The Flash Boys Effect: An analysis of high- frequency trading in the online media

Transcription

1 The Flash Boys Effect: An analysis of high- frequency trading in the online media MediaMiser MediaMiser Ltd. High-Frequency Trading 1

2 Executive Table of Summary Contents Introduc?on/Methodology 3 Execu?ve Summary Overall Coverage. 5 Flash Boys... 9 Dark pools Inves?ga?ons. 11 About Us MediaMiser 2014 Ltd. High-Frequency Trading 2

3 Executive Summary Introduction/Methodology What s this report about? The goal of this report is twofold to show the impact of the Michael Lewis book Flash Boys on media men7ons of high- frequency trading (HFT), and to illustrate the nature of that coverage through analysis of top organiza7ons, top issues/events, and the top outlets and journalists found within that coverage. What exactly is high- frequency trading? Good ques7on. Investopedia says high- frequency trading is a trading pladorm that uses powerful computers to transact a large number of orders at very fast speeds. High- frequency trading uses complex algorithms to analyze mul7ple markets and execute orders based on market condi7ons. Typically, the traders with the fastest execu7on speeds will be more profitable than traders with slower execu7on speeds. The book s main angle that high- frequency trading is essen7ally a nega7ve prac7ce allowing some traders an unfair advantage in the market was a constant theme in media coverage. What media coverage did you use? The report was limited to men7ons of high- frequency trading in online news stories from major English daily newspaper sites in North America, major financial news websites and newswires, and major general news sites. Coverage was monitored and collected using the keyword high frequency trading. When exactly did you look at coverage? Coverage was analyzed during the first half of 2014: January 1 to June 30, MediaMiser 2014 Ltd. High-Frequency Trading 3

4 Executive Summary Following the ini7al spike created by the book launch, men7ons of high- frequency trading in the media per week were sustained into May and June as markets and organiza7ons reacted. The Flash Boys effect on media coverage of HFT was so great that men7ons of the prac7ce jumped 440 per cent in total in the three months following its release. The book was the most- covered issue or event during the study period, and was discussed more than 350- per- cent more than June s Senate hearings into HFT. Goldman Sachs was the most- men7oned investment bank in coverage, and had the highest SOV of any investment bank in every month but January and June. It was followed by Barclays, which received most of its coverage in June when a lawsuit against it related to its HFT opera7ons was brought by the New York Adorney General. HFT firm Virtu made headlines in early April aeer delaying its long- awaited Ini7al Public Offering just days following the book s release, leading many to speculate that the book influenced the firm s decision to delay. Mentions of HFT jumped 440 per cent in total in the three months following the book s release. Bloomberg was the top online outlet to run stories men7oning high- frequency trading, closely followed by CNBC and BusinessWeek. The Wall Street Journal was next, followed by Reuters. Bloomberg s Sam Mamudi was the top journalist to men7on high- frequency trading in his coverage. His stories were typically published on Bloomberg.com and on BusinessWeek s website, along with the Washington Post. Dark pools/markets, which are unregulated markets controlled by individual banks, were very scarcely men7oned prior to April. But they ended up with the second- highest share of voice overall, with men7ons especially picking up in June in conjunc7on with the Barclays lawsuit MediaMiser 2014 Ltd. High-Frequency Trading 4

5 Executive Overall Coverage Summary Total Articles: 2,414 Total Circulation: 5,189,474,170 Online ar?cles men?oning high frequency trading Ar?cles Flash Boys release Barclays hit with lawsuit from NY Attorney General for alleged unfair trading practices Senate hearings on high-frequency trading 0 Jan 02 - Jan 19 Jan 20 - Feb 06 Feb 07 - Feb 24 Feb 25 - Mar 14 Mar 15 - Apr 01 Apr 02 - Apr 19 Apr 20 - May 07 May 08 - May 25 May 26 - Jun 12 Jun 13 - Jun 30 Share of voice Major discount brokerages Following the ini7al spike created by the book 15% 4% 3% 2% 34% launch, men7ons of high- frequency trading in the media per week were sustained into May and June as markets and organiza7ons reacted. The Flash Boys effect on media coverage of HFT was so great that men7ons of HFT jumped 440 per cent in the three months following its release. 16% Men7ons of HFT took off again in late June, aeer the New York Adorney General slapped a lawsuit on UK- based Barclays for what he said was unfair prac7ces surrounding its HFT techniques and company- run dark pool. 26% Charles Schwab TD Ameritrade E*Trade Fidelity Scodrade Interac7ve Brokers Lightspeed The share of voice of major discount brokerages was led by Charles Schwab, followed by TD Ameritrade and E*Trade. Discount brokerages were typically men7oned as a tool used by mom and pop investors ( What Michael Lewis gets wrong about speed trading in Businessweek (online), April 1). Charles Schwab was men7oned most oeen because of statements made by Charles Schwab himself, the chairman of the firm, who called HFT a growing cancer that needs to be addressed MediaMiser 2014 Ltd. High-Frequency Trading 5

6 Overall Coverage Share of voice Notable issues/events 3% 3% 6% 8% 9% 14% 2% 3% 31% 21% Flash Boys Dark pools/markets Schneiderman inves7ga7on FBI inves7ga7on Flash crash of 2010 Barclays lawsuit Holder/DOJ inves7ga7on Senate hearing "Maker- taker" trading Rhode Island lawsuit The launch of Flash Boys was the most- covered issue or event during the study period, and was discussed more than 350- per- cent more than June s Senate hearings into HFT. Dark pools/markets, which are unregulated markets controlled by individual investment banks, had the second- highest share of voice, with men7ons especially picking up in June in conjunc7on with the Barclays lawsuit. The various ongoing inves7ga7ons into HFT by the NY Adorney General, the FBI, and the Department of Jus7ce received prominent coverage during and following the book s release. The Flash Crash of 2010 was oeen referenced as an example of nega7ve consequences of automated trading. 13% Share of voice HFT firms The maker- taker trading model, which is related to HFT, was also referenced nega7vely - - especially aeer NYSE President Thomas Farley said it should be banned during June s Senate hearings. A huge number of the (HFT) ou\its he dealt with no one had ever heard of, and the firms obviously intended to keep it this way. - Excerpt from Flash Boys 11% 14% 4% 3% 1% 16% 38% Virtu Knight Capital Getco Citadel Tradebot Hudson River Trading Spread Networks DRW While HFT firms aren t oeen men7oned in the media, companies men7oned in Flash Boys such as Getco, Citadel, Hudson River Trading and Spread Networks were singled out in online coverage. HFT firm Virtu, which had the largest share of voice by a considerable margin, made headlines in early April aeer delaying its long- awaited Ini7al Public Offering just days following the book s release ( Virtu to indefinitely postpone IPO: report in Atlanta Journal- Cons?tu?on (online), April 18), leading many to speculate that the book influenced the firm s decision to delay MediaMiser 2014 Ltd. High-Frequency Trading 6

7 Overall Coverage Share of voice Investment Banks 2% 2% 5% 5% 22% 5% 6% Goldman Sachs Barclays Credit Suisse JPMorgan Ci7group Morgan Stanley Goldman Sachs was the most- men7oned investment bank in coverage, and had the highest SOV of any investment bank in every month but January and June. It was followed by Barclays, which received most of its coverage in June when a lawsuit against it related to its HFT opera7ons was brought by the New York Adorney General. UBS 7% 19% Deutche Bank RBC 7% Bank of America 10% 10% BNP Paribas Merrill Lynch Share of voice Investment Banks over?me (by ar?cles) Most investment banks referenced in coverage were US- based, but were also from Switzerland (Credit Suisse, UBS), England (Barclays), Germany (Deutsche Bank), France (BNP Paribas) and Canada (RBC). The large majority of men7ons of all investment banks rela7ng to HFT were nega7ve, simply due to the nature of coverage Jan Feb Mar Apr May Jun Goldman Sachs Barclays Credit Suisse JPMorgan Ci7group Morgan Stanley UBS Deutche Bank RBC Bank of America BNP Paribas Merrill Lynch The propor7on of men7ons of Goldman Sachs was highest in every month except January and June, when news broke that the New York Adorney General was launching a lawsuit against Barclays for what his office said are unfair prac7ces associated with its high- frequency trading techniques MediaMiser 2014 Ltd. High-Frequency Trading 7

8 Overall Coverage Top journalists Bob Pisani - CNBC Kevin Dugan - New York Post Sarah Lynch - Reuters Bloomberg s Sam Mamudi was the top journalist to men7on high- frequency trading in his coverage. His stories were typically published on Bloomberg.com and on BusinessWeek s website, along with the Washington Post. Carla Main - Bloomberg Bradley Hope - WSJ Mr. Mamudi was followed by John McCrank and Karen Freifeld, both of Reuters. Scod Paderson - WSJ 36 Mad Levine - Bloomberg 39 Karen Freifeld - Reuters 49 John McCrank - Reuters 63 Sam Mamudi - Bloomberg Ar7cles Top outlets New York Times 52 Forbes 64 CNN 77 Washington Post 98 NBC News 104 Reuters 184 Wall Street Journal 194 BusinessWeek 265 CNBC 288 Bloomberg Ar7cles Mr. McCrank s high numbers were due to several syndicated stories that appeared in publica7ons such as the Chicago Tribune and South Florida Sun- Sen?nel, such as IEX eyes stock exchange status as firms come knocking (April 5) and New York adorney general accuses Barclays of dark pool fraud (June 26). Ms. Freifeld s numbers were also high thanks to her stories being syndicated ( New York AG slaps Barclays with securi7es fraud suit in the Chicago Tribune (online), June 25). Bloomberg was the top online outlet to run stories men7oning high- frequency trading, closely followed by CNBC and BusinessWeek. The Wall Street Journal was next, followed by Reuters. All of the top online outlets were na7onal in scope. Honourable men7ons go to the New York Post and Huffington Post, which didn t make the top ten but published 49 and 46 stories, respec7vely MediaMiser 2014 Ltd. High-Frequency Trading 8

9 Flash Boys Total Articles: 810 Total Circulation: 1,783,731,467 Online ar?cles men?oning Flash Boys * Flash Boys released March 31 Ar?cles Jan 02 - Jan Jan 20 - Feb Feb 07 - Feb 24 Feb 25 - Mar 13 Mar 14 - Mar 30 Mar 31 - Apr 16 Apr 17 - May 03 May 04 - May 20 May 21 - Jun 06 Jun 07 - Jun 23 Jun 23 - Jun 30 Top outlets men?oning Flash Boys NBC News 20 Washington Post 22 The release of Flash Boys caused the single largest spike in coverage during the study period, and con7nued to be men7oned in follow- up coverage well into June. It also caused the largest spike of any news item related to HFT during the study period. New York Post Huffington Post CNN The top publica7ons men7oning Flash Boys were the same as the top five who covered high- frequency trading in general, although the order was slightly different, with BusinessWeek coming out on top. Reuters CNBC Wall Street Journal Bloomberg Men7ons of Flash Boys jumped slightly during June s Senate hearings on HFT, mostly in rela7on to the book sounding the alarm about a poten7ally rigged stock market system ( Just 3 Senators have ques7ons at hearing on flash trading in Huffington Post, June 17). BusinessWeek * In ar7cles that also men7on high- frequency trading Ar7cles The book Flash Boys was discussed around 350- per- cent more than June s Senate hearings into HFT, which subpoenaed several well- known financial execu7ves to tes7fy MediaMiser 2014 Ltd. High-Frequency Trading 9

10 Dark pools Total Articles: 535 Total Circulation: 220,916,500 Online ar?cles men?oning dark pools * Ar?cles Hardly mentioned in the media before the end of March, mentions of dark pools peaked in early April and continued well after the book s release, jumping again with the Barclay s lawsuit by the NY Attorney General Jan 02 - Jan 19 Jan 20 - Feb 06 Feb 07 - Feb 24 Feb 25 - Mar 13 Mar 14 - Mar 30 Mar 31 - Apr 16 Apr 17 - May 03 May 04 - May 20 May 21 - Jun 06 Jun 07 - Jun 23 Jun 23 - Jun 30 SOV Investment Banks (in stories men?oning dark pools) Dark pools or markets, which are unregulated financial marketplaces run by individual investment banks, were brought into the media limelight following the release of Flash Boys. 5% 5% 7% 7% 5% 5% 7% 1% 12% 1% 25% 20% Barclays Goldman Sachs Credit Suisse JPMorgan Deutche Bank Ci7group Morgan Stanley UBS RBC Bank of America Merrill Lynch BNP Paribas There was virtually no coverage of dark markets before the release, but men7ons shot up 412 per cent between the middle and end of March. About a week aeer the book s release, it was reported that Goldman Sachs was considering shuwng its pool. A small spike in January was driven by a syndicated Reuters story on EU securi7es reform, which men7oned trading volume limita7ons on European dark markets ( EU reaches deal on sweeping securi7es reform, Jan. 14). A secondary spike in late May/early June was mostly driven by coverage of proposed SEC rules for dark pools, led by chairperson Mary Jo White. A final spike in late June can be adributed to the Barclays lawsuit which specifically called out the firm s prac7ces within its unregulated dark pool. * In ar7cles that also men7on high- frequency trading This resulted in Barclay s being the most- men7oned investment bank in rela7on to dark pools MediaMiser 2014 Ltd. High-Frequency Trading 10

11 Investigations Initiatives Total Articles: 502 Total Circulation: 920,865,335 Online ar?cles men?oning inves?ga?ons/hearings * Ongoing Schneiderman, Holder and FBI investigations mentioned within articles about the launch of Flash Boys Lawsuit against Barclays by New York Attorney General Schneiderman; Hearing by Senate Subcommittee on Investigations 0 Jan 02 - Jan Jan 20 - Feb Feb 07 - Feb 24 Feb 25 - Mar 14 Mar 15 - Apr 01 Apr 02 - Apr 19 Apr 20 - May 07 May 08 - May 25 May 26 - Jun 12 Jun 13 - Jun 30 Schneiderman inves7ga7on Senate hearing Holder/DOJ inves7ga7on FBI inves7ga7on SOV Investment Banks (in stories men?oning inves?ga?ons) 8% 8% 8% 2% 3% 4% 5% 9% * In ar7cles that also men7on high- frequency trading 1% 12% 25% 15% Goldman Sachs Barclays Credit Suisse Ci7group JP Morgan Morgan Stanley UBS RBC Deutche Bank Bank of America Merrill Lynch BNP Paribas Ongoing inves7ga7ons were barely men7oned before the lead- up to the Flash Boys release. Unlike the FBI and DOJ inves7ga7ons, men7ons of the NY Adorney General (Schneiderman) inves7ga7on persisted well into May thanks to news in early May about the New York Adorney General planning to subpoena to various exchanges ( New York Adorney General eyes exchanges in high frequency probe in CNBC (online), May 2)). The maker- taker trading model was referenced mostly during Senate hearings in June, as some tes7fying financial execu7ves stated the model should be outlawed Stock exchange pricing model comes under fire at Senate hearing in South Florida Sun- Sen?nel (online), June 17). Goldman Sachs was once again the most- men7oned investment bank, this 7me in stories men7oning ongoing HFT inves7ga7ons and hearings. There was a small bump in men7ons of senate hearings around May 13, thanks to a one- day hearing about HFT MediaMiser 2014 Ltd. High-Frequency Trading 11

12 About Us MediaMiser is a leading provider of media monitoring and analysis soeware and professional services for organiza7ons of all sizes. Through innova7ve web- based and mobile solu7ons, MediaMiser reduces the 7me and effort it takes to gather, analyze and distribute valuable business intelligence extracted from tradi7onal and social media sources. For organiza7ons that prefer to outsource, MediaMiser also provides detailed analysis reports and daily media briefings through an expert client services team. For more informa7on visit or contact: Jim Donnelly Director of Content jdonnelly@mediamiser.com (613) x MediaMiser 2014 Ltd. High-Frequency Trading 12