The best financial news television in years happened yesterday on CNBC when author Michael Lewis, IEX’s Brad Katsuyama and BATS’ Bill O’Brien faced off in a hexabox along with Bob Pisani, Tyler Mathisen and Sue Herera.

O’Brien was aggressive and combative in his manner, taking exception to Katsuyama and Lewis saying the U.S. equities markets were “rigged.”  O’Brien ripped apart Lewis’ contention that he had visited BATS on February 5, 2013, asking, “Were you in Kansas City? Because that is where we are located.”

Lewis said he had visited the BATS data center in New York.  O’Brien said he did not talk to anyone at BATS.  Lewis said he had wanted to talk to BATS founder Dave Cummings.  Pisani later reported that he had been messaged by Cummings and that Cummings had never talked to Lewis.

You get the picture.

O’Brien was clearly miffed, while Lewis and Katsuyama stayed calm and deflected O’Brien’s criticisms by staying on message.

O’Brien in fact started the debate scolding them for insulting thousands of market participants and scaring potentially millions of investors.

“The market has always had intermediaries,” O’Brien stated.

He also took exception to Katsuyama’s coloring of the HFT participants depending on whether they traded on his market or O’Brien’s.

“They have the same HFT customers we do, only we say [HFT is] providing a valuable service to the market and they say [HFT is] ripping off the markets,” said O’Brien.

IEX, which is a non-displayed ATS, or alternative trading system, aspires to be an exchange, Katsuyama said.

And there is the rub.  Today IEX is the startup trading venue taking on the established venues.  It was not that long ago that it was BATS, started by Dave Cummings, that was the irritant.  Cummings used viral marketing via illuminating and often infuriating email open letters.  I used to publish them in my newsletter in those early days.  Cummings once bragged his marketing budget for the year was $75.

The ECN Archipelago spent millions of dollars on a corporate identity campaign to do the same thing a few years earlier poking fun at the NYSE.

Here is what then CEO Gerald Putnam said at the time in a press release about the campaign:

“Archipelago is creating a new kind of stock exchange, one that is totally electronic, transparent and open. Our new identity and advertising captures these qualities, and positions us as a force for positive change in the financial markets.”

IEX is the new irritant to the status quo, but they are also reaping the benefit of a modern day viral marketing campaign, through Lewis’ book, the “60 Minutes” segment, CNBC and other television appearances and via the social media channel.  My #Flashboy search column on Tweetdeck is spinning.

The question I have is what will be the negative impact to investor understanding of the markets?

And there is the positive in all of this.  Even O’Brien concedes the markets could be improved, that they are not perfect.

Lewis said, “The important thing is that investors get more information about how their stock market orders are being handled.”

I think this debate will do just that.  I just don’t know that improved dark pool trading is the solution.  Retail investors have never had it better for fast and efficient markets.  However, they don’t know where their orders are being executed and, according to the New York Times excerpt of Flashboys, even institutional traders who wanted their orders routed to IEX only had that done about 10% of the time.

Dark Pools rules need to be adopted.  Small retail orders have no place in a dark pool.   You want some true outrageous behavior, start there.  

Good for Katsuyama for his understanding of the markets and for building the Thor execution model while at RBC.  However, his campaign of righteousness is not going to go well for him in the long-term.  A market is built by bringing together people with competing interests and agreeing on the rules.  It is not made by demonizing whole parts of the industry, even if done with a smile and a cool composure.

There is a difference between selling books and building markets.

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