Flash Boys Chapter 6 - Building IEX and the 350 Microsecond Speed Bump
Chapter 6 is where everything gets real. Brad and his team stop talking about the problem and start building the solution. They quit their jobs, raise money, hire puzzle solvers, and design a stock exchange from scratch. And the centerpiece of the whole thing is a coil of fiber optic cable stuffed inside a box the size of a shoe.
Ronan Goes Home to Ireland
The chapter opens with Ronan flying home to Ireland for Christmas 2011. He wanted to tell his dad he was “legit.” That his career wasn’t some weird gamble. His father still didn’t really know what Ronan did for a living. Irish parents don’t get into your business, Ronan says. It’s just Irish love.
But days before the trip, Brad pulled Ronan into a meeting with Schwall and Rob Park. Brad wanted to know: if he left RBC to build a new stock exchange, who would come with him? One by one, they answered. They were all in.
Ronan couldn’t believe what he was hearing. He had spent his whole career trying to get a Wall Street job. Now the guy who gave him one was asking him to throw it away. But he trusted Brad. “He’s not a fucking idiot,” Ronan said.
So the conversation with his dad changed. Instead of telling him he made it, Ronan needed advice. He was making $910,000 a year. The new job would pay $2,000 a month. His father almost had a heart attack when he heard the salary numbers. Then he looked at his son and said, “Your risks seem to have paid off so far. Why the fuck not?”
Brad Quits, Everyone Panics
Brad resigned from RBC on January 3, 2012. No paper, no code, no business plan. He just walked out. When Ronan landed at baggage claim and turned on his BlackBerry, the first message was Brad’s resignation announcement. The next ten messages were variations of “Holy shit, Brad Katsuyama just resigned.”
RBC’s bosses in Canada had assumed Brad would come to his senses. What kind of Wall Street trader quits a $2 million job for a startup with no funding? That kind.
Here’s the thing though. Brad’s biggest asset was that investors trusted him. On Wall Street, that’s almost unheard of. People controlling a third of the US stock market actually petitioned RBC to let Brad leave, so he could fix the markets. Trust is rare when everyone around you is paid to lie.
The Fundraising Nightmare
Brad needed about $10 million. Should be easy, right? All these big investors wanted him to fix things. But here’s the problem. Eight out of ten pitch meetings started with the same question: “Why are you doing this? Why are you attacking a system that made you rich?”
When Brad said the market was unfair and needed fixing, people didn’t believe him. They thought it was bullshit. But when he said “we are long-term greedy,” suddenly everyone relaxed. People on Wall Street understood greed. Idealism made them nervous.
He spent six months faking greed he didn’t feel. Meanwhile, his friends and family in Toronto ponied up $1.5 million in two hours. Brad actually made some of them send bank statements to prove they could afford to lose the money.
The big funds? They all wanted him to build the exchange. They all hoped to benefit from it. But they all assumed someone else would pay for it. As Ronan put it, “They’re like one of those friends who say he’ll back you up in a fight and then don’t do anything.”
Eventually Brad raised $9.4 million from nine investors, later adding $15 million more. He put his own life savings on the line too.
The Puzzle Masters
To build an exchange that couldn’t be gamed, Brad hired the very people best able to game it. Dan Aisen, nicknamed “Puz,” was a twenty-year-old Stanford kid who won the Microsoft College Puzzle Challenge. He had helped build Thor at RBC.
Puz brought in his teammate Francis Chung. Francis was so shy during his interview that Brad almost didn’t hire him. The only personal thing he revealed was “I like to dance.” Then silence. But six weeks later Francis started talking and didn’t stop. He became “The Spoiler” because every time someone thought they’d solved a problem, Francis found a loophole in their logic.
They also hired Don Bollerman from Nasdaq. Don was a tough guy from the Bronx who ripped filters off cigarettes and expected to die young. He knew the stock exchanges inside and out. On September 11, he’d been working five hundred yards from the World Trade Center. He walked sixteen miles home to the Bronx through the dust. That’s the kind of person he was.
Don brought a practical view. He had watched Nasdaq basically sell out to high-frequency traders. It went from asking “Is this good for the market?” to “Can we get this through the SEC?” By 2011, over two-thirds of Nasdaq’s revenue came from HFT firms.
Constantine and the Russian Connection
They hired Constantine Sokoloff, also from Nasdaq. Constantine had a theory about why so many Russians ended up in HFT. The Soviet system trained people in math. It also trained them to find loopholes. Seventy years of gaming a broken system made Russians perfectly suited for gaming the US stock market.
The 350 Microsecond Speed Bump
All three predatory trading strategies depended on speed. Electronic front-running. Rebate arbitrage. Slow market arbitrage. The Puzzle Masters needed to neutralize speed without banning anyone from the exchange.
Brad’s raw idea was simple. Everyone fights to get as close to the exchange as possible. What if you push them away?
They calculated the exact delay needed. 320 microseconds, the time to send a signal to the farthest exchange. Rounded up to 350 just to be safe. This delay would let IEX react to market changes faster than any predator could exploit them.
But here’s where it gets fun. Their exchange was in Weehawken, New Jersey. The connection point for traders was in Secaucus. Less than ten miles apart. They needed 38 miles of distance to create the delay.
A new employee named James Cape, who came from an HFT firm, had the bright idea. Coil the fiber. Instead of running cable straight between two buildings, they wound 38 miles of fiber optic cable into a box the size of a shoebox. Every order going to IEX had to travel through thousands of tiny circles inside that box.
From the HFT traders’ perspective, it was like being banished to the middle of Long Island.
Only Three Order Types
The existing exchanges had about 150 different order types. Most were designed to give HFT an edge. The Puzzle Masters went through every single one and found the same thing. They were all designed to help predators, not investors.
IEX stripped it down to three: market, limit, and Mid-Point Peg. No rebates. No co-location. Same fee for everyone, nine one-hundredths of a cent per share. Simple and fair.
The Launch Problem
Building the exchange was one thing. Getting anyone to use it was something else entirely. The big Wall Street banks controlled 70 percent of all stock market orders. If they refused to route orders to IEX, the exchange was dead on arrival.
And the banks had every reason to refuse. IEX would reduce the value of customer orders to zero. No more selling order flow. No more dark pool profits. Billions of dollars in revenue would disappear.
The team debated how to handle this. Don Bollerman, who had actually dealt with the banks, was blunt: “The brokers, if they all decide to hate us, we’re fucked. End of story.”
Brad wanted transparency. A “security camera” approach. Not to catch every violation, but to make brokers think twice. The team couldn’t agree. They called it the “Broker Nanny” and argued about whether a drunk nanny was worse than no nanny at all.
My Take
I spent a lot of my career in IT. I’ve built systems. And I can tell you, what this team did is impressive on a technical level. But the really hard part wasn’t the technology. It was the politics. Building a fair system when every powerful player profits from unfairness.
The 350 microsecond speed bump is brilliant in its simplicity. A shoebox full of coiled fiber. That’s it. That’s the entire defense against billions of dollars worth of predatory trading. Sometimes the best solutions really are the simplest ones.
But what I find most interesting is the fundraising story. Brad couldn’t get money by telling the truth. He had to fake greed. Wall Street understood greed. They didn’t understand someone who just wanted things to be fair. That tells you everything about the culture.
Next chapter gets into Sergey Aleynikov’s story. The Russian programmer who got arrested for taking code from Goldman Sachs. That story is a whole different kind of crazy.
This is part of my chapter-by-chapter retelling of “Flash Boys: A Wall Street Revolt” by Michael Lewis (ISBN: 978-0393244663). I’m retelling the story in my own words with my own thoughts mixed in.
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