Question from reading Flash Boys

OhDannyBoy:

Below are two excerpts in chapter 2 that seem self contradicting to me. The first one says you don't know which exchanges the missing shares had vanished from, meaning you don't know which exchanges you succeeded in buying the shares from. If that's the case, how would you know you got all your offers from BATS? I'm not a trader. Can you guys help me understand?

(1) If you tried to buy 10,000 shares of Apple that seemed to be an offer and succeeded in buying only 2,000 of them, you weren't informed which exchanges the 8,000 missing shares had vanished from.

(2) No matter how many exchanges we sent an order to, we always got one hundred percent of what was offered on BATS.

My money says that isn't the only contradiction in the book. The 60 Minutes episode which profiled Lewis and the book was a commercial, not journalism.

This isn't really a contradiction. The first quote basically states a problem the equity traders were having. When they sent their order to the exchanges, they would get partial fills even though just a second before they saw a market in which they could have received a 100% fill. The second quote is where they figure out the problem. A few sentences later the book mentions that the shortest travel time from the office to any exchange was 2ms (BATS). So the order would hit BATS first, they would get all the Apple stock offered on BATS, then the order would hit other exchanges a few ms later, at which point the HFTs have cancelled orders on those exchanges after "seeing" the BATS order. This is where the HFTs were allegedly frontrunning orders. You can see an illustration of this on Brad Katsuyama's Wikipedia page. Hope that helps!

http://en.wikipedia.org/wiki/Brad_Katsuyama