Dark Pools: What, Why, and How to Shed Some Light on Them

July 22nd, 2014 at 10:21 pm

Over at the Upshot, with some info on real progress towards transparency in these private exchanges thanks to the work of NYS AG Eric Schneiderman.

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2 comments in reply to "Dark Pools: What, Why, and How to Shed Some Light on Them"

  1. Larry Signor says:

    We have really botched the job. Dark pools, tax inversions, austerity, trickle down something or other, shadow banking, off-shoring…the list goes on. The bright side is, that in spite of the abuse we have heaped on our economy over the last 30 years, the economy limps gamely on and on. We have a road map, but with no clear destination, we wander the valleys and hills of the economic terrain, not quite Sisyphus but not quite Hercules.

  2. Industry Insider says:

    While much of the discussion by people outside the industry centers around large concepts like dark pools and flash orders, I have a different opinion. I have been an industry insider, and the youngest partner at one of the biggest high frequency trading firms, Tower Research Capital. I believe the industry is degrading rapidly. Some examples are : (1) Stock trading orders by individuals are being siphoned off to HFT desks by Fidelity and Etrade literally for money! (2) FX matching between buyers and sellers has all but disappeared into dark pools called matching at the bank. There aren’t even the reg-nms rules here. (3) Banks like Credit Suisse are forming partnerships like Wake with high frequency trading firms to more directly internalize orders without them reaching a market place.
    I believe the real reason behind all of this is that for years these participants have been financed by the unfair practice of exchanges charging different fees to different clients. The cost per trade at Brokertec or Espeed for an HFT participant for instance is less than one tenth of a real participant like a bond fund. Equity exchanges actually pay HFT firms a lot of money. it is self-acknowledged fact that firms like Virtu Financial would not be profitable if there were no liquidity adding rebates. But the fact is that these structures are of an old industry and today have been gamed by HFT participants.
    Efforts by the government is needed only to restore the market to the simple rule that every participant should pay the same per contract, regardless of their clout.