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Wednesday, 30 July 2014

Wall Street Journal Reporter: “The Entire United States Market Has Become One Vast Dark Pool”

Pam Martens and Russ Martens
Wall St. On Parade
July 29, 2014
 
In 2012, Wall Street Journal reporter, Scott Patterson, released his 354-page prescient overview of U.S. market structure titled, Dark Pools: High Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. (For those whose computer prowess is limited to turning on a laptop, like millions of fellow Americans, “A.I.” means artificial intelligence – machines teaching themselves to think like humans, but faster.)

Patterson comes to an epiphany on page 339 of his book, writing in the notes section: “The title of this book doesn’t entirely refer to what is technically known in the financial industry as a ‘dark pool.’ Narrowly defined, dark pool refers to a trading venue that masks buy and sell orders from the public market. Rather, I argue in this book that the entire United States stock market has become one vast dark pool. Orders are hidden in every part of the market. And the complex algorithm AI-based trading systems that control the ebb and flow of the market are cloaked in secrecy. Investors – and our esteemed regulators – are entirely in the dark because the market is dark.” (The italics in this excerpt are as they appear in the hardcover book.)

We totally agree with Patterson that U.S. markets are the darkest they have ever been in history – from their early origins in the bright sunlight under the Buttonwood tree at 68 Wall to today’s secretive, unregulated stock exchanges known as dark pools that trade in private across America – the lights have gone out. And as each light has flickered and dimmed, public confidence has drained from the system, leaving it today as the unsafe battlefield of hedge funds, high frequency traders and dark pool operators.

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