Disrupting Wall Street: High Frequency Trading
(5 pages of text)
Michael Lewis’s book Flash Boys, published in 2014, revealed to the public numerous controversial Wall Street trading practices made possible by advances in technology as well as regulatory changes that were (ironically) intended to improve pricing fairness in the financial markets. Lewis’s story focused on the man who blew the whistle: Brad Katsuyama, a Canadian banker who ran the New York trading desk for the Royal Bank of Canada. In 2010, he had noticed some odd system responses to his trading requests and began to ask questions. The answers he discovered, and publicized, about high frequency trading set off a firestorm regarding the moral integrity of the financial markets. Very few people understood what was happening, and fewer still comprehended the central role played by information technology.
Questions remain: How does information technology influence our concept of wealth? Why do “flash crashes” occur? Are the markets rigged? Will the next disruption to the financial markets involve technology?
This case is appropriate for MBA or undergraduate students taking information systems core or strategy courses. Its objectives are to examine:
- How stock exchanges operate.
- The disruptive nature of technology.
- The ethics of finance.
- Regulations and unintended consequences.
Finance and Insurance
United States, Large, 2014
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