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Michael Lewis Discusses the Future of Exchanges With Tom Gardner

Motley Fool CEO Tom Gardner recently caught up with Michael Lewis – author of Flash Boys

In the video clip below, Tom talks with Lewis about the future of markets, and whether they’ll eventually become more stable for ordinary investors.

A transcript of Tom and Michael Lewis' discussion follows the video.



... Are you an optimist that transparency will win and that the market will be more stable for investors?


I think it's going to be a war. I really think that it's going to be an ugly, long war. And I think Brad Katsuyama is Frodo Baggins in Lord of the Rings. He has antagonized Mordor, and the Orcs are rising on Wall Street. And on the other side, he's got this fellowship with the ring thing with investors — big investors who are supporting him. The war is between, ultimately, big investors who manage little people's money and the system that is exploiting the money.

I don't know where it ends up. I don't actually know where it ends up. I do think it's not going to just go away quietly. The book's not going to be published and then people are going to forget about it because they've got all these investigations going on. And I do think also that if the world changes, it won't be because of the book.

IEX could be the lever. You create this fair exchange — and it's really a fair exchange — and you're committed to restoring trust in the financial markets. What you do is you give people a choice. And so, all of a sudden, it's not one dark pool versus another or one exchange is sold out to HFT versus another exchange that's sold out to HFT. You actually have a fair place that's operating in the interest of investors that you force a choice onto the world that hasn't existed before. And that's very seditious.


Very. An opportunity to have a purely transparent place.


Yes. There's no reason it can't be. Actually, I think they're going to win. I don't know how, but I do. I can imagine several paths to change. I mean, I can tell you what I think the most likely is. The most likely is one of the public exchanges — possibly the New York Stock Exchange — says this thing is turning fast. The old business model of deriving our revenues from high-frequency traders is going to collapse. Let's buy IEX and make them the New York Stock Exchange.


Because we get the reputational win. A huge reputational win.


Yes. So, Goldman Sachs has been the first mover in the banks to get behind IEX and no one else has followed ...


I love that part of the reason that could be true is because they realize they can't catch up technologically ...


That's right. That's right.


So, that's your point. "Let's play the reputational side."


Let's play the reputational side.


Let's win with what we've got.


There's no reason one of the exchanges won't do the same thing and the natural one to do it is the New York Stock Exchange.


So, in that scenario, you are our J.R.R. Tolkien. We hope you're safe in the eye of this ...


I thought I was Gandalf.


Okay, you're Gandalf. I love that. You're such a youthful Gandalf.


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