After finishing an eight round heavyweight fight from CNBC’s Manhattan studios, author Michael Lewis must be wondering what type of hornets’ nest he stepped into with his book Flash Boys.

Flash Boys: The great debate

“Shame on you” emotional attack punctuates stakes

“Shame on both of you for accusing literally thousands of [HFT related] people and scaring millions of investors in an effort to promote a business model,” was the verbal flame ball that first greeted Lewis and IEX Exchange founder Brad Katsuyama, a hero in Flash Boys for creating an exchange that provides no special advantages to high frequency trading (HFT) firms.  Throwing this aggressive barb was William O’Brien, president of BATS Global Markets, Inc. Class A Common Stock (BATS:BATS), an exchange that codifies HFT firms.

“It’s a very, very old tactic to try to build a business on the planks of fear, mistrust and accusation,” continued O’Brien, an attacking tone in his voice while he looked Katsuyama in the eye as he sat next to him on CNBC’s lower Manhattan set floor of the New York Stock Exchange.  Even by trading standards, this fight was a donnybrook to remember – and its emotion is a sign of the important stakes that are in play for the exchange world, a topic that hasn’t received much attention.

Flash Boys’s weak point: “Are the markets rigged?”

It can be argued that Flash Boys didn’t uncover the most important — and interesting — points in the HFT debate.  As such the sweeping claim that “markets are rigged” is the point that traditional exchanges seem to be attacking.

As CNBC moderator turned referee Tyler Matheson tried to regain control of the interview, he turned to Katsuyama to ask a tough question, the central headline to emerge from the Flash Boys controversy. “Are the markets rigged?” he questioned Katsuyama.   As he started to answer, O’Brien interrupted, pointing an accusing finger into chest Katsuyama, coming within inches of turning the confrontation physical.  “It’s disgusting that you are trying to parse words now,” O’Brien said, not letting Katsuyama finish his answer and then prompting him to answer the question of rigged markets, perhaps the book’s most overreaching – and weakest – point.

“I believe the markets are rigged,” Katsuyama blurted out, taking off the gloves as if a product of the establishment was proudly emerging from the closet and engaging O’Brien on a different level.  “And I also think that you are part of the rigging,” he said, looking O’Brien right in the eyes.

I’ve seen hockey fights like this before when two teams hate each other.

“You want to do this? Let’s do this,” Katsuyama said, now matching O’Brien’s aggressive tone.

“I really do,” O’Brien responded, highlighting the emotion in a debate where the success of the stock exchange business model hangs in the balance.  Not only are there $1.3 billion in HFT profits to be divvied up among the offending trading firms, but more significant is the massive profits the HFT programs generate for exchanges – a number that is yet to be disclosed.

“The responsibility (of an exchange) is to fairly price trades between slower and faster participants,” Katsuyama said, to the cheers of floor traders in the background who had stopped trading and turned up the volume on their TVs, a rare event that CNBC’s Bob Pasani would later say he had not seen in decades.  Traders on the exchange floors have fallen victim to HFT firms, who mostly replaced their services have been accused of front running trades and other activities illegal on the trading floor.  As a result, independent floor traders and small trading firms unable to keep up with the amazing cost of the speed race can’t compete on a level playing field.

The verbal sparring continued, and while entertaining, it was becoming rather like a potato chip: tasty but with few nutrients.  The interview was now beyond ruckus, with O’Brien continuing to interrupt Katsuyama and calling the book Flash Boys a 300 page commercial for Katsuyama’s IEX exchange – and revealing the real issue, how the exchange business model and their still little disclosed golden goose, HFT, was being challenged.

Micheal Lewis on the undercard at his own fight, but makes a statement that the media generally missed

It was then Michael Lewis, a somewhat surprised if amused look on his face from CNBC’s midtown location, who hadn’t spoken a word, decided to throw a punch.

“I think he’s outrageous,” Lewis said, targeting O’Brien and the exchanges that enable HFT firms to pay for material advantages not available to most traders.  “I think he’s part of the problem.”

As the CNBC moderators continued to ask the group what should the government response be to Flash Boys, Lewis made his most important contribution to the discussion, quotes that have yet to be picked up by many in the media: “Brad (Katsuyama) was part of the establishment, he worked at a large bank and made millions each year.  He could have remained part of the establishment and lived a very comfortable life,” Lewis said, pointing out that he took a risk and stepped out from the establishment box — and with it the conformist Wall Street thought oppression that follows. “This is a market solution to the problem,” Lewis said.

Katsuyama, an acknowledged “conformist,” stepped outside his comfort zone and confronted the exchange business model with a disruptive – if populist – idea.  Will he win in the end?  It’s hard to say, as the exchanges and the financial lobby have a history of aggressively crushing anything that threatens its ability to print money.  At minimum, Katsuyama won the battle on CNBC.  64% of viewers on CNBC who voted in a poll said Katsuyama won the argument.

Will he win the war?  That poll will be determined as major investors “vote” based on the exchange that receives the most volume.

CNBC Flash Boys poll