Subscribe
Dark Pools
by hodeez
(Monkey,
63 
Shares Bought in the Dark
By Aaron Lucchetti
A Supreme Court jurist once wrote that sunlight is the best disinfectant. Wall Street, though, is increasingly finding it more profitable to work in the dark.
In the past few years, large brokerage firms, trading boutiques and even stock exchanges have launched or announced plans to start almost 40 trading networks known as "dark pools," named because they attempt to put buyers and sellers together anonymously without exposing their clients' orders first to the public, as happens on traditional stock markets like the New York Stock Exchange and Nasdaq Stock Market.
The pools have proliferated as big institutional investors respond
http://online.wsj.com/article/SB116831491827571061.html
discuss
Bookmark/Search this post with:
»
- Login or register to post comments
- Email this Forum topic
Bookmark Us
Did you have a question or
Did you have a question or just find the topic interesting. Pretty good article, I think anonymity in a mature market like equities where the information flow is so quick especially for the more active stocks dark pools will play an increasing role in the future.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
i found the topic
i found the topic interesting. i don't understand why they would do that. aren't there arbitrage opportunities if there were two or more markets available quoteing different prices?
Traders arent using dark
Traders arent using dark pools for abitrage. Dark pools are used when you want to move size and anonymity is key.
Im not sure what market you are addressing looking for arbitrage but if your talking about equities where dark pools are prevalent then arbitrage is nearly non exitant.
Your using dark pools to build or unwind a big position with tipping your hand thats essentially what they are there for.
Im not sure what your question is so its tough to answer.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
from what i understand, dark
from what i understand, dark pools are used for large block orders. if yhoo was trading @ 25, i can just put in an order to dark pools to buy at 24 or sell at 26 right? or if we have a real volatile stock, i can just put in a fairly low bid.
Yes but what you should
Yes but what you should realize is how they differ from the regular order book.
On a regular order book you typically have your bids on the left and offers on the right. In addition each bid shows what market maker ID is giving that bid along with the quantity.
In a dark pool when you put your order in to buy at 24 basically its a order thats hidden to the public. No one can see you have an order in to buy X shares at 24.
This is really as best as I can explain it. I dont know the further intricacies of it. If you read the article you will see that only 5% of orders are executed in dark pools but it has grown rapidly.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
i understand that the bid
i understand that the bid doesn't show. but i can put the order in, and once it executes, i can immediately go to the public markets and cover my position for an arbitrage profit... no?
Sorry i cant really answer
Sorry i cant really answer anything about arbing the underlying b/c your being executed in a dark pool. I dont think the market is going to be that inefficient to pull that type of arb off.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
.
though i'm also not particularly familiar with the darkpools, i'd venture to say that if you were to execute an order in a darkpool then instantly cover yourself in the open market, you'd lose your arb profit pretty quick since the sheer size of the position you're trying to arb will cause the open-market price to quickly rally or drop against you.
my $.02
i understand that the bid doesn't show. but i can put the order in, and once it executes, i can immediately go to the public markets and cover my position for an arbitrage profit... no?
------
"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
smaller orders
though i'm also not particularly familiar with the darkpools, i'd venture to say that if you were to execute an order in a darkpool then instantly cover yourself in the open market, you'd lose your arb profit pretty quick since the sheer size of the position you're trying to arb will cause the open-market price to quickly rally or drop against you.
my $.02
i understand that the bid doesn't show. but i can put the order in, and once it executes, i can immediately go to the public markets and cover my position for an arbitrage profit... no?
------
"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
though dark pools were initially built for large blocks to trade, there are orders that are quite small. under 1,000 shares...food for thought.
Wouldn't the prices on these
Wouldn't the prices on these platforms be identical? I think they are simply ways for OTC transactions to occur without institutional investors exposing their strategies...
No Arbitrage for DPs
i understand that the bid doesn't show. but i can put the order in, and once it executes, i can immediately go to the public markets and cover my position for an arbitrage profit... no?
Dark pools have nothing to do with arbitrage! They're simply used to cover tracks and avoid moving the market. This analogy isn't perfect, but think of them as 'private' placements. Even if you saw an arbitrage opportunity, though I can't image any situations in which that would happen, the B/A spread would be wide enough to protect the dealer. More importantly though, if you're asking about shorting a dark pool, then covering in open market, why would a buyer in the pool agree to buy your securities if you were selling them for more than the ask price on the public markets?
in addition, in some dark
in addition, in some dark pool exchanges, you can set certain requirements for you to match up. For example, I could say someone can only lift my offer if their own bid is greater or equal to my block size.
The filters are key. I wonder what this will do to OTC brokers.
I have been over this time
I have been over this time and again. Equity trading will never be completely automated. Rather the skills that used to be required before are changing. The need for solid coverage will always be desired by the buy side. As long as the buy side feels a need for information there will be a sell side there to service them.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"