The US stock market is rigged in a way that benefits sophisticated traders at the expense of other investors, according to best-selling author Michael Lewis.
High-frequency traders can, in an instant, purchase shares and re-sell them to investors at inflated prices, claims Lewis who is promoting his new book 'Flash Boys: A Wall Street Revolt'.
The firms involved use this capability to do investors out of billions of dollars.
'They are able to identify your desire to buy shares in Microsoft [for example] and buy them in front of you and sell them back you at a higher price.
'This speed advantage that the faster traders have is milliseconds, some of it fractions of milliseconds,' Lewis told US television show 60 Minutes on Sunday.
The process is enabled by advanced algorithms which determine when to buy and sell shares.
While the practise is legal, Lewis claims that it is sufficiently complicated so as to prevent most traders ever understanding how it works.
New York state's Attorney General Eric Schneiderman said recently he believes the US stock exchange gives high-frequency traders an unfair advantage. Lewis, however, believes the system is corrupt.
'The United States stock market, the most iconic market in global capitalism is rigged,' he said during the interview on CBS.
Lewis's previous books include his account of life on Wall Street, 'Liar's Poker' and 'The Big Short' which examined the sub-prime mortgage lending practises in the last decade or so.
His description of high-frequency trading (HFT) as an underhanded process too complex for everyday investors to understand, is similar to his description of sub-prime lending. In both instances, 'ordinary' people are the victims of financial firms.
'If it wasn't complicated, it [HFT] wouldn't be allowed to happen...The complexity disguises what is happening. It's so complicated you can't understand it and you can't question it.
'The insiders are able to move faster than you, they're able to see your order, and play it against the other orders in ways you can't understand.
'This form of front-running is legal - it's legal front running,' he said.
The US securities and Exchange Commission and Commodity Futures Trading Commission have recently begun investigating HFT.
Proponents of the practise claim that the system is faster and cheaper, and makes it easier for all investors to find buyers and sellers for their trades.
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