Last Sunday evening, Brad Katsuyama was in his living room enjoying his last moments as a regular guy.
Together with his family – his wife, brother and two small children – he settled in to watch 60 Minutes, the iconic American news program. Within moments, the kids were squealing (“Dad’s on TV!”) while the adults tried to concentrate on the screen.
The 15-minute segment introduced Mr. Katsuyama to a national television audience as the hero of Flash Boys, the new bestseller by Michael Lewis that offers a powerful critique of high-frequency stock trading.
The show and the subsequent release of the book thrust Mr. Katsuyama – a 35-year-old native of Markham, Ont. – into the centre of a loud, and at times vituperative, argument over the soundness of U.S. financial markets.
The debate has mesmerized Wall Street and beyond. Mr. Katsuyama’s fledgling firm, IEX Group Inc., has received 800 résumés since Sunday. To his shock, strangers recognize him on the streets of Manhattan and stop to offer words of encouragement. “It’s pretty overwhelming,” he said. “There was no way to prepare for this.”
Would-be whistleblowers have contacted his office. At first, Mr. Katsuyama and his team weren’t sure how to handle such calls. Now they direct the callers to a hotline administered by the U.S. Federal Bureau of Investigation.
Over the past week, a host of U.S. authorities have confirmed that they are looking into certain practices used by high-speed traders, whose strategies can involve executing thousands of trades in milliseconds. The FBI, the U.S. Securities and Exchange Commission, the U.S. Justice Department and the attorney-general of New York State all have investigations underway.
For Mr. Katsuyama, the probes are partial vindication. Several years ago, while working for Royal Bank of Canada in New York, he began to suspect something was amiss in the execution of stock trades – namely that high-speed traders were, in effect, getting a tiny sneak peek at his transactions before they could be completed.
RBC “was the perfect place to discover what we discovered,” he said. It was a firm where “choosing to do the right thing was not a hard decision.”
Mr. Katsuyama left RBC in 2012 and launched IEX’s stock trading platform last October. Its objective: creating a market where high-speed traders do not enjoy any advantages over their slower peers. For now, the IEX share of overall trading volume is minuscule, but it is growing; this week, the platform experienced its biggest day on record, with 58 million shares traded.
Sitting in a bare office overlooking the former site of the two World Trade Center towers, Mr. Katsuyama appeared slightly shell-shocked by his transformation into a semi-public figure and by the passionate responses to Flash Boys – both in support and in opposition.
Earlier this week, he had the unusual experience of being at the centre of a showdown broadcast on CNBC. In his first appearance on live television, Mr. Katsuyama found himself squaring off against William O’Brien, president of BATS Global Markets Inc., over the material contained in Flash Boys.
The debate grew heated and the video went viral but Mr. Katsuyama views the experience as unfortunate. “The whole point is to have constructive discussions,” he said. “This is a financial services industry, it’s not an entertainment industry.”
(Mr. O’Brien later publicly retracted one of the statements he made on CNBC about the types of data feeds used by his exchange; the correction came at the urging of the New York Attorney-General’s office, according to a report in The Wall Street Journal).
Mr. Katsuyama is troubled by the way the coverage of Flash Boys has focused on the more incendiary elements of its critique. “We’re not against computerized trading – not at all,” he said. A well-known high-frequency trading firm conducts business on IEX’s platform, he noted. “They provide value for our market, but they play by our rules.”
After the rollercoaster ride of recent days, Mr. Katsuyama has stopped reading some of the attacks on him and his firm. He said his personality is such that he tends to “lie awake at night thinking about the couple of messages that are horrible as opposed to the 98 per cent of the messages that are positive.”
A graduate of Wilfrid Laurier University in Waterloo, Ont., Mr. Katsuyama said he was touched by the numerous notes he has received from former colleagues and classmates north of the border. “Canadians are proud,” he said. “I’m very honoured and humbled by that.”