When Wall Street Goes Dancing in the Dark

Confused ourselves, The Observer asked: Isn’t transparency the whole idea of markets? Don’t they only work with free information?

Ms. Doll paused. “Well …” She leaned forward and whispered, “This is the part that I don’t understand.”

Then, “Yes and no,” she said. “I mean, one could argue, who made that rule, really? There’s never complete information, even on the stock exchange floor.”

Mr. Ross’ MatchPoint, being the official dark pool of the N.Y.S.E., is required to report its trading volume—or “print”—to a central facility run by the Financial Industry Regulatory Authority (FINRA). The real shady characters, he says, are the profit-motivated, in-house pools run by brokerages like Fidelity and Morgan Stanley, which don’t fall under FINRA’s umbrella.

“Right now, I don’t do a whole lot, but goddamn it, they see our print,” he said. “That’s our print, for better or for worse. If you want to analyze the heck out of it, let’s do it.”

“With these broker pools,” Mr. Ross continued, “it’s marketing. That’s their rule set. Marketing. And that is not enough. It’s not enough.”

COMPARED WITH THE EXCHANGE FLOOR, a dark pool office is a tranquil environment. Staff sit quietly in front of computers, overseeing the well-ordered and anonymous exchange of stock. MatchPoint orchestrates trades for a few minutes on the hour, lending the day regularity and calm.

That way of doing things, Mr. Ross said, attracts a certain type of person. Mr. Ross himself, known in the office as the “Ross-crosser” after the crossing networks he pioneered in the 1980s, took a circuitous route to his office at the corner of Broad and Wall: a Bates history major, he worked for the Senate Historical Archives organizing the Ed Muskie papers, which led to a job as Maine Senator George Mitchell’s personal assistant.

The first electronic cross occurred on Dec. 16, 1986, at Instinet. Mr. Ross came to Wall Street soon after, when computers were just starting to integrate themselves into the trading environment. Over the next two decades, Mr. Ross would build his own crossing network—the technical name for a dark pool—which was doing millions of shares a day in volume before he launched the venture with the N.Y.S.E. Technology, he said, made it all happen.

“In 1989, I remember I had a 286, one of those 5-inch floppy disks, you know, neeeer neeer,” he said, mimicking the sound. “We had modems, and it was so funny trying to send data. I mean, we were amazed we could send something like ‘data’!”

Twenty years after Mr. Ross first dove into dark pools, meanwhile, Mr. Mahoney was sitting at his desk at Merrill Lynch, the company where his father had worked before him. In early 2006, Merrill’s investment managing arm was merging with BlackRock, and he was restless.

“I watched the tech bubble of the late ’90s, and I was enthralled with all the guys who went out and were entrepreneurial and doing this really cool stuff,” Mr. Mahoney said. Jumping ship was “safer than buying a motorcycle and cheaper than getting a mistress,” he joked. And so he started BIDS.

Compared to the Great Lakes of dark liquidity, like Goldman Sachs’ Sigma X and Credit Suisse’s CrossFinder, newly launched MatchPoint and BIDS are relative puddles. It takes time to attract traders, and the market is increasingly crowded, now with aggregators to combine and network all the pools that have popped up. What, we wondered, stands to prevent liquidity from draining into the dark altogether?

Probably nothing, according to Seth Merrin, chief executive officer of the oceanic Liquidnet. “There’s not another stock exchange around the world that has human beings running around the floor,” he said over the phone. “Automation has taken a lot of that human element, screaming and yelling, out of the equation. And that’s just progress. That’s no different from how the rest of the world is working. This is advancement. And it’s all good.”

When Wall Street Goes Dancing in the Dark