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The grey side of dark pools

Wednesday, April 09, 2014 - 03:51

April 9 - Following reports in the Wall Street Journal that Goldman Sachs may shut down anonymous trading known as dark pools, Bobbi Rebell takes a look at the controversy and why that kind of trading is being both vilified and celebrated for ties to the high frequency trading uproar.

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This sign is a symbol of Wall Street history that is now feeding into the background. As are many traders like -- because when stocks are treated these days there's a good chance they're headed to a dark pool. Exchanges where the trades are anonymous. 40% of all US stock trades including almost all orders from mom and pop investors. Now have been off exchange. Raising questions about the potential harm to even small investors. Dark pools connect buyers and sellers but with less regulation that exchanges. They also allow anonymity so only the dark pool operator knows who's behind in order. -- dealing protecting them from high frequency traders who could front run the dark -- treats. What I -- here at liquid that right mid town Manhattan. Around since 2000 and wine and now traded 42 markets around the world. Founder and CEO upset Marion. Liquid that's average execution size and -- from a hundred to 300 times that found on the exchanges are price improvement. 92% of time at a 100% present from both parties that's complementary. The average size of orders in dark pools has -- She only around 200 shares similar to levels on public exchanges. I think that there is a problem there's potential manipulation that -- could go on between dark pools and let -- and I think that. You know if you had some kind of mechanism where only the large with dark pools you know provide a larger execution or better -- improvement. It would limit the amount of manipulation that can go on between dark pools -- Given its when he one point four billion dollars of stocks retreated in 2012. Even the slightest mismatch in price can be exploited. And cost investors billions the dark pools remains controversial and risky. Goldman Sachs one of the biggest players is considering shutting down its start -- according to the Wall Street Journal. It's always suspect when -- Goldman Sachs is thinking about I'm Jerusalem during -- for the under the during a forum for blessed that I'm not sure. He is sure there are big problems with some of the larger dark pools largest dark pools -- -- by the major banks and they have been invited all the -- into trading on the invited and they match all of their retail all the algorithmic -- And the reason why they do is because the more that they match internalize the -- they have to pay to the exchanges for execution or the other venues for execution. That's not really a good result war. The rest of the population. One emerging idea competition among dark pools Peter Kenny is the CEO of clear -- group. Which is marketing proprietary technology that they seek its client orders to more than. Forty dark pools as opposed to one revenues one place where you do oracle may -- where can easily be gained because it's easily identifiable. If you're hitting forty dark pools or forty liquidity pools. It's less easily gained. You're having access to all liquidity that exists in the name whatever is that -- -- traded. And you're doing it again it's anonymous. So you're not being -- you're not having in Iraq with a higher frequency. Model on the other end because you're not in one particular venue. But that's not stopping complains that dark pools are unfair. I am good -- founder of electronic trading platform -- -- capital markets. Keep in mind a guy like me. I I want to -- well they might not but let me and they might charge me a horrible rate it's not really a fair. Environment in any means it's like -- country club there are currently about 45 dark -- competing. With thirteen exchanges in the United States.

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The grey side of dark pools

Wednesday, April 09, 2014 - 03:51