Prepare to enter the hidden world of Dark Pools, where Scott Patterson exposes a Wall Street transformed by rogue algorithms and split-second trades. At the center are Haim Bodek and Joshua Levine. Two visionary minds who didn’t just anticipate the future; they sought to reshape it. What they built aimed to level the playing field, and what they found was something far more complex.
What began as a bold effort to outsmart the system with superior code evolved into a fierce battle in a digital Wild West—dominated by bots, hidden venues, and speed as a weapon. This story goes beyond numbers—it reveals obsession, betrayal, and a market evolving faster than anyone can control. Has technology liberated us, or has it simply slammed the door shut behind us?
Chapter 1: Trading Machines
Imagine a trading floor with no brokers, no shouting—just fast-moving code, sharp and silent. In 2007, Haim Bodek, a skilled quant with a fierce drive, started Trading Machines LLC in Stamford, Connecticut. His goal was straightforward: to utilize smarter code and raw brainpower to outperform the market. By December 2009, Bodek sat in front of five screens, tired and tense, trying to figure out why his high-tech system was losing money.
This “Machine” used artificial intelligence to predict market moves with sharp accuracy. Bodek, who had worked at Hull Trading, Goldman Sachs, and UBS, was confident in his skills. However, the system continued to lose money, particularly on trades involving the SPDR S&P 500 ETF (SPY). At one point, the Machine bought options during a sudden market drop but failed to secure the underlying shares, leaving the firm exposed.
The losses weren’t just the result of a coding error—they pointed to a much larger problem. The market itself was shifting in ways Bodek’s system couldn’t keep up with. As his team shrank and pressure mounted, what once seemed like a fixable glitch began to feel like a trap. The rules had changed, and the real challenge extended far beyond the code.
Chapter 2: The Size Game
Haim Bodek’s story begins in Rochester, where he grew up under the expectations of his physicist father but marched to his beat—both literally and figuratively. While others chased academia, Bodek balanced science with rebellion, diving into math and cognitive science at the University of Rochester.
Known for skipping classes yet excelling on exams, he showed early signs of a mind bent on outthinking systems. After graduating in 1995, he joined Magnify, a tech company where he applied machine learning to detect credit card fraud by analyzing massive datasets in real time.
This experience ignited a vision: if artificial intelligence could detect fraud, it could also decode financial markets. By 1997, Bodek secured a role at Hull Trading, renowned for its cutting-edge algorithms. There, he began crafting strategies to predict stock-option trends, laying the groundwork for his future venture, Trading Machines.
However, as Wall Street’s technology advanced, the market’s complexity increased, posing a challenge to his pursuit.
Chapter 3: Algo Wars
By the late 2000s, the stock market had transformed into a fierce battlefield where algorithms warred against each other at lightning speed. Haim Bodek’s Trading Machines found itself locked in this relentless fight, hemorrhaging thousands daily to mysterious “pick-off” trades executed by faster competitors. The market had evolved into a digital arms race, dominated by high-frequency trading (HFT) firms wielding advanced algorithms designed to exploit even the most minor inefficiencies.
Central to this was the maker-taker pricing model, which rewarded exchanges for attracting orders but inadvertently gave HFT bots a distinct advantage over slower traders. Bodek and his team grappled with a market that outpaced human judgment, while conventional investors fled to dark pools in search of refuge. Yet, even these hidden venues were compromised, as Bodek discovered with his experience at Crossfinder.
This chapter reveals a market skewed heavily toward speed and secrecy, setting the stage for Bodek’s struggle to decode a system where machines hold all the power.
Chapter 4: O+
Dive into the complex world of stock market order types, where a single innovation can make or break a trading empire. In “O+,” Haim Bodek uncovers a hidden flaw in the market’s infrastructure tied to specialized order types. As he digs deeper, he suspects that his firm’s losses stem from how exchanges handle orders. The chapter reveals the “O+ Scalping Strategy,” a high-frequency tactic that exploits tiny price movements.
Bodek discovers that specific orders, like “hide-and-light,” designed to conceal trades until the right moment, are twisted by high-frequency traders to jump ahead of larger orders like his own. This realization hits hard—Wall Street isn’t a level playing field, but a rigged game that favors speed and secrecy. Experts warn of systemic risks, including “financial black swans,” where linked algorithms could trigger market chaos.
Bodek faces the bitter truth: his once cutting-edge algorithms are outdated, as the market hurtles toward volatility and the fading of human oversight.
Chapter 5: Bandits
Step back to the birth of electronic trading, where Joshua Levine, a young coder with a sharp edge, reshaped Wall Street. “Bandits” takes us to the ’80s and ’90s, as Datek Securities rose rapidly with a revolutionary platform—Island. Levine and trader Sheldon Maschler formed a powerful duo, using lightning-fast trades to exploit Nasdaq’s SOES system, earning the nickname “SOES bandits.” Levine’s Watcher software gave Datek traders a real-time market edge, spotting opportunities faster than anyone else.
Datek’s chaotic trading floor thrived on risk and innovation, challenging the old guard of the NYSE and Nasdaq. Datek’s breakthroughs democratized trading, empowering everyday investors and ushering in electronic communication networks (ECNs).
Island’s unmatched speed and transparency disrupted market giants, but the SOES bandits drew regulatory heat for exploiting Nasdaq’s flaws. Levine aimed for a faster, fairer market, but his vision collided with entrenched Wall Street powers. What he created cracked open the system and sparked the Algo Wars—tools meant to free the market, yet giving machines the reins.
Chapter 6: The Watcher
Late ’80s. Levine’s just a kid—no degree, no pedigree, just raw code and fire. He builds “The Watcher,” a tool so sharp it flips the market playbook. Now, Datek’s traders aren’t just reacting—they’re hunting. Spotting tiny price mismatches in real-time, Pouncing before anyone else sees what’s coming. It’s not just tech. It’s teeth. On the ground, Datek’s New York floor is pure adrenaline—Levine hunkered down next to guys like Sheldon Maschler, hammering out code as they use Nasdaq’s SOES system to outgun the old-school crowd.
There are no delays, no excuses—just live data and the speed to weaponize it. That edge earns them a nickname: the SOES bandits. But disruption comes with backlash. As Datek eats into the market share of legacy giants, Nasdaq hits back, accusing them of gaming the system.
Levine doesn’t blink—he’s building a revolution. His tools open the floodgates for a new breed of traders and spark the arms race that leads straight to today’s high-frequency battleground. “The Watcher” isn’t just a story of innovation—it’s a warning shot. Levine cracked the system, but in doing so, he lit the fuse on something no one could fully control.
Chapter 7: Monster Key
Step into Datek’s trading floor, alive with ambition and electric innovation, where a single keystroke could unleash waves of profit. “Monster Key” dives into Datek’s rapid-fire tactics, spotlighting a strategy that flooded Nasdaq’s SOES with a barrage of orders, seizing fleeting price gaps. Young traders like Jeffrey Citron thrived, wielding Levine’s Watcher software to outmaneuver seasoned market makers and rake in huge gains.
This bold approach embodied Datek’s mix of cutting-edge tech and sharp instinct. But as Datek’s success grew, Nasdaq and its market makers pushed back, labeling these “SOES bandits” exploiters of system flaws.
Regulators and exchanges scrambled to close loopholes, sparking a relentless cat-and-mouse battle. Levine and his team persisted, building toward Island, a revolutionary trading platform. Datek’s rise opened markets to retail investors, but beneath that triumph lurked a darker truth: as speed and machines took over, the old market’s familiar face started to vanish, reshaping Wall Street forever.
Chapter 8: The Island
Imagine a sleek digital refuge amid Wall Street’s chaos—no brokers shouting, no hand signals, just trades executing with lightning speed and zero friction. Island was Datek’s revolutionary electronic communications network (ECN), launched in the late 1990s by Joshua Levine. Island’s breakthrough matched orders swiftly and transparently, bypassing entrenched gatekeepers who long controlled trading.
Levine’s vision was clear: a fair market where everyday investors compete alongside giants. The chapter vividly tracks Island’s rapid ascent, capturing significant Nasdaq volume and forcing legacy players, such as the NYSE, to evolve or risk irrelevance. Partnering with traders such as Jeffrey Citron, Levine created not just a platform but a symbol of rebellious innovation.
Yet, resistance came fast—regulators and rivals scrambled to challenge Island’s efficiency. While it opened markets to the masses, Island also unwittingly paved the way for the dominance of high-frequency trading.
Levine emerges as a visionary whose dream reshaped finance but also sparked new battles in algorithm-driven markets.
Chapter 9: The Green Machine
Step into the secretive world of Getco, a Chicago-based powerhouse dominating high-frequency trading. Founded by former floor traders Stephen Schuler and Daniel Tierney, Getco leveraged its deep market knowledge to become a digital trading titan. Named for its glowing green computer screens, the “Green Machine” exploits tiny price differences across multiple exchanges, leveraging speed and volume to amass vast wealth.
Throughout the early 2000s, Getco’s lightning-fast algorithms eclipsed traditional traders, capturing a significant share of U.S. equity trading. Each millisecond mattered as stakes soared into the billions. Yet, this rise also exposed a troubling reality: Getco and other HFT firms like Tradebot relied on privileged access to exchange data and complex order types, tilting the market’s fairness.
The chapter examines the systemic risks of this ultra-fast world, where interconnected algorithms can trigger sudden disruptions. Schuler and Tierney emerge as emblematic figures of a new Wall Street era—masters of technology whose dominance challenges human control.
Chapter 10: Archipelago
Enter the digital revolution of trading with Archipelago. A bold electronic communications network (ECN) forged by Gerald Putnam in the late 1990s to challenge Wall Street’s old guard. Fueled by a vision of speed, clarity, and fairness, Putnam built a platform that slashed trading costs and offered direct access to markets, attracting both retail and institutional traders.
Backed by giants like Goldman Sachs, Archipelago didn’t just compete—it forced the NYSE to evolve, culminating in a 2006 merger that transformed the world’s oldest exchange into a hybrid digital machine. But victory carried shadows.
While Archipelago democratized trading, it also laid the tracks for high-frequency firms to hijack speed and transparency for profit. As automation took hold, human traders found themselves sidelined. Putnam’s dream reshaped the market, but it also opened the floodgates to a machine-dominated future—one where innovation sparked unintended consequences in the relentless race for milliseconds.
Chapter 11: Everyone Cares
Welcome to a Wall Street in upheaval, where the rise of ECNs like Island and Archipelago challenges the very architecture of the market. Chapter 11 captures this turning point as legacy exchanges scramble to stay relevant. Nasdaq and the NYSE, once untouchable, now race against time as retail investors and high-frequency traders flock to digital platforms promising faster, cheaper trades. Levine’s Island surges into prominence, armed with cutting-edge matching engines and a philosophy of transparency that draws admiration—and alarm.
But with innovation comes friction.
The chapter explores how ECNs unintentionally amplify HFT strategies, enabling bots to capitalize on fleeting price movements and outpace traditional investors. As firms chase volume and rebates through maker-taker models, concerns mount: Is speed killing fairness? “Everyone Cares” reveals how visionaries are reshaping the market—yet it also exposes an uneasy truth: in their efforts to level the field, they may have made the game even more challenging to win.
Chapter 12: Palace Coup
Picture a power struggle erupting at the heart of Wall Street, where ambition, money, and betrayal clash over the future of the New York Stock Exchange. Chapter 12, “Palace Coup,” plunges into the dramatic ousting of NYSE Chairman Dick Grasso in 2003—a moment that cracked open the exchange’s resistance to the digital tide. Grasso, both charismatic and polarizing, clung to the floor-based trading model even as ECNs like Archipelago and Island surged forward.
But when his staggering $140 million compensation came to light, fury exploded. Boardroom fault lines deepened, and rivals pounced.Enter John Thain—Goldman Sachs heavyweight, sharp strategist, and modernizer. With incredible precision, Thain engineered a coup, toppling Grasso and pulling the NYSE into the digital age. The chapter throbs with tension as the old Wall Street elite fights to survive while technologists rewrite the rules in real time.
Legacy met disruption—and disruption didn’t blink.
Grasso’s exit wasn’t just a change in leadership—it cracked open the gates to a machine-driven future. Thain moved fast, championing a merger with Archipelago that recoded the NYSE’s DNA. Floor traders, once the core of its identity, found themselves outpaced by algorithms, sidelined by systems designed to extract speed and precision over human nuance.
The chapter lays bare that shift: the rise of high-frequency trading surging through a restructured exchange, where code became king and traders became relics.
But it wasn’t just evolution—it was upheaval. The SEC scrambled to respond to a market that had fragmented overnight, splintered by new venues, dark pools, and a race to zero-latency culture. “Palace Coup” captures a moment when power changed hands, but also when the soul of an institution began to flicker. The NYSE didn’t just modernize—it became something unrecognizable. And in the background, the algorithms smiled.
Chapter 13: Bad Pennies
Step into the murky realm of penny stocks and dark pools, where shady players twist the promise of electronic trading into a weapon of deception. Chapter 13, “Bad Pennies,” probes the seedy underside of the market, where HFT firms and dubious traders exploit the secrecy of dark pools. Private trading arenas crafted to conceal large orders to manipulate the system.
We trace the journey of Haim Bodek, whose Trading Machines grapples with predatory algorithms that drain profits through maneuvers like “latency arbitrage,” where HFT bots capitalize on minute delays in market data to preempt orders. The chapter paints a stark portrait of a market where dark pools, once celebrated as sanctuaries for institutional investors, have become predatory domains for high-speed traders.
Bodek sees influential players rigging the market against firms like his, so he sets out to expose the hidden mechanics of these venues—and sparks a war that’s still unfolding.
The narrative also expands to examine the systemic dangers of this shadowy, algorithm-fueled market. The chapter outlines how dark pools, paired with intricate order types and HFT tactics, foster a disjointed market where price discovery—the mechanism for ascertaining a stock’s true worth—is compromised.
Experts caution about the risk of “bad pennies,” or toxic trades, destabilizing the market, as evidenced by early disruptions, such as the 2010 Flash Crash. The chapter highlights the regulatory void that allows these practices to thrive as the SEC struggles to keep pace with technological advancements. Bodek’s saga, intertwined with stories of other traders ensnared by HFT’s onslaught, highlights the human cost of a market drifting further from its core purpose.
“Bad Pennies” delivers a sobering exposé of unchecked greed and tech turned rogue, showing how tools built to modernize trading now serve as weapons against the unsuspecting.
Chapter 14: Dumb Money
Envision a market where the everyday investor, labeled “dumb money,” is consistently outwitted by a new class of algorithmic hunters. Chapter 14, “Dumb Money,” exposes the brutal truths of a stock market ruled by high-frequency trading, where retail investors and conventional funds are left trailing. High-frequency trading bots stalk mutual fund managers and pension funds, sniffing out their large orders and jumping ahead in microseconds.
The chapter sketches a grim image of a market skewed against the underdog, where the velocity edge of firms like Getco and Tradebot guarantees they profit at the cost of slower participants. Haim Bodek’s persistent battle with Trading Machines serves as a focal point, as he reveals how exchanges and dark pools conspire with HFT firms to manipulate order flow, casting traditional investors as the “dumb money” that bears the losses.
The chapter further explores the broader societal implications of this skewed system. As retail investors lose trust in the market, the narrative probes whether the stock market still fulfills its core purpose as a tool for capital distribution. The proliferation of dark pools and HFT intensifies market fragmentation, complicating the ability of prices to mirror actual value.
The chapter outlines how regulators, spurred to respond, start scrutinizing practices like payment for order flow, where brokers trade their clients’ orders to HFT firms. Yet, the market’s intricacy outstrips regulatory efforts, leaving investors exposed.
“Dumb Money” delivers a compelling critique of a market that prioritizes speed over equity, weaving together tales of loss and exasperation to underscore the pressing need for reform in a system that increasingly sidelines the ordinary investor.
Chapter 15: Trade Bots
Envision a financial realm where machines, not mortals, orchestrate the market’s cadence, executing trades in nanoseconds with unyielding exactitude. Chapter 15, “Trade Bots,” plunges us into the pinnacle of the high-frequency trading era, where entities like Getco, Tradebot, and Citadel dominate trading volumes with their sophisticated algorithms. We follow the ascent of trade bots, from rudimentary arbitrage tools to sophisticated systems that anticipate market shifts, navigating order books with precision.
This chapter, brimming with awe, showcases the formidable prowess of these machines, which sift through colossal datasets to capture ephemeral opportunities, reaping billions in gains. Haim Bodek’s quest to unmask market manipulation crescendos as he unearths evidence of order types, such as “hide-and-light,” that bestow HFT firms an unjust edge, permitting them to outwit the system at others’ cost.
The narrative, pulsating with intensity, portrays a market teetering on the precipice, where the distinction between ingenuity and exploitation blurs.
Nevertheless, this chapter also issues a caution about the precariousness of this machine-driven bazaar. The tale probes the 2010 Flash Crash, in which trade bots triggered a swift and calamitous market tumble, exposing the perils of interwoven algorithms operating without human vigilance. Experts, such as Neil Johnson, emphasize the menace of “financial black swans,” where sequential breakdowns among trading bots might unsettle global markets.
The chapter, rich in detail, chronicles Bodek’s endeavors to alert overseers, kindling a broader discourse on HFT’s place in contemporary markets. As the SEC begins scrutinizing tactics, such as latency arbitrage and order type manipulation, the narrative ponders whether reform can keep pace with technological advancements.
“Trade Bots,” a riveting and disquieting finale, lauds the brilliance of algorithmic trading yet unveils its potential to unravel the very market it strives to conquer.
Closing Thoughts
As we contemplate the thrilling odyssey through Dark Pools, the saga of Haim Bodek, Joshua Levine, and the rise of algorithmic trading unveils a striking paradox. The mechanisms crafted to equalize and optimize financial markets have ushered in an era of complexity and unfairness.
From the defiant brilliance of the SOES bandits to the unyielding accuracy of HFT firms like Getco, the narrative illustrates how technology has reshaped Wall Street into a digital arena where velocity overshadows strategy, and the typical investor frequently becomes an unintended casualty.
The Flash Crash of 2010, alongside the shadowy workings of dark pools, stands as a vivid caution of a market hovering on the brink of disorder, where interwoven algorithms can escalate risks as readily as they yield profits.
However, within this technological turmoil, Bodek’s mission to uncover market manipulations underscores that human resolve and moral conviction can still confront the machine-dominated norm. Prompting us to question whether our financial systems benefit the masses or solely the swiftest. This account leaves us grappling with a pivotal question: can we harness the force of innovation to restore equity, or will the unbridled rise of trade bots redefine markets as a contest only machines can win?
