Dark pools: high-speed traders, AI bandits, and the threat to the global financial system / by Scott Patterson. — 1st ed. p. cm. 1. Electronic trading of securities. 2. Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market Paperback – Jun 25 Start reading Dark Pools on your site in under a minute. “Scott Patterson’s Dark Pools is about the most important financial issue no one talks about—how high. Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market Paperback – June 25, A news-breaking account of the global stock market's subterranean battles, Dark Pools portrays the rise of the "bots"--artificially intelligent systems that execute.
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A news-breaking account of the global stock market's subterranean battles, Dark Pools portrays the rise of the "bots"- artificially intelligent systems that execute. A news-breaking account of the global stock market's subterranean battles, Dark Pools portrays the rise of the "bots"--artificially intelligent systems. View Notes - Dark Pools The Rise of the Machine raudone.info from FIN at University of Miami. ALSO BY SCOTT PATTERSON THE QUANTS How a New.
The exchanges had gotten in bed with the Bots. Now investors were fed up, Mathisson argued. To the insiders—those sitting in the room—it was a shocker. It was an outrage. Others had been attacking the speed Bots. What was shocking was that Dan Mathisson was saying it. Mathisson, one of the architects of the electronic system itself, one of the elite Plumbers—he was trashing it. Pick-off artists! Mathisson knew what he was talking about.
Because the dirty little secret of most dark pools was that they relied on those very same pick-off traders he was trashing.
In Wall Street parlance, the Bots helped provide the liquidity behind the massive AES pool, the rivers of download and sell orders the turtle-slow average traders—the mutual funds, the pension funds—relied on when they wanted to download or sell a stock. Egregious violators were kicked out of the pool.
But there was little he could do to entirely stop it. In short, the dark pools themselves were swarming with predator algos.
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The dynamic spoke to how powerful the Bots had become. And there was no place to hide. He knew that regulators were zeroing in on the industry. He wanted to be ready. Mathisson laid out his case. Before electronic trading came along in the s, most markets operated on a floor. Market makers—the people who download and sell all day long on behalf of investors, collecting a small slice of the deal for their troubles—were able to sense which way the market was going simply by looking around them, staring into the nervous eyes of another trader, watching a competitor frantically rush into a pit and start selling—or downloading.
General Electric is in trouble. IBM is about to surge. The market gained new eyes—electronic eyes.
Computer programmers designed hunter-seeker algorithms that could detect, like radar, which way the market was going. The big game in this hunt became known as a whale—an order from a leviathan fund company such as Fidelity, Vanguard, or Legg Mason. If the algos could detect the whales, they could then have a very good sense for whether a stock was going to rise or fall in the next few minutes or even seconds. They could either trade ahead of it or get out of its way.
Dark pools like Crossfinder had for a while at least evened the game in the Algo Wars, giving traditional investors a place to hide. But the evidence was now all too clear: The Bots in their relentless quest for the whales had thoroughly infiltrated the dark pools. And it was all cloaked in the darkness of a market mired in complexity and electronic smoke screens.
Mathisson, for his part, had decided to fight back. Blast pounded its fleet-footed high-speed opponents with simultaneous download and sell orders like a machine gun. The firepower of Blast was so overwhelming that it forced high-speed traders—who controlled upwards of 70 percent or more of all stock-market volume by the late s—to cut bait and run for cover. Blast was effective. It will happen but is also a never ending arms race that reaches a sort of steady state when all profits are consumed by computing and software development costs.
Raid array of hard drives in a single computer is described as distributed computing. The big data chapter is most interesting and efforts seem mostly unsuccessful, though I think it would take a very large investment to bear fruit.
One company in the field which is actually making money is described as doing software driven Buffet-like value investing, which is intriguing. The roi wasn't that high however. A lot of money tied up in value investing with software that is less expensive than paying hedge fund managers who want big bonuses might bring more stability to the market.
What looked to be failing was the attempt to feed the entirety of the internet into a giant machine learning black box that would then make stock choices. There ought to be a way do this successfully but it might take billions to only make millions.
Dark Pools The Rise of the Machine Traders.pdf - ALSO BY...
Is there a day-trading equivalent for HFT and software driven investing? Allow the little guy to do anything from writing simple spreadsheet rules to download or sell at certain points, or interface directly with dark pool APIs on site EC2 instances that are running on server clusters located near exchanges? Some interesting information not present elsewhere mixed with outright error by an author with a talent for writing the form of narrative history.
References and citations, even a bibliography or list of sources, is nonexistent. Many parts read more as rehashed newspaper headlines and articles? When the author speaks of subjects I have knowledge of, he often demonstrates a deep misunderstanding bordering on incompetence: Technical details and information are often incorrect in a way that damages the coherence, credibility, and conclusions of the narrative, and are rarely contextualized by an author who demonstrates similar inability to understand basic computing as those whose testimonies he incorporates.
One should not attempt to write on a subject demanding expert treatment of some details without consulting experts: An especially damning example is that of the retelling of the Aleynikov affair on pp site , which is bordering on the libellous, and reads, again, as if torn from the headlines instead of carefully researched and constructed. The entire telling of the story is confused, with good narrative drive but no historical spirit - no criticism, discernment, contextualization, or engagement.
The demonstrable misunderstandings of the author where he can be verified lend no confidence to those places where I can not: I am no fan of high-speed trading, and for those who wish to learn more of the subject from a critical perspective are instead advised to read Michael Lewis' 'Flash Boys' popular history which is however competently researched and written and Arnuk and Saluzzi's 'Broken Markets' technical for a layman.
Lewis is a competent writer of contemporary narrative history across a range of fields, as Tom Holland is competent in popular narrative history of the ancient world. If I were to judge the author on the sloppiness of this one work, I would conclude that, contrariwise, he is not. Aug 08, Ed Terrell rated it really liked it Shelves: On May 6, at 2: The Quants and Dark Pools.
They both deal with the new stock traders and technologies that have taken Wall Street by storm. Patterson does a great job with interweaving the personalities behind the formulas, acronyms, and money with the events that have taken place and that are reshaping our future. The Quants is a p On May 6, at 2: The Quants is a primer on credit default swaps, gaussian copula functions, and credit default obligations which formed the triumvarite that brought us to the brink of the second Great Depression in As such, it is a must for anyone wanting to know more about the underlying causes okay, greed played no small part!
Dark Pools, takes off where The Quants stop and brings us up to date on the new high speed trading that is taking place today, where speed to download and sell stocks in microseconds, earns the big bucks. From humble mathematical beginnings, such as genetic algorithms, machine learning, and expert systems we suddenly find ourselves sucked into "toxic dark pools swarming with predator algorithms".
Due to the speed at which they can execute orders, a lot can happen in a hurry as on March 6 and its trillion dollar drop. Dark Pools leaves us hanging and imagining and worrying. Patterson has written a fascinating and detailed history of the rise of computers and bots in the American, and now global stock markets. He has got potted histories of the major players in this business and shows how they wrestled power and control and most importantly money from the old guard who controlled the market before.
He shows how the raise of computer generated trading has massively increased the churn of stocks, where the fastest to download or sell is the one who makes the most money. The Patterson has written a fascinating and detailed history of the rise of computers and bots in the American, and now global stock markets. Most frighteningly he looks at the new computerised way that is coming AI. These machines take data from all over the web, from financial web sites to social media and make scarily accurate guesses as to the financial performance of a particular share from this feed aggregation.
Not only are they demonstrating that they can outthink humans, but they can react almost instantly. You don't expect a business book to read like a thriller, but this does. It does get technical at some points, but it is written well and is very readable. The implication behind out of control stock bots on the global economy does not bear thinking about. May 06, John Kowalczyk rated it liked it. However as the book progressed it seemed to transition from a great piece of expository writing with character, to a soap opera-like descriptive narrative lacking the educational value of the first chapters.
Some passages repeated beyond "reinforcement" to the point of boring redundancy, while some passages seemed to contradict earlier points or facts. Aft "Dark Pools" started out well, with a fast pace and some very interesting information tied to a story of money and the underbelly of trading. After reading some very lacking explanations of a few technology-related terms, I started questioning the accuracy of his description of the mechanics of the markets.
And throughout the text I was very suspicious of quotes from decades ago that were probably not nearly as accurate as they were presented to be. However, besides all that, the book was interesting overall and introduced me to some market structures I was unaware of and whet my appetite for more technical writings.
For the most part, this is an excellent historical account of how the current form of the markets and high-frequency trading came to be. It covers many of the people and the history of the digital revolution in trading between and when the book was published. However, I felt that some of the technical descriptions were a bit lacking in detail and sometimes conveyed a potentially inaccurate representation of technical culture and knowledge common among programmers and other technical people.
As someone with that background, it was fairly simple to sift some of those cases, but I worry that more complex situations had similar problems that I was not able to immediately recognize. Dispite this concern, the book is still a very worth-while read. It is an interesting story with a large amount of facts and background that allow the reader to come to some of their own decisions though others are more broadly stated.
Jul 22, Gary Beauregard Bottomley rated it really liked it. The author covers the material so well that even for those who aren't interested in the development of electronic trading will find the story an exciting read. He puts the context around the development and has written the definitive history on the subject. Near the very end of the book the author brings up Kurzweil and his thinking. He really didn't fit into the story's arc, but I took it as an ode to Kurzweil.
I warn you. The book will give you a queasy feeling in your stomach because he documents so thoroughly how the HST high speed traders are systematically taking money away from us because there is not a level playing field for small players like us who invest through our mutual funds or individual stocks and ETFs. Sep 17, Marceleen Mosher rated it really liked it Shelves: Having enjoyed Flash Boys, this book was suggested by a friend.
I enjoyed this book for a number of reasons. First, it is well written, it's a smooth read, nothing clunky to it. Second I throughly enjoyed the context and brief overview of the history of modern trading and the switch to electronic. I also liked the characters, they were likable. My main beef with this book was the structure and the order of the individual parts of the book that make up the overall story. I found the abrupt endings Having enjoyed Flash Boys, this book was suggested by a friend.
I found the abrupt endings to each separate protagonist's mini and interconnected story to leave me wanting to know so much more! Other reviews note that not enough time was spent delving into the underlying problems with the market, it's shift to high-speed poker.
I agree, but was glad to hear it mentioned at least enough to prompt an interested reader to learn more and form their own opinions. Dec 18, Tim O'Hearn rated it liked it. An accessible book with a misleading title that provides a compelling account of the history and somewhat-current state of the stock market. My issues are that it reads more like an essay collection and doesn't get into enough technical detail Algos, algos, algos ad infinitum.
The author's attempt at piecing together a Lewis-esque narrative fell incredibly short, mostly in the way of character development.
As was the case in The Quants, the book unravels in the last few chapters before An accessible book with a misleading title that provides a compelling account of the history and somewhat-current state of the stock market. As was the case in The Quants, the book unravels in the last few chapters before an abrupt "huh? I think that Dark Pools is more valuable than Flash Boys in its educational value- I would go as far as pegging it a must-read.
Granted, the people who I would recommend it to as a must-read to have probably already read it. I had previously read Michael Lewis' "Flash Boys", and quite enjoyed the story - a lot of reviews also recommended this book.
I would say Dark Pools have a bit more of the background story for a lot of the high frequency trading compared to "Flash Boys".
I wished the author would have delved a little more into the technical understandings of high frequency trading and the algorithms used. I thoroughly enjoyed the whole part about Josh Levine, but found the description of Sergey Aleynikov completely I had previously read Michael Lewis' "Flash Boys", and quite enjoyed the story - a lot of reviews also recommended this book.
I thoroughly enjoyed the whole part about Josh Levine, but found the description of Sergey Aleynikov completely appalling and too one-sided - clearly showing the authors lack of technical understanding of this subject.
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Aug 11, Kfred rated it really liked it. It is a stunning story. From the clubby market specialists beforehand to the electronic market makers of today which was replacing one set of "street insiders" with another , including the more recent machine learning high speed algos. The story lines are sometimes hard to follow in the book, but it is a difficult story to tell.
A highly recommended read if you really want to un "Dark Pools" is an awesome book that provides a story line of how "wall street" was automated over the past 20 years. A highly recommended read if you really want to understand wall street today and how automation has turned "wall street" upside-down and into a never ending roller coaster ride. Jan 13, Stevewilliams27 rated it liked it. Easy, superficial read. Says things like "[some college] was a breeding ground for tech heads" and everyone is awesome and making money hand over fist and defying industry trends because they are just super smart.
Who doesn't like to read that? Sign me up. If not, what other approaches might fare better?
Why have recent efforts to establish trading venues for block trades failed to return block trading to pre-financial crisis levels, despite clear interest from market participants to engage in such trades? The public is not well-served when the SEC lacks information or is merely a passive observer. Ultimately, an informed regulator is a more effective regulator, and an effective regulator is vital for investor confidence and market integrity.
I remain mindful, however, that there is still much work to do to ensure that investors have access to the types of disclosures they need in order to make informed decisions. Lastly, I would like to call attention to the efforts of the Division of Trading and Markets, the Division of Economic and Risk Analysis, and the Office of General Counsel and to their hard work and diligence.
When markets experience bouts of extreme volatility, dark pools typically experience declines in their trade volume because, in those situations, traders are generally more concerned with ensuring that their transactions will be completed in a timely manner, and are less willing to wait for the best price to emerge from a dark pool.
See, e. Although the period following the financial crisis has generally been a calm one, there have been exceptions. Over the past few years, markets have experienced several short-lived episodes of heightened volatility. See Sinead Carew, Wall St. And if other players see your moves, they can disrupt your trades. That's led to the emergence in recent years of alternative trading systems known as dark pools. Furthermore, Pipeline did not disclose that its affiliate executed the vast majority of trades on the Pipeline ATS, which was further inconsistent with its public statements.
Equity Trading Venue, Luminex Jan. Morgan Asset Management, and T. Importantly, ATSs would not be required to disclose personally identifiable information for employees and third parties who have access to confidential trade information.
I have called for this previously.Furthermore, Pipeline did not disclose that its affiliate executed the vast majority of trades on the Pipeline ATS, which was further inconsistent with its public statements. It makes for a clear narrative, and because the bias is so obvious it doesn't feel underhanded even when the author uses sensational names for, what at the end of the day, are just computer programs.
Patterson does not help himself by delivering the reader a familiar story structure. By then, the market that Levine had sought to fix had turned upside down, birthing secretive exchanges called dark pools and a new species of trading machines that could think, and that seemed, ominously, to be slipping the control of their human masters.
I suppose if you knew virtually nothing about modern financial markets and these things that are apparently called. They have addressed this existential problem in various ways. Some interesting information not present elsewhere mixed with outright error by an author with a talent for writing the form of narrative history. All that aside - this was a grand read, I followed it pretty well and felt like I learned a fair bit about this topic along the way.
Embeds 0 No embeds. A jagged line took a cliff-like plunge followed by a sharp vertical leap.