Dark Pools: Our Favorite Fintech & Wall Street Book
Dark Pools is a page-turning, fascinating account of how computerized algorithmic high-frequency trading (HFT) and electronic platforms evolved, took over financial markets and turned the NYSE floor into a mere "puppet-show for TV." Author Scott Patterson, a reporter for the Wall Street Journal, is a consummate observer. Dark Pools is a follow-up to his New York Times bestselling, award-winning The Quants (2010). His account of what's transforming capital markets cross-references Broken Markets by Sal Arnuk and Joseph Saluzzi.
While Arnuk and Saluzzi, as co-founders of Themis Trading, LLC, write as deeply-concerned market participants, author Patterson is a quintessential observer, also deeply-concerned as a knowledgeable researcher in the field of artificial intelligence and an investigative reporter. While Broken Markets reads like its authors' many informative letters to the SEC and testimony before expert groups, Patterson's Dark Pools explores the colorful inner workings through a cast of improbable characters: the traders, programming geniuses, eccentric electronic market-makers, aggressive "algo-warriors," high-rollers and hedge fund quants who have taken over Wall Street, London, Singapore, Tokyo, Mumbai, Sao Paulo and Shanghai. Their fiber-optic cables circle the Earth, linking all financial markets at ever-higher speeds in the global arms race of the Algo Wars. These cables are now being superseded by even-faster microwave stations relaying HFT orders and trades 3 milliseconds faster than the fastest cables.
As a worried retail investor, I have tracked these changes second-hand, in my editorials, including "Global Finance Lost in Cyberspace" . Patterson reports that the Tokyo Stock Exchange's Arrowhead HFT platform launched in 2010 now makes up half its volume. The Singapore Exchange (SGX) launched its Reach platform in 2011, billed as the fastest matching engine, with order speeds below 90 micro-seconds, and aggressively courting all the high-speed traders now flocking to Asia. India's National Stock Exchange (NSE) back in 2009 made 35 co-location servers available which were snapped up by Goldman Sachs, Citigroup and Morgan Stanley, leaving local Indian firms in the dust. The BATS Chi-Ex Europe now handles 25% of all stock trading in Europe. GETCO, the king of speed-trading, was edged out in 2011 by Virtu Financial and a slew of A.I. firms trying to capture trading patterns in real time. London's Fixnetix claimed that it had the world's fastest microchip that processes a trade in 740 nanoseconds.
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