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Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market Paperback – June 25, 2013
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"Far more comprehensive and persuasive [than even Michael Lewis' Flashboys]."
--James Stewart, New York Times Book Review
"An excellent history of the early electronic traders" - Michael Lewis
“Scott Patterson’s Dark Pools is about the most important financial issue no one talks about—how high-frequency traders have rigged the market.”
“Remarkable…even long-time participants in electronic markets will learn a lot from this book.”
“Richly reported…an invaluable piece of timely journalism that should be read by regulators and anyone with a cent in the stock market...You will never look at the opening bell in the same way.”
“An engaging narrative…DARK POOLS is easily the most entertaining and accessible book to cover the new world of stock trading.”
“An education in how markets work, packaged in a thriller worthy of Michael Crichton…. Dark Pools is one of those rare books that is a great summer beach read and a useful trading manual.”
“Very enjoyable….a good story of how innovators destroy the old guard.”
“Dark Pools relays an epic tangle of hacktivists, old-school floor exchanges and traders – all wrestling to game the machines…The stories engage from chapter to chapter, bringing the reader from the outside in.”
“An entertaining account of the key battles in the “algo wars” and the colorful math geeks who fight them—some of whom are now fighting to rein in the monsters they created. Dark Pools is an alarming account.”
“Dark Pools is a must read for all serious investors. Patterson’s methodically researched book exposes the core problems in today’s securities market…His findings should serve as a blueprint for the SEC.”
--Blair Hull, founder of Hull Trading and Ketchum Trading
From the Hardcover edition.
About the Author
SCOTT PATTERSON is a staff reporter at the Wall Street Journal, covering financial regulation from the nation's capital.
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Even for someone with a background in finance, Dark Pools is a fascinating account. Scott Patterson manages to paint interesting portraits of the early pioneers of computer network trading (the so called SOES bandits) and the evolution of the trading networks. There's a very interesting portrait of Josh Levine, who wrote the software for the Island trading network. I have a book of essays by Haim Bodek on HFT. However, I didn't know his history in HFT until I read about it in Dark Pools.
I was also impressed that Patterson got people at Renaissance Technology to talk to him at all, although he doesn't have a much better picture of how Renaissance trades than anyone else.
The only fault that I can find with Dark Pools is that Scott Patterson does not understand software. He has an annoying habit of referring to any complex trading software as Artificial Intelligence (AI) software. Back in the 1960s AI got a bad reputation so very few people refer to complex decision making algorithms as AI. And in many cases the software that Patterson refers to would not be classified as under the old definition AI (although some of the learning algorithms might be).
But software is not the strong point of this book: computer trading networks are and Patterson does a good job describing these and how HFT evolved.
I have not yet read "Flash Boys" but I'm not certain why Patterson's excellent "Dark Pools" is not featured more prominently in the discussion. Perhaps the more nuanced story Patterson presents does not make for the easy headline?
I would strongly recommend this for anyone interested in the personalities and and inner workings of the "plumbing" of the Financial Markets. This should be a must-read preamble to anyone jumping on the "Flash Boys" bandwagon.
Some may find fault in that there aren't solutions posted but that is actually wise because this is a super-complicated set of inter-twined issues (before you even get to the issue of dark pools, below) and it is excellent to just have someone attempt to summarize the situation to date.
One minor nit is that the title is slightly misleading because it really isn't about "dark pools" at all - those are off-exchange pools of liquidity with selected firms only. The author obviously knows this since he is an expert on the overall market structure.
This book is a real eye opener, even more so than Flash Boys. I read it twice in a few days. It's all about traders making money off our money--including our retirement funds and other investments. The possibility of another flash crash of the markets at the global level is clearly a real systemic vulnerability. This kind of trading is ultimately driven by greed, by creating clever ways of gaming the market via computerized trading to make money off the rest of us.
As Josh Levine, the original creator of a fair electronic trading system that he hoped would improve the rigged system with human traders, was quoted as saying: If all this time, money, brilliant minds, and energy devoted to gaming the markets were put towards a good cause, such as finding a cure for cancer, we'd be a lot better off. What a waste of talent. Sad.