Paddy Hirsch is a Senior Editor at Marketplace. He is the author of the book Man vs Markets, Economics Explained, Pure and Simple, and he is the creator and host of Marketplace Whiteboard, a video explainer of financial and economic terms.
Hirsch joined Marketplace in 2007, just as the credit crunch that preceded the 2008 financial crisis began to take hold. As editor of the New York Bureau and the entrepreneurship desk, he spearheaded Marketplace’s financial markets coverage throughout the crisis and as the economy fell into recession. He was awarded a Knight Fellowship at Stanford University in 2010, and he returned to Marketplace in July of 2011, when he was appointed Senior Producer of Marketplace Money. He published his first book, Man vs Markets, in August 2012.
Hirsch got his start in journalism with an internship at the BBC in Glasgow, Scotland. He became a field producer for CNBC in Hong Kong and later was a consultant to the Open Broadcast Network in Bosnia. He has been an editor for Direct Capital Markets, Institutional Investor Newsletters, Standard & Poor’s, and the Vietnam Economic Times. Prior to becoming a journalist, he served as an officer in the Royal Marines.
Hirsch attended Campbell College in Belfast and received a bachelor’s degree in French and International Studies from the University of Warwick. He is a Knight Fellow and was a Webby honoree in 2009.
Features by Paddy Hirsch
Dark pools are once again in the headlines, thanks to Michael Lewis' new book "Flash Boys," and there's also reports this week that Goldman Sachs may be considering shutting down its dark pool, which has the admittedly rather thrilling name Sigma X. Dark pools are mysterious, and names like Sigma X only make them more so. That's pretty cool when you're trying to persuade a client to trade in your dark pool: Dude, It's totally secret! No one will know you're in there! No one will ever know what you buy or sell. Total anonymity! But it's not so cool when the press and the public and regulators and lawmakers and basically everyone else is obsessed with greed in the financial markets, and start making a fetish out of transparency.
To the outsider, dark pools look shadowy and suspect, even sleazy. The question goes: Why do bankers need to go to these places to trade? And why do they need to be dark? Suspicion ensues: Are they using these places so that they can just rip us off, quickly and quietly, so that we never know about it and they can run off, laughing all the way to the bank (as it were)?
The fact is that a dark pool isn't an offshoot of the black arts. It's simply a privately-owned exchange, in which buyers and sellers can trade confidentially and in private. And they’re not new: they've been around for years. Creatures from the Black Lagoon, they ain’t. Here’s a short video explainer:
It's a phrase that's come up again and again this week: in "Flash Boys," Michael Lewis' new book about high-frequency trading; in today's spirited debate on CNBC between BATS Global Markets President William O'Brien and IEX's Brad Katsuyama; and in almost every high-speed trading article in between.
Front running. But what the heck does it mean?
On Tuesday, I described it as a dog running off with your sausages, but that's not entirely accurate. It's more like the dog finding out how much you are prepared to pay for your sausages, buying up all the sausages itself and then selling them to you for a higher price.
Front running is when a high-frequency trading firm sees you bid a certain price for a stock in one exchange, and then uses its superspeed to get in front of you (hence, front running) in all the other exchanges, buying the stock that you want and then selling it to you for more than you originally bid.
Traders hate being front-run. Not just because it means they are paying more than they thought they would have to pay (heck, the client can eat the loss), but because they like to think of themselves as Masters of the Universe, people who dominate, who control everything around them. But if you're being front run, then you're in control of precisely nothing. You are, in fact, being led by the nose. Like a Master of the Universe's pack mule.
Yes, if you get front run, you're a donkey.
No wonder there's so much hate for HFT firms. Michael Lewis points out that the losers in the hedge fund game are often hedge funds, who trade on behalf of pension funds. Hedge funds don't like to be victims. And they sure as heck hate being seen as donkeys.
From all the furor about high-frequency trading, sparked by Michael Lewis' new book Flash Lads, you'd think that HFT was only just invented. In fact, it's been around for years, and it's always been controversial.
Here's a video from five years ago, explaining how HFT works: