Michael Lewis gave an interview to "60 Minutes" ahead of the publication of his book, "Flash Boys." He alleges that the stock market is "rigged" by a cabal of high frequency traders, stock exchanges, and Wall Street firms.

He alleges that a lone fellow, a trader named Brad Katsuyama, figured this out and formed a new exchange, IEX, to combat abuses perpetrated against the investing community.

Read More Michael Lewis' 'Flash Boys and high-speed trading He alleges that high frequency traders are able to front run orders, which means they are able to buy in front of you and sell them back to you when you want to buy.

The problem, he says, is in the plumbing of the stock market. In the most interesting part of the interview, they showed a moving diagram of an order that leaves downtown New York and goes to the BATS exchange servers in Weehawken, N.J. Because the exchanges all connect to each other, the order then goes to the servers of the New York Stock Exchange, which is a few miles away in Mahwah, N.J.



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According to Lewis, that's where the alleged front running occurs: in this example, they imply that the existence of high-priced fiber optic lines connecting the exchanges allow traders to get from Weehawken to Mahwah faster than the "public lines" that are provided to those who don't pay the higher fees for the faster lines, allowing these traders to profit from the knowledge of the prices in the slower feeds. Should they be allowed to do this? When pressed, Mr. Lewis reluctantly admitted that this was perfectly legal, and so it wasn't front running, which was illegal. He then took to calling it "legal front running."

IEX has proposed that outgoing messages arrive at all exchanges at the same time and incoming messages go through a "speed box" that slows them down, so everything arrives everywhere at the same time. This is a simple solution to the problem.

Read MoreNew York to probe high-frequency trading And that was about it. High-speed traders have fiber-optic lines that get information to places faster, and I met a guy who has a solution to this problem. This is news?

SEC spokesman John Nester declined to comment on the book, but told CNBC: "The staff, at Chair White's direction, is conducting a comprehensive data-driven analysis of a range of market structure issues,including high frequency trading practices and their impact on the fairness,efficiency and integrity of our markets." Proprietary feeds

The odd thing about the interview is that they did not bring up the hottest topic around high-speed trading: that high-speed traders have access to a "proprietary feed" that allows them to have a trading advantage over those who rely on the "public feed."

There is indeed a "proprietary feed" which has been provided to anyone willing to pay for it, with the blessing of the SEC, for many years. The core argument is that those who access this proprietary feed can calculate the most current bids and offers (known as the National Best Bid and Offer, or NBBO) quicker than those who get the public feed (known as the Securities Information Processor, or SIP). That can indeed provide a trading advantage.



Why do these proprietary feeds exist? Because they provide much more detailed trading activity than the public feed. This information is valuable to those who are the most active traders (proprietary traders, institutional traders, certain hedge fund traders) as it gives them a deeper look at the size and depth of the market, and exchanges charge accordingly for the information.

Let me give you an example of what the proprietary feed does. Suppose I am an institutional trader and want to buy 10,000 shares of Apple stock…the bid is $535.00, the ask is $535.01.

The public feed – the SIP – will only show the last price, and the bid and ask price, what is called "top of the book."

Read MoreMichael Lewis targets high frequency trading The proprietary feed will tell me how deep the book is, and at what price levels. So it will show me, for example, that there are 1,000 shares to buy immediately at $530.01, then 2,000 at $530.02, then 3,000 at $530.03, then 4,000 shares at $530.04.

Obviously, this is dynamic and the prices change all the time, but you get the point: the proprietary feed provides much more information.

It's alleged that these public feeds allow traders to react more quickly because the public feed are sent to a central point for processing before they are sent out, whereas private feeds are not, and that this gives high-speed traders a small advantage, literally measured in milliseconds (thousandths of a second).

Read More SEC official: What's hurting the 'little guy' There may be something to this, but it's not clear how big a deal it is. There was a widely discussed academic paper published in January of this year that looked carefully at this. The authors studied Apple's stock on several days in 2012 and found a difference of 1.5 milliseconds between the proprietary feed and the public feed. That is enough time for a trader with fast enough equipment to trade against someone with access to only the slower feed.

Is there a significant price dislocation? The authors conclude that the median price dislocation is one cent, and the mean was 3.4 cents.

A one-cent difference is not trivial, but it's not a huge amount either. But here's the kicker: the dislocations last only several milliseconds. "Therefore, while dislocations are costly and frequent, their impact on infrequently trading investors can be quite small as prices are dislocated less than one percent of the time," the authors conclude.