16. Dark Pools

High-frequency trading (HFT) apologists insisted that their activities, net-net, had made the stock market a far better place for investors than it had been in the past. If that was the case, wondered the Commodities Futures Trading Commission’s (CFTC’s) Andrei Kirilenko at a hearing in August 2010—if the HFTs were not in fact the voracious sharks that critics made them out to be—why were all the other fish behaving so strangely? Why did mutual funds and pension funds feel the need to hide from algorithmic traders in dark pools, those trading venues where their orders were invisible to the market at large?

Dark pools had proliferated after the Securities and Exchange Commission (SEC) under Levitt tried to dismantle the wholesale ...

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