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Dark Pool Warfare Is Now Official As Investment Bank Dark Venues Begin To Report Trading Data, Even As Third Parties Clamp Down On Disclosure
Following an ongoing outcry over opacity in the dark pool markets, a topic discussed to death on Zero Hedge, six investment banks have finally started providing some modicum of transparency into how much trading actually occurs in their dark pool venues. Today, MarkIt will start disclosing European trades matched in the internal crossing engines of Citigroup, Morgan Stanley, Credit Suisse, JPMorgan, UBS and Deutsche Bank. The first ever report of this kind can be read on the following MarkIt site. The data will be published on a T+1 basis. As MarkIt notes, "The aim of the Markit BCS (Broker Crossing System) product is to provide the market with greater visibility of the total volume crossed within their systems by the reporting brokers." Europe is a good place to start with such disclosure, as estimates on European dark pool trading are extremely wide: as Bloomberg notes, "The U.K.’s Financial Services Authority says the pools account for 1.25 percent of trades, whereas the Federation of European Securities Exchanges, which represents exchanges, estimates the figure is closer to 40 percent. The lack of reliable information on volumes and pricing of securities in dark pools has posed a problem for regulators trying to keep pace with market innovation." Curiously, this major development in dark pool opacity comes on the heels of the announcement that non-investment bank dark pools, those of Chi-X and BATS, will curb market data disclosure. Again Bloomberg: "Chi-X Europe Ltd., the region’s biggest alternative stock-trading system, began suppressing some market data from its dark pool after customer concern about information leaks led to a decline in business. Starting today, London-based Chi-X Europe will no longer disclose customer identification or order numbers in Chi-Delta, its dark pool. Bats Europe, the second-largest multilateral trading facility, will impose similar controls on May 24." We believe this is a byproduct of accelerating cannibalization between investment bank and 3rd party ATS venues (not to mention dinosaurs such as NYSE-ARCA), as margins continue to dwindle in the rapid evolution to a zero margin trading business, be it exchange or dark pool based. In their pursuit of the fastest, biggest, newest, market participants are destroying each other in the process, and further destabilizing market structure in the process.
Bloomberg notes the plunge in dark pool trading on the back of worries about data leakage following the Themis Trading white paper on data leakage which we posted previously.
The move comes after customers said they are concerned that
identification could lead to others guessing their trading
strategy and follows a May 11 report from U.S. brokerage Themis
Trading LLC titled “Exchanges and Data Feeds: Data Theft on
Wall Street.” The value of trades on Chi-X Europe’s dark pool
plunged 61 percent to 118.7 million euros ($148 million) in the
seven trading days after the report was released.
And now that Themis' caution about market structure is being validated left and right, we would like to leave you with this editorial by InvestmentNews on High Frequency Trading, which recapitulates all the issues hammered repeatedly by both Zero Hedge and Themis since about April of 2009.
High-frequency trading merits close examination
The May 6 "flash crash" revealed an area of the financial markets that isn't touched by the financial-reform bills in Congress but nevertheless must be examined. It is the -shadowy world of high-frequency trading, in which 100 to 200 firms use computers plugged into the nation's stock exchanges to trade in and out of stocks, index futures and exchange-traded funds in fractions of a second, gleaning tiny profits from each trade.
The exchanges offer rebates to the high-frequency traders for volume, adding to the profits of the firms.
High-frequency trading is the antithesis of investing, which is putting money to work for the long run. And the combination of high-powered computers, sophisticated software programs and close connections with the exchanges appear to give the firms engaged in it a significant advantage over conventional investors.
The tiny profits that the high-frequency traders make on each trade come from the pockets of other investors.
Many investors and market watchers already had been skeptical of high-frequency traders before the “flash crash,” but the sudden market plunge that day has made them even more uneasy about the activities of these traders.
High-frequency traders, and some exchange officials, claim that the traders actually help the markets and other investors by providing liquidity, ensuring that those investors can buy or sell whenever they want.
But that claim rang hollow May 6, because when the market turned down after a large, bearish S&P 500 futures trade, the high-frequency traders shut down their computers, withdrawing that liquidity when it was most needed.
The withdrawal of the high-frequency traders from the market caused prices to drop precipitously because sellers far outnumbered would-be buyers. That apparently caused a cascade of automated sell orders across the exchanges.
Unlike the specialists on the floor of the New York Stock Exchange, the high-frequency traders are under no obligation to continue trading when stock prices drop.
Of what use is the liquidity supposedly brought to the market by the high-frequency traders if it disappears at the first sign of trouble? If providing liquidity is the justification for the profits that they earn from their activities, then they haven't earned them.Sen. Edward E. Kaufman, D.-Del., is right to call for the Securities and Exchange Commission to investigate high-frequency traders and the impact that they have on the markets.
The SEC must identify high-frequency trading firms and undertake a serious study of whether their activities are helpful or harmful to the markets. If they are found to be inimical to the smooth functioning of the markets, if they increase volatility rather than smoothing it, their activities must be curbed.
Last week, the SEC filed a proposal to halt trading if individual stocks swing by more than 10%.
Although the proposed individual stock circuit breakers may alleviate the immediate problem, they won't eliminate all concerns.
The activities of high-frequency traders May 6 harmed investor confidence. Individual investors won't return to the stock market until they are sure that the markets are fair and that others aren't profiting at their expense.
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Cramer cries about manipulation on Friday, which in my mind means GS is getting played by Germans/Chinese, so on Monday we find a new level of transparency. lol
These clowns are too much.
That's my take on the whole Flash Crash aftermath. Obviously, a lot of us made money on the FC. But no one builds casinos to give money away and so going forward we will have circuit breakers to protect the owners of the casino. I feel warm and fuzzy already.
And why bet at the casino, when you can call a bookie (dark pools) and get better odds?
Something big is about to happen....
Too many people asking too many questions. Time to inject a big dose of fear and get the herds moving.
We are at that ominous moment.
And we'll see an increase in the attempts to inundate us with an overload of data and malfeasance in the apparent hope of desensitizing us while attempting to make us cling fearfully to the "order" that created the disorder. Sick shit or what?
May I ask how you filter information Mr. Kendig? I have hypothesized, albeit quietly, that the amount and complexity (for my insect brain) of info streaming through the hallowed cigarette-smoke-filled ice caves of ZH don in fact contribute to desensitization for some.
The concept that HFT provides "essential" liquidity has been made a farce. Now what we are witnessing are the effects of squeezing regulatory actions while providing pool operators greater ability to generate fees from "preferred" clients. Pump & dump once more.
DARK POOL:
http://williambanzai7.blogspot.com/2010/05/dark-pool.html
Let me guess....a picture of Bernanke with diarrhea?
And Timmah is jealous because he is constipated.
"Heh, he said diarrhea." -Timmah
"Heh...Shut up Timmah...Heh." -Larry "Butthead" Summers
Life is a parody of itself.
I think TD should do a little investigation on Markit generally out of public interest. From nothing to the only marker of prices in subprime thru today.
Has anyone ever looked at the information available on Markit from the Company House in Britain?
Checked out their personnel, board, membership, etc?
This reminds me of round tripping. What they found was going on in the oil markets, essentially two firms or branches would just rapidly trade contracts between themselves to drive prices up with price signals (but this could be used in any direction). That is why oil hit $147 a barrel a few years ago.
Applied to equities, a group of banks could trade stocks amongst themselves through the computers rapidly to manipulate prices. Why would the do that? Well, they write the most option contracts and hope that they expire worthless so they can pocket the premium. They may do more than hope. Consider that their trading record has been perfect without a loss in the first quarter. Also note how on option expiration dates the market usually moves towards a level that does not result in an option payout. If one were writing options and could manipulate market prices (by GS admission that their software can manipulate markets), they could make the options expire worthless.
Perhaps they need a marketing product manager for dark pools, like life insurance instead of death insurance. I prefer clean transparent aqua marine pools myself and would never dip my toe into a dark pool. You just never know if a shark is going to pull you under when swimming in dark pools.
Nailed it.
Well there is a difference between closed pools and those where you don't know where the hell your order's being shown (Sigma X et al).
The concept isn't so bad in and of itself - heck I've known human brokers who were essentially 300 pound living dark pools of price discovery/obfuscation. You can't force buyers and sellers to show all their cards or declare their full intentions up front no matter what the market structure is. But everything needs to hit the consolidated in a timely manner and the proper authorities have to be able to see the components, time & sales of every print after the fact, on demand.
It's kind of funny because when Instinet was the only game in town it took forever to get other systems up and running. No one wanted to get in the pool because there was no liquidity and there was no liquidity because no one wanted to get in the pool. The regulatory push for 'competition' and 'lower trade costs' fragmented the market and helped give them the foot hold they needed.
THE DARK POOL WARS... sounds like a perfect sci-fi title.
Oh, and ps, I feel much better now that the Blankfiend has been exorcised from MsCreant's Avatar!
Dark Pools = Bull Shit..... The SEC allowed the common folk to view NASDAQ tier 3 quotes and see order side......WTF....lets let them trade in the dark//// The market needs the JEDI to restore order...
I am floored that this thread only has 20 posts. For me, its not the big news about dark pool reporting (which is of course bullshit) but that dark pools are where the banks and back office traders are making the money.
Folks, they are not buying the real goldmine stocks for their managed accounts. They are buying for their own profit.
Look at CDE and HL. Give me a fucking break. Anyone run some quick numbers and tell me why CDE trades 3/4 of book value.
When "they" want shit to rise. It will. When "they" want shit to fall it will.
How much can you stomach?
BTW - Popping champagne over here when Kensington (Alaska) does its first gold pour in July.
Forget dark pools - does Europe even have a consolidated tape?
That MarkIt spreadsheet is exciting:
Country Country Code Total THE NETHERLANDS NL 37,706,795 BELGIUM BE 14,451,889 DENMARK DK 8,849,732 GERMANY DE 86,776,384 FINLAND FI 10,243,611 IRELAND IE 37,830 UNITED KINGDOM GB 219,840,744 PORTUGAL PT 1,482,879 SPAIN ES 20,383,454 ITALY IT 28,224,489 NORWAY NO 16,927,341 FRANCE FR 83,841,959 SWEDEN SE 19,363,656 AUSTRIA AT 2,800,863 SWITZERLAND CH 45,313,468
This will change everything!
When does the MF & CEF community wake up to this? Is the amount of money you guys are forking over really worth the "stealth" you are getting from your DP orders? Bogul, I'm looking in your direction.. you wanna go out like a hero and restore your rep of looking out for the investor? Stand up against this SH*T!!!