DARK POOLS: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System
In 1945, the average length of time an investor held a stock was four years. By 2000, it was eight months; in 2008, two months. The average today is 22 seconds and dropping. Wall Street Journal reporter Scott Patterson’s Dark Pools deploys many such eyebrow-raising stats as it charts the rise of high-frequency trading.
Computers running complex algorithms can automatically execute millions of split-second stock market trades to exploit tiny price spreads lasting milliseconds or less. The technical definition of a “dark pool” is any venue where stocks trade off-exchange; Patterson argues that high-frequency trading has turned the entire stock market into one big dark pool where only the algorithms know what’s going on. Though his narrative occasionally swerves into overheated Tom Clancy territory, he provides an entertaining account of the key battles in the “algo wars” and the colourful math geeks who fight them—some of whom are now fighting to rein in the monsters they created. Dark Pools is an alarming account of a market rapidly slipping out of human control, and a slow-witted regulatory regime unable to keep up. The machines aren’t about to rise, Patterson concludes. They already did.