberta. The journey time was approx. 50 mins. The bus drops you at Via Luigi Pirandello and costed us €8.50 return.

Taormina has primarily 2 parts to explore: the charming town center on the hill and the sea side beaches below. There is a cable car that can take you up and down if you don’t fancy the 2 kms exhausting uphill walk.
Walk from Via Luigi Pirandello bus stop for approx. 10 mins to the entrance to town center called Porta Messina. From Porta Messina, take Via Teatro Greco to reach your first stop - Teatro Greco. This is an ancient Greek theatre built in 7^th century BC. The entrance is 8€. The walls of the theater and some seats are still preserved. Interestingly, concerts are still conducted in the theater. To me, at least the current concerts spoil the ancient looks of the monument but everyone is obviously entitled to his or her opinion.

From Teatro Greco, walk back to Palazzo Corvaia and connect to Corso Umberto. Here you can find the Santa Caterina Church and also the tourist office. There was also a museum here which we didn’t visit. Take Corso Umberto and walk to Porta Catania. This is their main street with lot of old beautiful buildings, piazzas, lovely terrace based romantic restaurants, boutique shops and art galleries. There are so many small alleyways here that you will instantly fall in love with this part of the town.

Just before the Porta Catania, there is a small road that takes you to their public gardens called “Giardino Pubblico”. Please note it’s approximately 15-20 mins walk. Alternate and faster option is to take stairs from Palazzo Corvaia.

The public gardens are beautiful with less tourists. There are also some statues commemorating Siciliy’s efforts in WW II. There are some pagoda-style structures made of bricks and edged with lava stone, parts of which are in ruins but adds to a bit of different character to the gardens. You can easily spend some relaxing time in the gardens. Take the other exit out and walk back to Cable car stop. The city tour has ended and now is the time to hit the beach.

While there are multiple beaches, we visited the most famous one – Isola Bella. Isola Bella is a rocky beach and to add to the attraction has some rocky caves and grotto like structure. You can walk through the water to reach these structures. The property is classified as a nature reserve. There are lot of restaurants on the beach which offers beds, lounge chairs or sofas to sit & relax. Have some drinks and unwind.
Please note Isola Bella is several steps down from the road. We had a pram and hence it was a bit of a stretch taking it up & down. The steps are lined up with hawkers selling things, including lava artifacts.

You might need to take the cable car up again to catch your return bus. It usually leaves at :15 & :45. However still enquire about the return timings once you reach there.

Hope the above itinerary was useful and you can enjoy the richness of the city and its nearby surroundings. Catania gives a perfect mix of culture, heritage, beaches, mountains and lots of sunshine (which Europeans treat with a lot of luxury). And did I mention, the food is truly amazing. Especially try the local delicacies which include Arancini (rice balls with various kinds of stuffings), Sicilian cookies, Granita (flavored ice based desert made without milk) and last but not the least: Cassatella di Sant'Agata, a “cassata” desert.

Please note: we actually spent 4 days in Catania. The 4^th day was relaxing with some friends and in the evening a visit to the local fishing village of Acitrezza. If you need more information on the visit, feel free to write to me. The trip was done in June 2015.