An excerpt from Dark Pools is in The Wall Street Journal today. It gives a brief glimpse into a chapter about the Flash Crash of May 10, 2010, when a series of computer glitches in trading systems across the country caused the market to fall 10% in a matter of minutes.

The Flash Crash is only part of the story told in Dark Pools. The book also explains where it all came from–the millisecond trading machines, the AI-armed computer algos that can shift and learn how to trade on the fly. It all began with a tiny firm called The Island and a computer programming genius called Josh Levine. Levine and his small team of renegade programmers created a revolutionary trading platform that launched the high-frequency trading paradigm that now dominates stock trading in the U.S.

Levine’s dream was to open up the market and make it cheaper and easier for regular investors to use. But something went wrong along the way. In recent years, powerful high-speed trading firms became one of the primary sources of revenue for the exchanges. They delivered huge volumes to the exchanges with their rapid-fire trading systems. The exchanges began to compete for their services, providing benefits for those firms that could deliver the most volume.

The trouble: Other firms using the exchanges–think the mutual fund in charge of your retirement–didn’t get the same benefits.

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