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Katsuyama vs BATS on CNBC — the 'markets are rigged' HFT showdown
100k ft — What is this?
Katsuyama vs BATS on CNBC — the 'markets are rigged' HFT showdown
50k ft — Why care?
The March 31, 2014 CNBC clash where IEX's Brad Katsuyama (Flash Boys) accused exchanges of selling HFT advantages via direct feeds, co-location and complex order types, and BATS's Bill O'Brien was pressed on whether his matching engine priced off the slower SIP. BATS later corrected the record, and IEX's speed bump came out of this debate.
10k ft — Key takeaways
• Direct feeds vs the SIP latency gap is the core of latency arbitrage
• IEX's speed bump is a design response worth understanding
• Order types and data feeds shape who wins on an exchange
5k ft — Tools & techniques
React
algorithmic trading, co-location, speed bump
1k ft — Deep-dive / try it
The CNBC fight that cracked Wall Street on live TV.
On March 31, 2014, Brad Katsuyama went on CNBC and publicly accused the market of being rigged — sitting feet away from William O’Brien, a senior executive at BATS Global Markets.
The backdrop wasn’t drama — it was data.
At the time, high-frequency firms were responsible for 50–60% of all U.S. equity trading volume, using speed advantages measured in microseconds to detect and trade ahead of slower orders.
Katsuyama claimed exchanges were selling:
• Proprietary data feeds
• Co-location (servers inside exchange data centers)
• Complex order types
...creating a two-tier market:
one for institutions and one for machines.
O’Brien denied it on air.
Days later, BATS issued a public clarification admitting some matching logic relied on slower pu…
Transcript excerpt
It would be hard to put a word on it. He said it in the book. Okay, you said it in the book. That's when I knew the markets were rigged. Let me hear the man. And it's disgusting that you're trying to parse your words now. Do you think the markets are rigged? You can't say that. You are quoted that way in the book, but does that have anything to do with it? Let's walk through an example. Do you say it? Do you believe it or not? Because you said it. Let me walk you through an example. It's a yes or no question. Do you believe it or not? I believe the markets are rigged. Okay. So there you go. And I also think that you're a part of the rigging. So if you want to do this, let's do this. I really do. That's my question to Bill if he's launching these accusations. I'm launching accusations. What market data do you use to price trades on Direct Edge? We use the direct feeds and the SIP in combination. No, no, no. I asked you a question. Not what you use to route. What do you use to price trades in your matching engine on Direct Edge? We use the direct feeds. No. Yes, we do. You had a 300 page commercial, okay? So let me talk. We use direct feeds to price trades. We are not as fast as the fastest HFTs. What we've done is we've slowed down HFT's ability to react on our exchange, which means that if anyone in this room, if anyone at home, if a mutual fund or a hedge fund gives an order to IEX and it's our responsibility to price it, HFT cannot make that order. They have the same HFT…