Flash Boys Chapter 7 Part 2 - IEX Goes Live and Goldman Makes a Surprising Move
In Part 1 we talked about the misfits Brad recruited to build IEX. Now we get to the good stuff. They launched it. And then Goldman Sachs did something nobody expected.
The War Veteran Who Could See Patterns
Josh Blackburn’s story is wild. On September 11, 2001, he was a college freshman watching the Twin Towers fall on TV. A couple months later he walked into an Air Force recruiting center. They told him to finish his freshman year first. He came back and enlisted.
The Air Force sent him to Qatar, then Baghdad, then Afghanistan. Josh had a special talent: taking messy data and turning it into pictures. In Afghanistan, he built a system that showed all U.S. military activity across every battlefield on a twenty-foot wall map. Real-time. Generals could see patterns in rocket attacks, predict where the next one would hit.
Three tours. He kept re-enlisting because the work mattered. When he came home, nothing felt important. HFT shops kept calling, pushing the “we are elite” angle. Josh didn’t care about elite. He wanted meaning.
John Schwall found him on LinkedIn. Brad offered him a job. Josh joined. And quietly, without anyone asking, he built data visualizations that changed everything. Brad would say “I can’t see the data,” and Josh would say “Hit Refresh.” Suddenly the screen showed shapes and colors and patterns. Brad could now see predatory trading strategies nobody had imagined.
The Magic Shoebox and Opening Day
Before IEX opened on October 25, 2013, the thirty-two employees guessed how many shares they’d trade on day one. Median guess: 159,500. Matt Trudeau, the only one who’d built an exchange before, guessed 2,500.
They needed 50 million shares per day just to cover their costs. If they couldn’t reach that, they were dead. Don Bollerman put it bluntly: “It’s binary. Either we are a resounding success or we are a complete flop. We’re done in six to twelve months.”
First day: 568,524 shares. Most of the volume came from small brokers, the Royal Bank of Canada, and Sanford Bernstein. The big Wall Street banks? They showed up, but not honestly. They sent tiny 100-share orders, let them sit for a few milliseconds, then pulled them back. It was like window shopping with no intention of buying.
And that was the polite version of what the banks did.
The Banks Fight Dirty
Here is where it gets ugly. The big banks were not just avoiding IEX. They were actively sabotaging it with their own customers’ money.
A big investor gives a bank an order to buy 100,000 shares of Procter & Gamble. The bank sends 100 shares to IEX. IEX has a seller with 100,000 shares at a good price. A perfect match. But instead of sending the full order, the bank keeps pinging with tiny 100-share lots. Or vanishes entirely. Why? Because the bank wanted that trade inside its own dark pool, where it could charge HFT firms fees for the right to pick off the investor’s order.
Brad’s biggest weakness as a strategist was his inability to imagine how badly people would behave. He expected resistance. He did not expect the banks to weaponize their customers’ orders against an exchange built to protect those customers.
Out of ninety-four brokers connected to IEX, only ten behaved honestly. Three were “meaningful”: Morgan Stanley, J.P. Morgan, and Goldman Sachs.
December 19, 2013
This is the moment the whole book builds toward in this chapter. And it hits different when you know the context.
Goldman Sachs had connected to IEX, but their orders arrived the same way everyone else’s did. Tiny, untrusting, gone in milliseconds. Then on December 19, at exactly 3:09:42 p.m., 662 milliseconds, 361 microseconds, and 406 nanoseconds, something changed.
Goldman started sending real orders. Big ones. Honest ones.
The IEX office went nuts. One by one, people stood up from their desks. Then they started shouting.
“We’re at fifteen million!”
“Twenty million!”
“Fucking Goldman Sachs!”
“Thirty million!”
Lewis describes it perfectly: “It was as if an oil well had gushed up through the floor during a meeting of the chess club.”
John Schwall shouted they had just passed AMEX in market share. Ronan pulled out a $300 bottle of champagne he’d told Schwall cost forty bucks, because Schwall had a rule about gifts over forty dollars. Paper cups were found. J.P. Morgan called asking what just happened. Goldman called saying they were going bigger tomorrow.
Fifty-one minutes changed everything.
Why Goldman Did It
So here is the question everyone was asking. Why would Goldman Sachs, of all firms, support a fair exchange?
Two Goldman partners made the call. Ron Morgan, head of sales in New York. Brian Levine, head of trading in London. They had been tasked with figuring out why Morgan Stanley was growing so fast. The answer was uncomfortable. Morgan Stanley made $500 million a year renting trading infrastructure to HFT firms. Goldman could copy that. But Morgan and Levine asked harder questions instead.
Levine told people plainly: “Unless there are some changes, there’s going to be a massive crash. A flash crash times ten.”
Goldman earned $7 billion a year from equities. A future market disaster would be blamed on them. But it was more than business. Both men saw a rare chance to do the right thing. Levine put it simply: “I think it’s a business decision. I also think it’s a moral decision.”
Morgan talked to thirty-three big investors one by one. Then Goldman flipped the switch.
The Numbers That Mattered
Here is the thing about December 19. Goldman had actually sent more orders to IEX the day before. But on the 19th, they let orders sit for more than ten seconds. They trusted IEX. And 92 percent of those orders traded at the midpoint, the fair price. In Wall Street’s dark pools, that number was 17 percent.
Brad walked into a glass office after the market closed. “We needed one person to buy in and say, ‘You’re right.’” Then he paused. “I could fucking cry now.”
The River Wants to Jump Its Banks
Lewis ends the chapter with a great metaphor. The stock market felt like a river pressing against its banks. All it needed was one man with a shovel to dig a trench. The water would do the rest. That is why men caught digging into levees on the Mississippi were once shot on sight.
Brad was the man with the shovel. Goldman arrived with explosives.
An investor asked the obvious question: “They did it on December nineteenth. And then what?”
The chapter ends right there. You have to keep reading.