Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market by Scott Patterson

Author:Scott Patterson [Patterson, Scott]
Language: eng
Format: epub
Tags: General, Business & Economics
ISBN: 9780307887191
Publisher: Crown Business
Published: 2012-06-12T00:00:00+00:00

CHAPTER FOURTEEN

DUMB MONEY

Matt Andresen sat perched at his desk at 50 Broad Street leafing through the latest volume report for Island. It was a Monday, early 2000. A chill breeze pierced into the room, even though his window was shut. The windows in the office were like paper, useless against the harsh winter blasts that whipped up Broad off the Hudson River. It was so bad that several of Island’s programmers had taken to wearing gloves with the tips cut off.

Andresen didn’t care about the cold: He was rapt. He loved his weekly volume-report ritual, a moment to pore over the hard data showing the exponential growth of Levine’s electronic pool. As he scanned the list of users, a startling figure made his eyes pop open. A new subscriber had started pouring a Niagara Falls of orders into Island, millions of shares a day.

He’d never heard of this particular user. His only clue was the firm’s identification code: IBKR. Still, he was thrilled. Whoever it was, they were more than welcome. Millions of new shares a day were flooding into its system. All that Island had to do was open up an OUCH port like a hungry mouth and swallow as quickly as it could.

As Andresen well knew: Liquidity breeds liquidity.

His elation didn’t last long. The following Monday, as he scanned the next volume report, he noticed that IBKR had virtually disappeared.

Andresen was stunned. What could have happened? He thought it might be a technical issue, so he asked his client team to investigate. The problem, they learned after checking with IBKR, wasn’t technical. “It’s a business decision, Matt,” he was told. “Why don’t you go pay them a visit?”

The name of the firm, he learned, was Interactive Brokers. Based in Greenwich, Connecticut, Interactive was a giant brokerage firm for regular and sophisticated investors. It also owned a little-known, though highly successful, electronic trading outfit called Timber Hill.

Andresen made an appointment. Several days later, he drove up to Greenwich, about forty miles north of New York City. He’d never been to the small, tony town of Greenwich and didn’t know that it was the home base of hundreds of powerful hedge funds. In the following years, he’d return many times.

He stepped through the front doors of Interactive’s headquarters at One Pickwick Plaza, a nondescript office park located in the center of downtown Greenwich, and was ushered into a waiting area. After several minutes, he was escorted into an expansive, low-ceilinged corner office with sparse furnishings. It was dimly lit, aside from the radiant glow of a large computer monitor. Hundreds of quotes in a microscopic font flooded across the screen. Andresen grew dizzy with a glance at the buzzing stream of numbers.

Before the monitor sat a trim, silver-haired man sporting a close-cut beard and black turtleneck. He stood and introduced himself.

“I am Thomas Peterffy, CEO of Interactive Brokers,” he said in a thick Hungarian accent. “Eet is nice to meet you.”

Peterffy returned to his seat behind a broad mahogany desk and motioned for Andresen to take a chair.

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