The “Flash Boys” Effect: An analysis of high-frequency trading in the online media © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 1 ExecutiveTable of SummaryContents Introduc6on/Methodology 3 Execu6ve Summary 4 Overall Coverage 5 Flash Boys 9 Darkpools 10 Inves6gaons 11 About Us 12 © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 2 Introduction/ ExecutiveMethodology Summary 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 discussions surrounding high-frequency trading, and to illustrate the nature of that coverage through analysis of top organizaons, top issues/events, and the top outlets and journalists found within coverage. What exactly is high-frequency trading? Good ques6on. Investopedia says high-frequency trading is a “trading plaorm that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze mul6ple markets and execute orders based on market condi6ons. Typically, the traders with the fastest execu6on speeds will be more profitable than traders with slower execu6on speeds.” Lewis’s angle to his book – that high-frequency trading is essen6ally a negave prac6ce allowing traders to “rig” the market – was a constant theme in media coverage. What media coverage did you use? The report was limited to men6ons 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 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, 2014, inclusive. © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 3 Executive Summary • Following the ini6al spike created by the book launch, men6ons of high-frequency trading in the media per week were sustained into May and June as markets and organizaons reacted. • The“Flash Boys effect” on media coverage of HFT was so great that menHons of the pracHce 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-men6oned 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 operaons was brought by the New York Acorney- General. • HFT firm Virtu made headlines in early April aer delaying its long-awaited Ini6al Public Offering just days following the book’s release, leading many to speculate that the book influenced the firm’s decision to delay. • Bloomberg’s Sam Mamudi was the top journalist to men6on high-frequency trading in his coverage. His stories were typically published on Bloomberg.com and on BusinessWeek’s website, along with the Washington Post. • Bloomberg was the top online outlet to run stories men6oning high-frequency trading, closely followed by CNBC and BusinessWeek. The Wall Street Journal was next, followed by Reuters. • Dark pools/markets, which are unregulated markets controlled by individual investment banks, had the second-highest share of voice, with men6ons especially picking up in June in conjunc6on with the Barclays lawsuit. • There was virtually no coverage of dark pools/markets before the book’s release, but men6ons shot up 412 per cent between the middle and end of March. © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 4 ExecutiveOverall CoverageSummary Total Articles: 2,414 Total Circulation: 5,189,474,170 Online arcles menoning “high frequency trading” Barclays hit with 800 Release of 740 Michael Lewis’s lawsuit from NY Attorney 700 “Flash Boys” General 600 500 Senate hearings on high- 400 frequency 339 ArHcles 305 trading 300 258 172 170 200 76 68 80 100 30 0 Jan 02 - Jan 20 - Feb 07 - Feb 25 - Mar 15 - Apr 02 - Apr 20 - May 08 - May 26 - Jun 13 - Jan 19 Feb 06 Feb 24 Mar 14 Apr 01 Apr 19 May 07 May 25 Jun 12 Jun 30 Share of voice – Major discount brokerages • Following the ini6al spike created by the book launch, men6ons of high-frequency trading in the 2% media per week were sustained into May and June as markets and organizaons reacted. 3% 4% • The“Flash Boys effect” on media coverage of HFT 34% was so great that men6ons of HFT jumped 440 15% per cent in the three months following its release. • Men6ons of HFT took off again in late June, aer the New York Acorney General slapped a lawsuit on UK-based Barclays for what he said was unfair prac6ces surrounding its HFT techniques. 16% • The share of voice of major discount brokerages was led by Charles Schwab, followed by TD 26% Ameritrade and E*Trade. • Charles Schwab was men6oned most oden because of statements made by Charles Schwab himself, the chairman of the firm, who called HFT Charles Schwab TD Ameritrade E*Trade a “growing cancer that needs to be addressed.” Fidelity Scocrade Interac6ve Brokers Lightspeed © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 5 Overall • The launch of Michael Lewis’s ‘Flash Boys’ Coverage Share of voice – Notable issues/events 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. 2% 3% Flash Boys • Dark pools/markets, which are 3% 3% unregulated markets controlled by 31% Dark pools/markets individual investment banks, had the 6% Schneiderman inves6gaon second-highest share of voice, with FBI inves6gaon men6ons especially picking up in June in 8% conjunc6on with the Barclays lawsuit. Flash crash of 2010 Barclays lawsuit • The various ongoing inves6gaons into 9% HFT by the NY Acorney General, the FBI, Holder/DOJ inves6gaon and the Department of Jus6ce received Senate hearing prominent coverage. 14% 21% "Maker-taker" trading • The “Flash Crash” of 2010 was oden Rhode Island lawsuit referenced as an example of negave consequences of automated trading. • The “Maker-taker” trading model was also referenced especially aer NYSE President Thomas Farley said it should be banned during June’s Senate hearings. “A huge number of the (HFT) ouTits he dealt with… no one had ever heard of, and the firms obviously intended to keep it this way.” - Excerpt from Flash Boys Share of voice – HFT firms • 1% While HFT firms aren’t oden men6oned in the media, companies men6oned in 3% Flash Boys such as Getco, Citadel, Hudson 4% Virtu River Trading and Spread Networks were 11% Knight Capital singled out in HFT coverage. 38% Getco • HFT firm Virtu made headlines in early Citadel April aer delaying its long-awaited Ini6al 13% Tradebot Public Offering just days following the book’s release (“Virtu to indefinitely Hudson River Trading postpone IPO: report” in Atlanta Journal- Spread Networks Cons>tu>on (online), April 18), leading 14% many to speculate that the book DRW 16% influenced the firm’s decision to delay. © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 6 Overall Coverage Share of voice – Investment Banks • Goldman Sachs was the most- men6oned investment bank in 2% 2% coverage, and had the highest SOV Goldman Sachs of any investment bank in every month but January and June. It was 5% Barclays followed by Barclays, which received 5% 22% Credit Suisse most of its coverage in June when a 5% JPMorgan lawsuit against it related to its HFT operaons was brought by the New Cigroup York Acorney-General. 6% Morgan Stanley • Most investment banks referenced UBS 7% in coverage were US-based, but also Deutche Bank 19% from Switzerland (Credit Suisse, UBS), England (Barclays), Germany RBC 7% (Deutche Bank), France (BNP Bank of America Paribas) and Canada (RBC). 10% 10% BNP Paribas • The large majority of men6ons of all Merrill Lynch investment banks relang to HFT were negave. Share of voice – Investment Banks over Hme 0 0 2 6 4 2 0 3 12 2 5 19 3 9 33 8 17 5 8 10 11 6 12 30 2 1 26 14 14 33 0 15 26 14 11 18 5 14 41 19 5 18 5 56 19 6 7 34 75 Share of voice – Discount brokerages 10 18 8 56 8 7 11 29 15 6 26 192 16 63 53 10 123 9 40 Jan Feb Mar Apr May Jun Goldman Sachs Barclays Credit Suisse JPMorgan Cigroup Morgan Stanley UBS Deutche Bank RBC Bank of America BNP Paribas Merrill Lynch • The propor6on of men6ons of Goldman Sachs was highest in every month except January and June, when news broke that the New York Acorney-General was launching a lawsuit against Barclays for what he said are “unfair prac6ces associated with its high-frequency trading techniques” and dark pool fraud. © 2014 MediaMiser Ltd. © MediaMiser 2014 High-Frequency Trading 7 Overall Coverage Top journalists • Bloomberg’s Sam Mamudi was the top journalist to men6on high- frequency trading in his coverage. His stories were typically published Bob Pisani - CNBC 19 on Bloomberg.com and on Kevin Dugan - New York Post 19 BusinessWeek’s website, along with the Washington Post. Sarah Lynch - Reuters 20 • Mr. Mamudi was followed by John Carla Main - Bloomberg 30 McCrank and Karen Freifeld, both of Reuters. Bradley Hope - WSJ 33 Scoc Paerson - WSJ 36 • Mr. McCrank’s high numbers were due to several syndicated stories Ma Levine - Bloomberg 39 that appeared in publicaons such as the Chicago Tribune and South Karen Freifeld - Reuters 49 Florida Sun-Sennel, such as “IEX John McCrank - Reuters 63 eyes stock exchange status as firms come knocking” (April 5) and “New Sam Mamudi - Bloomberg 105 York aorney general accuses Barclays of ‘dark pool’ fraud” 0 20 40 60 80 100 120 (June 26).