Dark-Pool Trading Danger

Pivotfarm's picture

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What is there in this world that is transparent? Is there anything left? You just need to take a look around you. The growing number of corruption cases, the people that embezzle, fraudulently take, borrow, beg and steal at whim. These days it’s blatantly happening in front of your very eyes and yet we cannot see it, we do nothing except accept complacently, sheepled into believing that it can’t be changed.

We all know the stock market is rigged beyond our wildest dreams. We all hear that high-speed trading is doing the small-fry investors out of their hard-earned cash. But it’s now black-pool trading that is catching the stock markets in a whirl of foam to hide what’s going on in the darkest recesses of the financial markets. Everything has a dark side, a hidden entrance to the place where the few that are in-the-know are allowed to go; where they can benefit fully from something you can’t see. The darkest side of the stock market is that place where dark pools of liquidity allow financiers to trade high volumes of liquidity without the public actually knowing. Anonymous, unknown public-hidden trades by financial institutions; agreeing directly on the price and the volume to be traded, without making it public means that the public is at a disadvantage.

High-frequency trading is apparently only the tip of the iceberg today as growing volumes of shares are traded in dark pools. Approximately 40% of all US stock that is being traded now takes place outside of the stock market, ‘off exchange’. In 2008, that figure stood at 16%. In Europe things are not quite as bad, but there was an increase of 45% in just six months in the second part of 2013. In total there is an average sum of about 7-10% across the EU. In the US, there were some $21.4 trillion being traded in 2012 and that is certainly being affected by dark pools and hidden trading.

There are 45 dark pools competing with 13 public exchanges. There are some 200 internalizers (brokers that internalize trades, thus not providing data to the market). Dark pools only report data about volume and sales after the trade has actually gone through, while public exchanges do it in real-time adjusting the price according to the volume of sales and purchases. Canada and Australia have tried to curb the volume of dark-pool trades by making sure that there is a limit. The US is still thinking it over.

The US Securities and Exchange Commission stated in 2009 that they were going to get to grips with the problem of dark pools with the objective that “investors get a clearer view of stock prices and liquidity”. The information about volumes and prices was said to be needed to be made public. We are still waiting for theSEC to act. The SEC was supposed to require brokers to offer the public the best available price for stock that was to be bought or sold before dark-pool trading could occur. We are still waiting for that to happen. Patience is a virtue apparently. But, this is beyond the bounds of reason, isn’t it?

Of course, seeing who you are dallying with when the lights go out is much better than waking up in the morning with a huge surprise. Dark pools are a heated debate, but they certainly lead to a greater lack of transparency, endangering financial stability. Some might say that the markets have enough to cope with, but I can’t see the difficulty that they are going through (thanks to Quantitative Easing and easy money being thrown at them left, right and center).

When you have to look around you and everything that can be seen is just opaque, hiding the truth and bending the rules or using them to your advantage, then there is not a lot left to do except either go off and live as a hermit somewhere or join them all in the dark pools. Jump right in. Our society has turned into a seedy bottomless pit of dark opacity. We have no transparency. The word is misunderstood, unused, referring to a bygone era that wasn’t true even then perhaps. Where have all the honest people gone in this world? Why do we allow it all to continue to the detriment of the majority, for the benefit of the few?

Originally posted: Dark-Pool Trading Danger


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toadold's picture

There was a Canadian TV program called the "Red Green Show." In it the main character said on one episode that optimism was the thing that killed marriages. "Once one starts thinking,"I can do better than this" the marriage will soon end.  Now it is, "I won't get caught like that other fool." or "I won't mess this up and I'll get rich." , or I can set up a centrally planned economy and it will all work out.  

"Hope springs eternal from the human....ass" 

The Wisp's picture

MOM always said, never trust a Woman who feeds you by candle light.... She's Trying to Hide Something.

ebworthen's picture

Eels, Lamprey, and Leeches love dark pools.

Stay out of the Ponzi markets my red-blooded human friends.

Smiddywesson's picture

Given enough time, ALL human institutions morph so that the majority enriches an ever shrinking minority...until collapse.  This is true for governments, religions, little league baseball, and especially markets.

kurt's picture

Dank Dungeon Deep Dark Pool Proof, Poof!

Dismal Shards of Night Jasmine, Spear, Drift, Die

Dirty Deeds Done Dirt Cheap

Chip, Chipper, Blank

logicalman's picture

Buy phyz and don't take part.

disabledvet's picture

JP Morgan has only now wound down it's London "Whale" trading operation.

That's how long it takes to unwind one of the convoluted and complex 25 billion dollar transactions.
You need to be a genius just to set up the operation...and beyond a genius to understand what's going on in "the black box."

This is of course the "when genius prevailed" (or, failed actually) problem. Is London itself at risk? "You can trade anything there" which is why not only the London Whale happened in London but why AIG's "special products division" was specifically located in London...since there are no rules there and "betting is allowed."

The idea that "if we can't do this in the USA then these trades will simply be off-shored" is patently false. The only place where you can raise the amount of liquidity to take down AIG itself is London. "And JP Morgan decided to do the same thing" only years later?

"I gotta a bad feeling about this." Something of the sort that says "what Putin et al are doing is no accident."

logicalman's picture

More accurately, 'The Square Mile'