Highlights from the Brawl Over High-Frequency Trading

The manic debate over high-speed trading and “rigged” markets jumped to yet another level Tuesday afternoon.

Brad Katsuyama, president and CEO of upstart trading platform IEX Group and a prominent figure in Michael Lewis’s new book, “Flash Boys,” duked it out in a 23-minute interview on CNBC with William O’Brien, president of exchange operator BATS, with Mr. Lewis himself weighing in from another set.

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The debate centered on the current structure of the markets and whether the average investor can compete with high-speed traders, who use supercomputers to jump rapidly in and out of markets.

Here’s a look at the highlights of the interview:

Mr. O’Brien wastes little time blasting Mr. Lewis and Mr. Katsuyama: “I’ve been shaking my head a lot, quite frankly, the last 36 hours. First thing I’d say is Michael and Brad shame on both of you for falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a business model. It’s a very very old tactic to try to build a business on the planks of fear, mistrust and accusations. This has certainly taking that to a new level.”

Are the markets rigged? “I think it’s really hard to put a word on it,” Mr. Katsuyama said, but was then quickly interrupted by Mr. O’Brien. “He said it in the book. You said it in the book…it’s disgusting that you’re trying to parse your words now. You can’t say that…Do you believe it or not because you said it?” After some back and forth, Mr. Katsuyama responded: “I believe the markets are rigged. And I also think that you’re a part of the rigging. So if you want to do this, let’s do this.”

And with that, the gloves were off.

“You had a 300-page commercial, okay? Let me talk,” Mr. O’Brien said, referring to Mr. Katsuyama’s role in Mr. Lewis’s book.

Mr. O’Brien defends his business model: “The direct feeds you are talking about that you are claiming is a source of this vast inequity, okay, 96% of the volume executed on our system is by customers using those data products. That runs the gamut from bulge bracket firms to retail brokerage firms and their advocates and intermediaries. You don’t understand that the market has always had intermediaries since the beginning of financial markets at scale, there is going to be someone who at the time needs to be in the middle. They are using technology to manage the risks of providing that service to the market, and we help them and other types of brokers and investors use technology in a way that’s consistent with their business model to manage their risks and the desires of their customers. That’s a good thing.”

On the term high-frequency trading: “I think the word high-frequency trading should be eliminated from the industry vocabulary,” Mr. Katsuyama said.

Mr. O’Brien interrupted: “You used it 20 times in the book.”

Mr. Katsuyama: “It wasn’t my book.”

Mr. O’Brien: “You’re quoted!”

Mr. Lewis re-emerges in the interview, blasts Mr. O’Brien: “I think he’s outrageous. I think he’s part of the problem.”

On visiting and touring BATS: Mr. Lewis said he visited BATS, to which Mr. O’Brien said was false. Mr. Lewis said he and Mr. Katsuyama visited the premises on Feb. 5, 2013.

“We’re going to follow up with CNBC about where Michael Lewis was on Feb. 5, 2013,” Mr. O’Brien said. He then asked if Mr. Lewis visited BATS’s Kansas City location. “That’s where we’re located, by the way,” Mr. O’Brien said.

Mr. Lewis: “No, no, no. I wanted to see where the high frequency traders hooked up,” he said, supposedly referring to a data center located in New Jersey.

Mr. O’Brien: “Going to a data center and standing outside and saying you talked to us is not the same thing. Be honest with yourself.”

Mr. Lewis: “There’s actually no point in talking to somebody who is just throwing dust in the air. He wasn’t actually the head of BATS when the stuff I was describing occurred. I tried to get to Dave Cummings, one of the founders of BATS, because I was curious why they positioned it outside the Lincoln Tunnel.”

Final punches: Mr. Lewis said he tried to contact executives at BATS, a claim that Mr. O’Brien outright denied.

Mr. O’Brien: “You didn’t try to contact any employees of BATS. Your book is riddled with inaccuracies for that, and many other reasons.”

Mr. Lewis: “You can get on air and shout all you want, but it’s just not true.”

Mr. O’Brien: “You have a much bigger soap box than I do.”

Lasting impact: Mr. Lewis said he’s happy with the response the book has gotten. “This book has been out for 24 hours. I don’t know who is on my side and who is not on my side. What I know is the FBI has launched an investigation…and the New York Attorney General seems very interested in the subject…I really would just like a clean and fair marketplace.”

Watch a copy of the full interview here: