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Are markets broken? Two insiders say so.

High-frequency trading has hollowed out the stock market, where software code has replaced intuition and common sense. 

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Richard Drew/AP/File
In this 2010 file photo, traders work on the floor of the New York Stock Exchange in New York a day after the so-called 'Flash Crash' caused the Dow Jones industrials average to fall 600 points in five minutes before quickly recovering. Regulators pointed to high-frequency trading as one of the major culprits.

I hit up a cocktail party on the rooftop of the Gramercy Park Hotel earlier this summer and in attendance were a who's who of financial media stars, reporters and producers - Fox Biz, CNBC, Bloomberg, Reuters all were there.  And it's no surprise, the market's become more and more erratic over the years and the media needs guests who can explain what's happening to their wider audience.  And no one has a better handle on today's market structure than my friends Joe Saluzzi and Sal Arnuk of Themis Trading.  They are the go-to guys when anchors and bookers and journalists need an expert - and for good reason: They've watched the entire Mechagodzilla Trade-a-saurus Rex evolve from the very beginning.

Joe and Sal made their bones at Instinet, one of the pioneers of high tech trading and ECN activities.  They've since witnessed a laundry list of well-intentioned (and sometimes nefarious) decisions by the exchanges, regulators and policymakers that have led to what they term a hollowed-out stock market, a de facto kleptocracy wherein only the fast survive and software code has replaced both intuition and common sense.

And so if you plan to stick around in these market's, you might want to make yourself familiar with the new laws of the jungle.  In Broken Markets, Joe and Sal bring us through the (d)evolution of our current state complete with some astounding revelations along the way.  For instance, did you know that a 1994 research paper about how market makers were consciously not trading on odd eighths (1/8, 3/8, 5/8, 7/8) led to some of the most destructive policy decisions ever made for our equities markets? There's so much juicy stuff in here I found myself reading it with a highlighter.

Anyone trading, investing, regulating or learning about markets should buy this book immediately.  You may not agree with Sal and Joe's contention  - that the exchanges have abandoned their original purpose of maintaining orderly markets for America - but I guarantee you'll have your eyes opened.

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