Thanks for joining us, im erik schatzker. It is no longer april fools day. Lets bring on Michael Lewis. You have had a huge week, a huge 10 months working on this. We want to get to the book but first we want to get to the news feed. The biggest news stories from around the world. It was the biggest leveraged buyout ever but now a reorganization plan would virtually wipe out the investments of the biggest names that took over what is now Energy Future holdings, formerly known as txu. Goldman sachs may accept as little as one percent of the equity after chapter 11 restructuring. Energy future restructuring. Oldings chrysler recalling nine hundred thousand jeep grand cherokees and Dodge Durango suvs. The problem in this case is faulty brake systems. Barry diller says the Supreme Courts decision on area oh aereo will be life and death for the company. An interview with him and he said the company has no backup plan if it loses, and eventually that would mean the end of aereo as we know it. Tune into more in that interview at 11 00. We have a special hour ahead, Michael Lewis is here, author of the hottest book out there, flash boys. It has started a revolt among highfrequency traders. It has had a huge impact on the national conversation, the fbi looking into whether any laws have been broken. Michael, thank you for being here. Clearly, you are the author when it comes to wall street culture. There is no one else out there. In terms of reaction, you have never gotten such a visceral reaction in such a short amount of time. What do you make of this . I had one other incident like this when i published moneyball but they were not going to threatening to throw old baseball scouts into jail, but it feels similar to this. The instigator, there is a character that has taken a different view of the industry and has investigated the character in the book there is a similar feel to me. The reaction reminds me of that. Everybody has to have an opinion about the book right away, whether they have read it or not. So that is similar. Is the opinion about the book or about the claim that the market is rigged . Well, it is rigged. Book, i do not think you could put the book down and say that it is not rigged. We can parse the word rigged. Maybe we should. Let me give you an analogy to the way the stock market is structured. It is a casino analogy. I have a casino. I want to start a poker game in the casino, so i get three card sharks and i tell them to start the game. Make it look like a good game is going on. 9s, ande no 4s, queens in the deck. We will hire some dumb Tour Operator and bring them in here. Is David Einhorn and the like dumb tourists . In this analogy. David understood that whenever he tried to do something in the market, the market moved. Like someone knew what he was up to. In the same way that Pension Fund Managers and mutual Fund Managers, when they tried to exit big orders, it is like somebody already knows that they want to buy. But he did not understand highfrequency traders were putting machines and exchanges in so that they can get price information in two second before him. Can i finish my analogy . Absolutely. Get fleecedurists in the games, because they do not know the deck is rigged. The poker players pay the casino a cut of what is made. In this case, casinos are the exchange, the players are the highfrequency traders, and the Tour Group Operators are the banks and others that handle the stock market. I think the analogy is pretty close. Is that a rigged game . I think so. Why are you so invested in the idea that this is fair, why are you arguing about this . Me . You seem to be. Is interesting. It is very clear that people are being run in the market. 20 of evidence in the book. Their orders are being anticipated. Plenty of evidence in the book. Have a stake in the proceedings here, certainly not like you as the author of the book, but there are some people who would say in order to front you need a client. These entities do not have clients. They buy the order flow. They pay to execute the order. Td ameritrade tens of Million Dollars a year. Schwab, e trade. They pay for the right to execute the orders at a delayed price. Ask that question. Pay for theybody right to execute someone elses stock market order . That in itself is curious. Im a stocktand, if market investor, why i would pay a commission to a broker to handle my order, but on top of that, why is the broker turn around and selling my order to some highfrequency trader for the right to execute . The value in that is quite clear. Order for the highfrequency trader is an opportunity to exploit. It is an opportunity because he has advanced information about the pricing in the stock market. He is also getting paid by the exchange to print. Getting into a consultative discussion because exchange pricing, sometimes you pay, sometimes you get paid. That is almost a separate issue. That the exchanges create incentives to be on one side of the trade or the other. , at the look at it bottom of this, it is a bit like the financial crisis. The system is riddled with bad incentives. It doesnt make a lot of sense for brokers to go exchanges, i think. When the brokers own the exchanges, it will be essentially an intermediate instrument. What the rating agencies were in the big short, is that with the exchanges are here . If they were not for profit, could we trust them more . It is a similar role. Is sortred to me, that of the role. It is a utility role. You need and to be an honest broker, create a Fair Experience or a customer that walks onto them. Because they are forprofit, they are incentivized, and because the way the market works they way they have to work meeting Quarterly Earnings and so forth it is a very shortterm view they are taking. They are constantly subjected to temptation of taking money from one faction of their clientele to put the other factions in a bad place. Would we like these hfts more if they were putting money in positions . The fact that they are just taking a scrape, is that why we dislike them so much . They are set up not to take risk. If you have skin in the game and you can lose, i like it. Have 4000 trading days without a loss, something is weird. Yes, but lets rewind the clock to pre1975 when there really were not Market Makers the way there are now. Largely large and an agency business. His was all before Goldman Sachs and robert rubin. They did not lose any money either. That is not true. I worked on wall street. The Salomon Brothers traders would have down days and of days. They would just hope that the update were better than the down days. They were putting money at risk. That that was pure and innocent either. There were different problems on different days. But the role they were playing was offering the market. Buffering the market. Sell ane needs to million shares of something i will close this as a question instead of making a statement. Would you knowledge that perhaps your critics have one fair point, that it is hard to generalize . Much of what you are talking about, the people whom you identify as the victims in the book, are, by and large, is to shuttle traders. Some of them are Fund Managers. Stop you there. There is a long interview with a guy who sold the order forms for Td Ameritrade. That is not an Institutional Investor. That is you and me. What is the most valuable order for a highfrequency trader to exploit . A market order from an individual because they have such a slow feed. , if the order is a 100share order, not a good deal. That is true. A lot of orders are 100 shares. But who manages the savings a lot of people in america . It is mutual funds, Pension Funds be careful view you defend here. Actively managed mutual funds, we could talk about that, but these mutual funds, on the whole, do a terrible job overseeing americans money. It feel to be the market more than 50 of the time and they charge a fee on top of that. How do you decide who to vote the white hat on put the white hat on . I hope you do not think that i just did that, but it does not help, in addition to the ineptitude of mutual Fund Managers it is all a cost to the investor. I am not an apologist of the mutual fund industry. The point is, the peoples money who they are managing is ultimately damaged by this, and there are lots of individual investors. To say that this does not touch the individual investor is crazy. The second thing, which gets to Goldman Sachs involvement, is that in order to preserve essentially a stock market system that enables the sort of activity, the level of conduct city has gone through the roof. The reason i wrote about this, nobody understands the stock market. He can describe a stock market that nobody understands. David einhorn listens to it and says, oh my god, i did not know. Is a source of instability. The people at Goldman Sachs that i spoke to said the main reason they did it was because the outages of the exchanges, the crash, the technical mishaps that seem to puncture the life of the stock market. They see it as symptomatic of a much bigger problem. ,here will be a massive crash and golden will be blamed, so we have to get out of this before that happens. That is not good for the individual investor either. Is this so material to the individual investors . When i go to execute a stock, i feel, how did that get jacked right before my eyes . Ago, i was paying significantly more to do it with a specialist because of what the fees were. It is a different problem. Is it really worse today than it was when there were specialists on the floor . Has the system always been rigged . Yes, in different ways. The problems that were different from today. Distinctionmaking a you are making a distinction that is important. Technology has brought incredible benefits to the individual investor. I am not against computerized trading. But it does not have to be computerized scalping going on. Inextricablyot linked. They can be separate things. What should really happen is get all the benefits of the computerized trading without someone running in front of you. That is what should happen. There is no reason that cannot happen. This is a larger discussion ,bout the state of wall street but what has happened here, technology has basically eliminated the role that wall street played. He used to need a human being to bring together a buyer and seller. Now you hit a button on your computer and your stock goes into a box with everyone elses order. You do not feel good about that . That is good, but the problem is, some guy is still jacking you. You have traders, all of these unnecessary financial mediators. There is all this trading happening between intermediaries and you and me that just does not need to happen. We have to take a quick commercial break. We will be back in two minutes with Michael Lewis, author of flash boys. We will speak to a lawmaker that used to work for Goldman Sachs, congressman james himes. And one man found that something was off so he started his own exchange. You can also watch us streaming on your tablet, phone, and on bloomberg. Com. We are totally cool. You can catch us on apple tv. We have breaking news. The Supreme Court put out a ruling that struck down a decadesold limit on the total amount of money donors can give to campaigns. You can now give Unlimited Money to political parties. 123,200. Us limit was it was a 54 vote. Striking down the limit that donors can give to campaigns. It appears the cap on contributions to individual federal candidates remains in place, but two parties there is no known limit. No limit. Ies there is Michael Lewis has been making news on wall street since his first book way back in 1990. Lets take a look back at his extraordinary career. He taught america the secret language of wall street. Who could forget the human per runner, blowing up the client, or the title that everyone on the street had to have. In 1985, Michael Lewis was living in london when a chance meeting led him to a job at Salomon Brothers here he quickly became the highest member of his training class. Into aed that experience bestselling book, about the absurdity of life on wall street. He explained how inexperienced made millionsgs of dollars in bonds. Traders gorging themselves on junk. Later he examines Silicon Valleys quest for innovation in the new new thing. He uncovered the likely winners that made a fortune in the subprime meltdown in the big short. And he turned the financial crisis into a travelogue with boomerang. Two times, he has made a detour in the world of sports. Is popular to this day. It has become extraordinary career for Michael Lewis and the man is with us for the hour. People spend a lot of time trying to figure out trying how you come up with the ideas for your books. Pokergo back to liars to today, is there a single line that you could draw in your books . There is an element of accident in all of them. This one came up because i wrote a magazine piece about the Goldman Sachs, the computer programmer, who was put in jail. I started asking people what is hft, and they led me to the subject. I got curious. It always starts with some innocent curiosity that is usually small. The oakland the oakland as, the way that started, in the mid1990s, i started to Pay Attention to the salary differences between the right fielder and a left fielder and wondered how ticked off the left fielder was when the right fielder, who was making 10 million more, dropped a fly ball. I wondered about class distinction in baseball, which ended up leading to moneyball. It usually starts with some question. The it becomes a book when idea is big enough and the characters are good enough, and it does not fit into a magazine. Always seem drawn to improbable heros, people, by virtue of circumstance as much as anything else, are thrust into the position of trying to destabilize and in some cases destroy the status quo. The experience is totally disruptive. Because thehat is people who are disrupting their environments tend to be the best at describing the environment they are distracting dust disrupting. Analyze the anatomy of the environment. They are vehicles for describing the world around them. Those kinds of people end up being good vehicles for describing the world around them. Now that the world hates finance, are you just waking up and doing and i told you so dance . It is funny you say that. I do not regard highfrequency traders as villains. It is like blaming the line for unity and antelope. They are wired that way. The system is screwed up. Wired to do what . Exploit opportunities, glitches in the system. They are not wired to say that this is moral or immoral, that this is good for the world. They do not think that way. To answer your question, if you poker i guess it is more hostile on wall street, but it is more of a funny book about life on wall street. I have a lot of great friends on wall street. I do not have a problem with the type of person on wall street. Broken systems bother me. Why does it have to be so inefficient . Isnt that part of the natural order . You talk about perverse incentives. Wall street is full of that. At is how we ended up with a problem in the big short. Every effort to create that makes more bad incentives. Story, i like about this it is not a story about demanding regulatory involvement or throwing people in jail. It is an entrepreneurial story in the middle of all street, really a Silicon Valley story. Disruptive entrepreneurship in the Financial Sector is possibly a path to perform. Havear readers will always circles run around them. Even if the ftc were really trying to do their job and make the stock market a level playing field, almost certainly they would introduce some regulation that somebody would figure out how to game. Somebody always finds an edge. Is the issue that the David Einhorns of the world were not the ones that found the edge . There are tons of examples where they do. You keep referring to David Einhorn as if he is the only victim in this. This is a case where all investors rowe,he a victim, or t. Or blackrock . As the big guy, you often have an advantage. Investors,case, Money Managers like that, are being victimized. I think they are partly to blame in this sense. Take a commercial. We will be back with more. Welcome back, everyone. You are watching a special withn of Market Makers Michael Lewis, talking about his latest book flash boys and the controversy it has brought us. I was cut off, but the issue is who has the edge, who gets to exploit it . The Drivers Behind it do not like what is going on at hft because they are not the ones who are winning. I will finish the thought we were on. It is surprising that investors have not organized and sells more forcefully to take control of the stock market orders. It is a bit of a puzzle. I think it is just that , they are spread out across the country, not in the same place, not organized the way that wall street firms are. You could accuse investors you were saying, arent investors to blame, why are they victims . People who manage other peoples money are not as well organized as those mishandling the money. Lets go back to the point you were making earlier, that this is a systemic problem as much as a thing else, and if it is, you could point the finger at either politicians or regulators. Lets take the opportunity to bring in a democratic congressman who formerly worked for Goldman Sachs, his name is james hynes. He represents the state of connecticut. His name is james himes. You work at Goldman Sachs although you are not on the trading side. Can you assign blame first of all, michael asked the case that the market is rigged and there are Serious Problems with it. Whether you agree that it is rigged or not, do you share his view, and if so, where would you point the finger . I have not read the book yet, it is on my bedside table, so it is hard for me to get at the actual book. As a member of the Financial Services committee and as one who pays closer attention to the stuff that others having been in the industry, for a long time i scratched my head over highfrequency trading. They make the argument they are providing liquidity but there are things that make you wonder, is this what we think of as a market . The velocity that bids are put out there at the last millisecond. Your house,o buy but that did only lasts four nanoseconds. That is a strange attitude of markets. Bad or good, the question is how that is affecting the integrity of the markets as a whole. Legal or you legal, some players illegal, some players are Building Business models around getting more rapid information. That somehow rubs up against the grain of market where you have lots of players operating on good information. So this needs to be dissected a bit. There are some things that we need to look into and examine, like what i just mentioned. Here is another question. I have heard this from jamie dimon before, that america has the deepest, most liquid Capital Markets among that there is the rule of law here, all of these things. That thatsay, jim, remains true, that american Capital Markets are as deep and democratic asess, they have always been, or ever were . They are certainly deep and efficient. Big picture, i remember when i was a lot younger. Executing a stock trade today, 2 10 of a online in second compared to a generation ago where you would trade with huge amounts of money, fulfillment would take longer. In the big butcher, the markets are deep and efficient, but there are also enough questions out there, some of which michael raises. In ae me have to see capital system where there are opportunities, are they smarter, are there all the rhythms, and does this disadvantage other players because they do not have the money to install a computer right next to the exchange . In deference to Michael Lewis, i have not read the book yet outnumbered those are questions we have to ask. These markets are good and deep, but always on the margin we are hearing that insiders find ways to identify advantages which outsiders which we need, those Retail Investors may not have. Change could saying the subject they asked me to ask you a question, so im obliging. How is a former Goldman Sachs investment banker become a congressman . Did you learn anything at Goldman Sachs that is useful in congress . I am trying to assemble the in myta of low popularity profession. I am going to step in here. When you think about regulation, michael, you said the regulators will always be outsmarted. But when we saw regmms put in place, can we not say, hate the game, not the player . We are looking for the villain here. It is unclear here who the villain is. I agree. I have written the story, the it, is without individual villains. There are systematic problems that need to be addressed. Totally with you on this. Can i ask, what is your backchecking process . The stock market is rigged, when you look at what the exchanges have done in the market they are getting crushed this week. You have made heavy claims. What exactly is the Fact Checking process . When i see huge investors with great reputations up in arms first, this is a story about that man across the table. One man trying to figure out how the stock market work. You can ask him if i got his story right. That is what the story is about. I interview hundreds of people. What is my learning process, that is the question really. How do i learn what i know . I interview as many people as i can in different segments of the industry. I checked what he tells me against three different people. When the book is done, it is fact checked by the publisher, and then again by the people who excerpt the book. The New York Times backchecks parts of the book. Vanity fair looks at other parts. It is cents checking sense checking. All of that stuff happens in the research of the book. Making sure that i talk to the right people so that i can get it right. Lets do some of that with a congressman. Congressman himes, michael has made the case here that regulation is not necessarily a good fix for the problems he has identified in the book. There are potentially marketbased Solutions Coming to the fore. If we let those solutions survive, maybe the problems will fix themselves. Do you agree with that or would you like to see the sec step in and fix some of the things that perhaps it broke in the first place . Think the sec has an important role, really two important roles. Sure mandate is to make markets are fair and players are not being advantaged or disadvantaged for that reason. They have a Critical Role to play to go in here. The other role they have to play, lets face it, the house is 435 people, very few of whom have the Technical Expertise to get their heads around highfrequency trading, colocation, so the sec can come to us and say this is what we see. Let us,this and representatives of the people, make some judgments about how we create a legal structure that not only stops behavior that we would objectively consider as bad, but which also promotes the perception of fairness. Legalor you legal, you , five years from now, if people read these books and say i am keeping my money under my mattress, that perception would be damaging to the depth and efficiency of our Capital Markets. Do you have confidence the sec can set smart regulation . Not to be cheeky, but there are people who go to washington who are paid tiny fractions of what people who are in finance are paid. Do they have the chops to create a smart system . It is a dynamic thing. You will never come up with the set of regulations that will be appropriate for all time immemorial. There is a reason for that. Institutions with a ton of money will always find ways, often times within the law, to get around regulation. That is one of the big stories in 2008 with the emergence of unregulated markets. So there will always be pressure to find ways around regulation. On,other thing that goes there are very good people making a lot less money than they could make at the sec and ftc, but there are not a lot of people that have deep experience on Trading Floors. The sec and ftc are heavy with lawyers, which are great, but both entities, all the regulators could do better to persuade people who really know how a Trading Floor operates, how to libor market is planned, if those people would feel a sense of vocation to jump the fence and explain this stuff, it would be a step in the right direction. Thank you for joining us, congressman james himes of connecticut. When we come back, buckle up and get ready for a little Market Makers special. When wee speaking to come back. You are watching a special edition of Market Makers. Schatzker with Stephanie Ruhle and Michael Lewis. Maybe you know him from moneyball. Andnew book is flash boys it is becoming a sensation. A former world canada bank trader noticed that something was wrong with the way the u. S. Stock markets were functioning. His mission to figure out what was not right and what needed to led to theix it creation of iex. Also with us is a Hedge Fund Manager who also notice the exact same kind of market quirks as brad, but his solution led him down a totally different path. He now runs a highfrequency trading firm. Gentlemen, welcome. Im fascinated by the fact that both of you saw the same problems but ended up with totally different solutions. I wanted to congratulate brad. How cool is it to be a superhero in a Michael Lewis book . It is humbling. We have a team of people at iex, a team of people at rbc who deserves a lot of credit. I feel like the guy that was pushed to the front. How did you end up with the Current Solutions . Tell us briefly what you saw, how you decided to fix it, and why you believe iex has the right way. In 2007. A traitor i traded on behalf of Pension Funds and mutual funds and hedge funds. The prices displayed on my screen were not what i could buy or sell in the market. They were fake in other words. A portion of them would trade and a portion would cancel. Phantom quotes. Know what it was at the time. You did not get a lot of answers. It leads you down a path of discovery. It was not until rbc asked me to move into electronic trading that i was able to surround myself with very smart people who understood the plumbing of the market. I was just a user of the market. A user, yout is, as gain an appreciation for what other traders go through. The people at the banks and mutual funds and hedge funds, it created a common bond behind a problem we all shared. That has helped to push what we are doing now forward. Why build a product that neutralizes highfrequency trading . Word. Tralize is a good not all highfrequency trading is bad. If you are trading an etf against the underlying stock, or is nothing wrong with that. If you are trading rim in canada or u. S. , library, you use the fx rate, and that is legitimate, but there are inefficiencies in the market that create arbitrage that is unnecessary. We are looking to surgically address that. The difficult part is, the market is very collocated and people are tried to supply it. So they are saying, one word to describe everything that has happened, it is an unbelievably consultative topic. When we go out and expand what it is, over hours of meetings with people, that is how you get from Goldman Sachs, j. P. Morgan competitors, hedge funds, mutual funds, middle america. Virtue is a huge client of yours. Really, this announcement is pimping their game in a big way. Are they calling you saying shut your mouth . Not at all. They actually think we have acted professionally in this. Yesterday, 7. 5 of our volume. When we came out to reclaim that we were building at iex, we said we will be introducing 350 seconds of micro latency. They were there on day one. He went to other highfrequency trading firms and they threw us out of their offices. It is different from one to the other. That is interesting. Right now people say hfts are bad but that is a interesting differentiation. Use on the same problem but ended up with a different solution. Definitely a different solution. Problem within what brad is saying is similar to my main problem with michaels book, which is, to me, it is a compelling narrative but it is really just fiction masquerading as journalistic expose. I have major issues with every majorjor assertion he makes, the one that brad made, as well as michael. Many of these things are provably false. Give us an example. The claim that you made while i was watching your interview earlier that ordinary mom and pop Retail Investors interact with highfrequency traders on the floors of the exchanges. That is false. That has not been the case for a very long time. The fact is, highfrequency traders almost never get to trade against retail orders. Traderequency traders against orders in the open market but retail orders are internalized by wholesalers. Those wholesalers are, in every sense of the word, very firm that resemble highfrequency traders on their own, and execute orders of Retail Investors with price improvement that is reported and measurable and welldocumented, so in a real sense, many people with Industry Knowledge will tell you this, no other segment of the market has been a bigger beneficiary of the highfrequency trading evolution than individual investors acting on their own. Two things. Mom and pop trading on Td Ameritrade is one thing. ThePension Funds and 401 k s, individual investors are invested in mutual funds and hedge funds. It is very hard to say mom and pop over to the ameritrade. Manoj talks about price improvement. Price improvement over what . The investment offer. These are statistics offered by regulation. Because it is legal under regulation does not mean it is morally correct. I was talking about documented facts. Can i finish . People pay for the right to trade against Td Ameritrade. Just using them as an example because you brought them appeared why do they pay for the right . Nobody is in this for charity. The price improvement that people talk about is ice improvement versus a market data feed that is inherently slower than the person trading against it. It is like saying i have todays newspaper and this yesterdays newspaper. You come in, looking to buy stock. It was 45 yesterday. It is 40 today. 45. L sell you stock at i will sell you stock at 46. It is one of these things where it is a free option on these orders. That is why people pay for them. If we want to talk about price improvement, it is price improvement versus sale prices. About fast versus slow. That is the biggest misconception about this. It is not about fast versus slow. I want to ask a question because you make the point. Your solution involves a speed bump, slowing it down about 350 milliseconds. Always is to ensure iex has the most accurate price information relative to our participants. We get that information as quickly as possible. Hft will always be faster than us, so we have slow them down to make sure that we are trading stock at the fairest possible price on the market. If we were slow, we would be trading on stale quotes, which means the traders coming to our markets would be trading at a price was not the real price of the market. It is the market responsibility to clearly price trades too fast and slow traders. Again, a factual sounding statement that is completely bogus. Introducing a deterministic delay into the trading process, a speed bump, publishes nothing. The markets stated purpose is to make sure the consolidated feeds catch up with the direct feed during that time. Something could have happened one microsecond before that delay. It does not matter what you make it. It is deterministic so completely irrelevant. I could go on with the list could you answer what he said . I do not even know what he just said. The tortoise and hare is a compelling metaphor but it does not make for a marketing strategy. This is just a marketing gimmick. As you pointed out, we noticed the same thing in 2007 that brad did, about executions. Rather than waving the white flag and saying we will surrender, we will never be in the top tier, as a sevenperson wouldin 2007, decided we operate our telecom, update our understanding of market regulations, update our computer systems, and we saw a miraculous improvement in our fill rates. For your own benefit. Own benefit,or our but a commercial platform now transacts five percent of the u. S. Volume through largely institutional clients. Iex. Re that with you are a prop trader. These are clients that trade on our platform and benefit from the speed. Are you trying to sell your services to the same group of clients . Yes, but im trying to say this metaphor of the tortoise and the hare is a good fairy tale but will not be commercially viable. Here is the easiest explanation. Oj will speed of an investors order by 10 microseconds. They are making investment decisions. The Portfolio Manager gets back to lunch, sent the order from baltimore, travels to new york. About where the order is being traded and is the market understanding the Broader Market . All this hyperbole is confusing the topic. We will never sort this out in five minutes. It is about education. We are trying to provide truth. We are trying to educate people. Michael lewis wrote a 300page book. He couldve written a 10,000 page book. It is our job as an industry and there are a lot of people that are willing to carry this torch forward. To carry the torch forward. Let the truth come out. It will not be sorted out in five minutes. I cannot even respond to what he said. A cliff as ms. Says that large clients can a four hfts, why not do it . Most mutual funds in the country care about research and investing. One more time. Researchingut companies and making investments. Just because something happen in a microsecond, somebody will not change their investment. You dont think some of the most sophisticated investors out there day trade on occasion . You do not think blackrock and fidelity for new issues . But at what beads . Speeds . We are talking about microseconds. Mutual fund can call ok. We have people from banks, exchange funds, across the gamut. The biggest problem right now is misinformation. Promulgated by things like this book. It is just a very big problem. Bala till it is not caused by High Frequency traders. You can empirically study this. European numbers are flawed because they have a confounding financialled the crisis, that started at the same time highfrequency trading did. If you want to get rid of that factor let me give you the statistics. Since 2007, since the advent of remms, the amount of volatility that can be attributed to trading hours has gone from 80 to 65 . A lot of volatility happens when the market is closed. Surely you do not think highfrequency traders are responsible for that. What year did you start . 1999 through 2007. Nms went intoeg effect. Of volatility. Since that went into effect, which is the unofficial birthdate of hard currency trading, that number has gone down to 65 . That is a legitimate analysis that does not have confounding factors, such as the financial crisis. I want to ask michael a question that relate to both of you. So for a moment lets suspend the debate. I call, is it possible that both brad and manoj are right . Brad can meet the challenge of the market by slowing the trade , and manoj can satisfy the same day that the interest Institutional Investor has by playing the arms race to the max. Is it possible . Is it possible . No. Here is what would be interesting. If you put brad and a couple of people from iex on one side of the stage, manoj and other people that want to argue the i assure you that would be a deterministic outcome. This would be very hard. I know that. Andou can throw out numbers it is very hard to check them in real time. Also, to make sense of what they mean. Which is why i asked you a conceptual question. I think it is very unlikely. Speed matters less and todays market then it has ever mattered in the history of markets. Michael has been writing about markets for a very long time. Do you feel that the market is too complex . Could we face another flash crash . I dont think another flash crash is possible given the changes regulators have made since the last one. That is because i actually understand how the flash crash occurred. I believe in the account that the cftc produced. The market is very complex. I think we are in agreement on that. That is a bad thing. As is happening in many walks of life, when people are faced with complexity that they do not tendencyd, they have a to resort to conspiratorial aspects of the facts. His book has become the standardbearer why dont we see the exchanges spend more money to improve . I am a huge supporter of the exchanges improving. Which means you want to see the sip improve . I want to see a cat as fast as humanly possible. Get as fast as humanly possible. They are selling direct fees and running the set. Set. Sip. The sip is the consolidated feed. A blended quote . Quotesollects the best from all of the different Market Centers and aggregates and distributes them. There is a serious speed disadvantage to getting your Market Information that way versus from direct feeds. That has led to conspiratorially this. Ed people to believe you cannot outlaw them because they are the only information about the dips in the market. Direct feeds are the only way to get the information. That does not mean they should be at a speed advantage. Too slow. It has not been up dated in over a decade. It is based on antiquated technology. Why do you think it has not been upgraded . It is not subject to market forces. There is a regulated consortium wantgulated exchanges that to spend as little money on this is possible. I want to bring michael in. I want to talk about Goldman Sachs for a second. In my small, tiny mind, i think you are not a fan of goldman. Goldman signs on with iex. The timing seems a little fishy. They did not seem to be in business with you at the beginning. Maybe you could explain it. It seems convenient. An oped comes out a week ago. Michaels book comes out on sunday night. It does not add up to me. That ourk conversations with a lot of brokers started in the summer of 2013. These discussions have been happening for a long time. The conversations we have been having with Goldman Sachs have been thoughtful from the very beginning. It is about understanding what we knew, understanding what was happening competitively in the marketplace, and a marketbased solution to get us forward. All of the rhetoric around conspiracies and marketing, it is an insult to the people that support us, to be honest. You have Goldman Sachs, j. P. Morgan, morgan stanley, rbc,. Ernsteins if there is a platform, you have to trade off it. , we are running out of time. I want to follow up on stephanies question. Is there a danger of taking Goldman Sachs at face value . If theres one thing i have learned is that goldmans true intentions never reveal themselves immediately. True that, my brother. I think theres an argument going on inside Goldman Sachs. I think the supporters of iex inside Goldman Sachs of opposition inside Goldman Sachs. And dark dark pool pool is the antithesis of what they are doing. How long do they close their dark pool . I think there is movement inside the place and i dont know what it means completely. It is hard to know. Lets just wait and see. That is fascinating. Thank you so much. Michael lewis. They need a movie. No, plays. Please. I want to thank all of you. Michael lewis, author of flash boys. It has been great to have you back. Katsuyama. Gentlemen, we thank you. And honest, thoughtful debate. Everyone wants a resolution. Everyone at the stable wants a fair market. The truth is in the numbers. Good luck. Nice to see you, brother. This conversation was so good that we missed on the markets. We went past 56 past the hour. We need to give you a market update. Exchanges see how the have been doing. Here is scarlet fu with more. No one is getting slammed right now. The s p 500 is on a record high. The dow is within 12 points of its alltime best. 0. 25 . Them is up by treasuries are down. We did have some employment data. Private payrolls number showed a recovery in jobs growth last month. The most job growth in three months. It kicks off a couple days of important jobs numbers. Jobless claims tomorrow. Unemployment rate report on friday. Treasuries are down. Yields are higher. The 10year yield is about the highest in two weeks. 2. 8027 . A stronger economy on the back of these jobs reports could mean that the fed could raise Interest Rates sooner rather than later. In terms of copper prices, we are teak keeping a close eye on this. Chile is the worlds biggest producer of copper. There were concerns that Mining Companies stop damage from the earthquake. But they suffered no damage. One individual stock to mention. Mankind, the pharmaceutical company. We will be right back on Market Makers. Live from bloomberg headquarters in new york, this is Market Makers. For barryo or die diller. He has no plan b. We have got an exclusive interview. Ratcheting up the rivalry with netflix. That is what amazon is planning to do. This new set top box for streaming movies and tv shows. Jayz has 99 problems. We will see how the rap star has done one year after he started representing pro athletes. Welcome back to Market Makers. Exciting morning so far. We have another hour to come. Debating the pros and cons of highfrequency trading. The Supreme Court was debating something much more fundamental. Law. Ign finance striking down a decadesold statute limiting the total amount of money wealthy donors can give to federal candidates of political parties. Phil mattingly is with us. What was the decision exactly . More importantly, what does it mean . The most, consequential decision regarding campaignfinance since the 2010 Citizens United decision. A 54 vote striking down the aggregate total an individual can donate to a Political Party or candidate over a twoyear period. ,s it stood with the 1974 law individuals could donate about 48,000 600 to candidates spread across all federal candidates, as well as 74,600 to campaign committees. That is no longer there anymore. If an individual wants to donate the maximum amount, they are allowed to do that. Thats a big deal. Itething to keep in mind ash did not strike down limits on individual contributions. Ont means that those limits acs anduals and p National Party committees that stance. It is not like an individual can start dumping millions of dollars on a single candidate. In aggregate, you can now, there are no limits to what that means. You have seen parties like the behindtch mcconnell, get this push. They benefit from this. It will be interesting to see what this means from a money perspective moving forward. I cannot help but remind myself of the phrase, because for what you wish for. The laws of unintended consequences certainly play out with the decision of this magnitude from the Supreme Court. Thank you as always. Gmctaying with washington, Ceo Mary Barra is facing a tough round of questioning on capitol hill. She is facing senators after apologizing at the house hearing yesterday. Matt miller is back on capitol hill. What has day to been like for her so far . Saying, theatement new gm puts customer first. My response was, what the hell was he doing before . That is a good response. Obviously, a tragic response to that answer came for 13 people who were driving gm cars. Today will be a little bit better than yesterday for mary barra. Fromearned a lot yesterdays testimony. I think she will do better at answering statements of fact. Yesterday, she refused to do it knowledge a lot of things that came from General Motors documents. She did not seem to have read up or prepare the documents yourself. She will be doing a much better job. The testimony started only one half hour ago. The bottom line is that she is not going to give anyone the answers that they want today. She is not going to say why gm made this mistake. She will not say whose fault it is. All she is going to be doing and somehowlogizing indicating that there may be some repercussions as far as payment to victims, but not giving any further information. Thank you. We will be in touch with you throughout the day. , for more on General Motors the ignition switch scandal, and the way the company is handling it, we are here with jerry d, the manager and cofounder of greenbrier. Thank you for coming. Thank you for having me. You know the company as a competitor. I work for ford and chrysler. Yes, i know. Is it plausible, what we have heard coming out of general that a fatalidea glitch with a switch that contributed to 13 deaths could be unknown at the highest echelons of the company . Is that possible . Is it such a dysfunctional organization that that is possible . No. This needs to get put in context. They were in the midst of survival when all this was going on. They almost went bankrupt and then did go bankrupt. It was and is a great big organization. No excuses. I am only setting up an environment. No one is ever going to solve a problem for these families, these 13 folks were killed. Sort,organization of this i really believe that the ceo, when she says we dont know and were going to get to the bottom of it. It is kind of breathtaking to thank that so much critical information, information on balanceves hang in the the company was having a hard time. Im sorry. I want to tell you two quick stories. I was a chrysler. 800 years ago or whatever. The federal government passed a law that said it is a criminal offense to rollback odometers. That still exists. I get a call from one of my plant managers and he says one of our cars was stopped by a state trooper and he said, i was speeding. He said, we showed off the odometers when we test new cars overnight. I did not know about it. We were violating the law, technically. I did not know about it. Million later we barely kept our plant managers from going to jail. We lost our reputation with our customers until we figured it out. That is a really good point. It is. We will give you that one. [laughter] i dont think i will get any others, but ok. [laughter] mary barra spoke to the wall street journal. Told them that Vehicle Safety problems are going to be reported immediately to Company Executives for the first time. Now, it is great. Thingabsolutely the right to do for mary barra to make these changes. We can wonder why the changes are necessary and i think that is my question, what on earth are at whitaker and Dan Wilkerson doing for the last five years . I dont have any answers for that. They all made a mistake. Gm went through the bankruptcy. The company was supposed to have been cleansed. It was supposed to come out a leaner, more efficient, more responsive the notion that gm is supposed to be customer focused now, i thought that was the hope focus of bankruptcy. I think what is going on a General Motors the thing about ford with the explorer tire problem pinto fires. You are too young to remember. Erik is not. These are nightmares. For any company. Think of Johnson Johnson won the tylenol pills. The tylenol pills. I can see no fault with what General Motors is doing. They will find out what happened. They put some serious people in place to go do the digging and determine how to help the customers. Thinking this kind of thing myself when we were going through that story it told you about. You have got to move twice as fast and spend four times more because you are at risk of losing the confidence of your customers. Obviously losing lives is a huge tragedy. Do we have Unrealistic Expectations on these automakers . The cars were made by humans. Millions and millions of cars. Things break. Maybe these are tiny numbers. I was also in the airline business. It is so much safer to fly than it is to drive. Were so focused on this issue for all of the right reasons. Step back for a minute. 35,000 people in the United States every year die in car crashes. The single biggest problem is drunk drivers and we are off doing other things. Great interview, jerry. Thank you. Enough to barra doing restore Customer Confidence . If not, what else should she do . I can only offer two thoughts. Is thater i would give this is never going to be enough until that gets passed everybodys attention. We will not know it until we are there. History says that gm is not going to lose market share. That is what happens another car companies. I cannot help from thinking about this concept of self confession. It exists in the airline industry. What does that mean . Cover, pilots are given so to speak, and if they make a mistake, they selfconfessed. That data goes into the government for better analysis of what not to do next time. It is an indemnification that they get. I dont know if we need a truth and reconciliation commission, but that is an interesting point. Thank you so much. , amazon in your living room. The new set top box wraps up the competition with google and apple and netflix. Welcome back to Market Makers. Amazon is taking another step to reaching customers in their living room. They have just unveiled fire tv. It allows users to watch movies and tv shows at home. They say it is three times as powerful as apple tv. I want to bring in our own paul sweeney and our own cory johnson. Are the away team. I will let you start. What do you make of this . I think it shows amazons great ambitions to dominate the business that netflix is currently owning, the streaming of video to users. They are trying to do it with a hardware device. They have had a difficulty getting into the home. They come at this with a great advantage. ,hey have been selling video but they have been doing video content deals for a long time. They also know what Consumers Want more than anyone else out there, by virtue of the purchases and the reviews that they have on the amazon website. They think they can really use hardware to give a boost to their prime video service. People question whether amazon should be trying to take on apple and netflix at the same time. That is what they are doing. Do you feel good about what jeff bezos is doing because you have seen how successful he made the kindle fire . It is another example of a Big Tech Company getting into the tv business. People thought the tv business with a dying business 10 years ago. Now you have Tech Companies trying to get into the tv business. Streaming is a huge business and it is a bigger business in terms of users and advertising dollars. I think what amazon is saying here is that we certainly have the capital to get into this business. We would like to get closer to our customers. We would like to know more about our customers. We would like the service to help us sell our prime delivery service, which will drive our ecommerce business. Shifting its focus, they are always thinking about ways to drive it. Amazon prime has been a way to drive better traffic to ecommerce. Who is this the biggest threat to . Certainly, netflix. If you want to look at it narrowly, just the streaming online video, who is the first player with the biggest market share . That is netflix. , i think thetors short piece has always been, listen, there has been no barrier for entry. You write a big check to hollywood to get the content and then just remit. Now you have apple, amazon, who knows what google wants to do with chrome cast. What does netflix do in response . Is there a positive that in general people thought the tv business was dead. People are watching more tv now than ever. 10 years ago, my husband was not going home on a thursday night to watch friends. Now he cares about tv. Is there a Silver Lining that this is all good for content providers . Maybe you guys are just old and boring now, do you consider that possibility . It takes one to know one, cory. Just saying. Wonderfulas been so commentary in the new yorker and beyond as far as the golden age of television. Part of that is that economics. There is a lot more money going to highend premium content for television that the sopranos might have started for what tv might be. Lets not forget comcast. One of the things that this box allows amazon to do is have more control over the User Experience , so that when you have comcast trying to merge with time warner and control the experience of cable tv in 19 of the 20 largest markets, amazon can look at that as a threat. Here they are trying to get out ahead of that with a box. They are talking about speed. Netflix is striking deals with comcast. That is the other dynamic at play. What happens to exclusivity . Thronesked game of you have no choice but to watch game of thrones. Hbo. Or you need the hbo go login. Or if you want to watch the back catalog of breaking bad you have to go to netflix. Jeff bezos does not want to share. But nobody wants to have an apple tv, chrome cast, and fire tv that amazon is selling. It comes back to who are the real winners here . The argument that we have been making is that the winners are hollywood. Now you have not just the three broadcast networks, the 500 cable networks, but all of these streaming services bidding for your content. Which is great if you are in hollywood. It sucks is the consumer. Right. The cable model with this tv you can take that anywhere you want the new issue coming into the marketplace is streaming video. Netflix reset the deck by getting into original programming with house of cards. If you want to see house of cards, you have to go there. It is outside of the cable ecosystem and that is a concern for the big media companies. Matt millers Biggest Surprise of 2014 is that i am not a netflix subscriber. Very interesting. There you go. Paul, thank you for joining us. Paul sweeney and cory johnson. Im not sure if i will give cory a sign off. We are losing our connection with the west coast. You can take it. Goodbye, cory johnson. Bloomberg west editoratlarge. Be sure to tune in for bloomberg west this afternoon. Much more on fire tv and what it means for the broader streaming business. Do not miss out on the Primetime Play coming up on bloomberg west. Since we are talking about media, lets get to my interview with billionaire media mogul barry diller. He is the biggest factor of aereo. It is being sued by broadcast networks. They say aereo is illegal. It does not pay retransmission fees, the privilege of bringing it to the consumer. Lawsuit has reached the Supreme Court, which is hearing arguments in a few weeks. I asked barry diller about the case and whether the decision is indeed a matter of life or death for aereo. Yes, i believe so. So if you lose if we lose, we are finished. There is nothing you can salvage . It is very possible that there is some salvage. I cant probably see any past work past this. Why is that . You have a platform. You would be ruled a multivideo programming distributor. You would be like a cable company. Could you not compete for content . We could probably pay retransmission consent dollars if we could make a deal with broadcasters. The Value Proposition would go out of the game. Method of lowcost receiving over the air broadcasting. That is the platform. What if the Supreme Court grants you life . What happens then . We compete. We go on to build our business and we expand through the rest of the United States. West coast. We are only in 14 or 16 cities. We would be in every urban center. We would be in any urban city. The top 30, 40 markets. This is an effort to reach the market of a third at the most. I think there are a great many people who say that cable programming and satellite programming is becoming much too expensive and that they would prefer an alternative that is of much less cost. Younger, rather than the older, by definition. But to me, i dont think we will reach a third, but that is the addressable what about the threats that the likes of chase carey have made they will turn their broadcast networks and cable channels and render your lowcost alternative neutered . I think it is very unlikely that a broadcaster who built their business on spectrum that they got for free, spectrum belongs to the american people, they got it free in return for investing in and building a direct system, that if you could get the signal directly, you could receive it without anybody in the middle i think it is very unlikely that they would be able to take that broadcasting away from that distribution of that signal of the programming and put it in a solely paid system. Bs . Hen they say it, it is it is a nice threat to convince anyone or to convince congress that this would be a terrible thing to disenfranchise ,0 Million People right away who do not subscribe to cable and satellite. It is inconceivable to me that it could actually happen. I can understand people saying leastis like, it is the realistic alternative. What does aereo want to be when it grows up . What is there beyond broadcasting . Standing onervice its very own, the platform on its very own, is a very good thing. It is a very good service to offer. It is an alternative to a closed system. It is an alternative for a lot of people who would like to receive programming. Their godgiven right. For free spectrum. It is a good pro social, positive, business is Good Business characteristic. That is what we are going to do. That is where we will compete. Does get toif aereo a sufficient subscriber level, we will probably offer other programming. You are friends with a lot of people you are fighting with over the future of aereo. Does this struggle, battle, whatever you want to call it as it turns those friends into enemies . I dont believe so. I would hope not. I have been friends and competitors since my very earliest days when i was at abc and a competitor with the other two networks. We startedds when Fox Broadcasting with the other three broadcasters. They certainly wanted me to fail. I hope not. Certainly not for me. I have never felt that way. Who would you bet on . Would you bet on jeff bezos or less . I would bet on both. Without any question. Jeff bezos is a brilliant retailer. He is not yet a programmer. So long as narrative alive, les will win. Brian has done a fantastic job in building comcast. It is not going away anytime soon. Read hastings created netflix. Purely in the new protocols. , without aerference legacy. He does not have to protect anything. He is pure. That, historically, is an who have over others, to protect their legacy or the incumbency. My exclusive interview with billionaire media mogul barry diller. Paul, i have a question. Does barry diller get what he wants in the end regardless of what happens to aereo . He claims that he want to dismantle closed systems like cable or satellite. Is that going to happen no matter what . Eventually it might. I think would barry diller really enjoys now is paying for disruptor to a traditional business. Smallis a very insignificant art of his media empire. The stakes are very high. They do not directly impact him. He saw a very Cool Technology out there, he is backing it. He is backing up because of the reasons he mentioned. He thinks this closed system does not have long to live. He wants to be one of the disruptors. I think he is taking great joy in it. His not think that any of friends, colleagues, or fellow media moguls are going to hold that against him in any way. The always interesting marriage of investment was all true mystic philosophy. Paul sweeney, thank you. More of my interview with barry diller coming tomorrow. Find out what he thinks about Mark Zuckerberg Voss Facebook and the 19 billion valuation on whatsapp. We will look at how rapper jayz has done in the year since he started his sports agency. Jayz year ago, rapper announced he would become a sports agent. Natione launch of roc sports. How has his company done in year one . Signing Robinson Cano was a good idea. What kind of impact has it had on the business of sports . An Allstar Group of agents ways in weighs in. Jayz would beat a formidable presence. He is a draw. I have heard from the Agent Community that they are worried. Certainly from our competitors standpoint, we have got to be concerned. Roc nation and bring something different. The ability to recruit players and the ability to deliver the contract. As a recruiter, i give him an a plus. Superb job of picking players that can trigger multiple revenue streams. Theyre good for contract negotiations, theyre good for endorsements, theyre good for Crossover Entertainment projects. The starting quarterback of the new york football team. Durant is there for marketing. You have a starting pitcher for the new york yankees. , iin terms of negotiating dont think he negotiates the contracts. There are guys who are wellestablished in the business backing him up. There is no limit as to what he can do. I am confident there are more players recruiting jayz than vice versa. Are they overselling to get into videos or movies or music . Perhaps, but there is an entree there that can be used. My sense is that they will not change the business, they will make an impact. One of the earliest pieces i ever got from this business is from dean smith. Dont worry about your competition. Said he never focused on the rivalry with duke. Wasas focusing on what right for north carolina. That is how i view our business. Erik, take me back to the night i went to a roc nation dinner. I asked what kinds of agents are you too looking for . Robinsons answer was i am an agent, i am the most important free agent in baseball. We will have more Market Makers in a few. I dont know how we put a finale on the show. That is going to do it for todays Market Makers. We have the ceo of hilton world live. We will talk a hotels and the launch of their Youth Wellbeing index. We will have more of. Diller tomorrow as well. Aboutl be talking more the fairness of markets. That is an issue that is not going to go away. Trading, darkck pool will be with us. Were they ever completely fair . An excellent question. To say the markets are rigged, kind of havent they always been a little bit . Get ready. Bloomberg is going on the markets. Thanks for watching. Bloomberg television is on the markets. I am scarlet fu. Lets head straight into our options inside. Another day, another high. The s p setting a record this morning. The fix is trading at the lowest since late january. What does this mean . The equity derivatives strategist at Crest Partners joins me now. We are due for a pullback in stocks. Some would say a spike in the vix. We are right around the time. Fix is onlyme time, one point above the lows vix is only one point above the lows. We might be in for a pullback. Vix could go down another point and it could stay low for an extended period of time. The otherrt of indices. What kind of catalyst could we see move things forward . If we knew the catalyst we have the jobs report and earning season. Yes, but we have seen these type of catalysts come and go. Any downward motion and stocks have been part of it. Lets move on to some individual names. We are seeing increased options activity in Dollar General. What are you seeing . There was a big trade in Dollar General today. It is a good 3. 5 million premium and the trade. In the trade. What does that tell you . It tells me that somebody actually sold it. All indications to me suggest that somebody was long on the stock and sold it. They sold the call spread to gain a next or yield out of the stock. Everyone is looking for yield in this environment, especially with the Federal Reserve committed to easy monetary policy. In terms of your particular trade for the day, shares of autonation all right an alltime high. Is this the backdrop of a better auto sales or as a Company Specific . Today, they quoted the new rate of sales were up for the month of march. Autonation has been a strong performer, even though you might not come to the conclusion looking at the stock. Over the last six months, the even. Is now it is coming back to the highs in september. This is a strong company. They are adding new dealerships. This is a company that is very active in the stock market. Last quarter and january combined they bought about 3. 4 million shares. It is the lowest that we saw in the stock and that period. They timed it well and they know what they are doing here. I like that company. What is your strategy . I am buying the call spread. Even though the reports are in april. It is better. Better into july. Into july. S better i would give myself a little bit of time. 55, 60 cally the spread and sell the 47 strike put against it to cheapen the cost against it. It costs me around 1. 30. This exposes me to further downside, but the company was buying the stock at 48. That is a good point. The downside is fairly large, where is the upside is cap. That is true. The downside looks like it is very exposed. Around 15 below the current stock price. At the same time, the reason why i want to sell that 47 stock but its because i know the company is going to be there supporting my stock. You are not looking for a large reaction and earnings. That is right. It is a reasonably tight call spread. Thank you so much. We are on the markets once again in 30 minutes. Lunch money is up next. Welcome to lunch money where we tie together the best stories, interviews, and news. Ss in motors, the new gm. The barra drives away from past on capitol hill. One eye patch per child. L. A. School district taking education to the new digital age. Strike, lufthansa pilots walk a picket line. Says it is all or nothing for arielle, t