Jun 21, 2012
Michael Covel interviews author and reporter Scott Patterson. Patterson has made a career of reporting the subterranean inner-workings of the markets, writing for the Wall Street Journal, Rolling Stone, and Mother Earth News. His first book, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, was released in 2010. Patterson talks to Covel about his newest book, Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. Covel and Patterson trace the history of high speed trading and electronic communication networks (ECNs) back to Josh Levine, who founded Island, the computer system that led to the high frequency trading we see today. Patterson discusses the technological revolution behind Island, and how its transparency led to dark pools - opaque markets where bids and offers are not made public. Dark pools have the benefit of operating in the shadows, helping institutions do what they do without anyone checking in on them. Today, Patterson goes on to propose that the entire market has gone dark. Covel and Patterson discuss the relation of dark pools to the flash crash; the regulation of dark pools; and how the real New York Stock Exchange is in a data center in the countryside of New Jersey. Not a trend following podcast, but an episode every investor should absorb.