Dark pools are stirred by attention from regulators
Calling a share trading facility a “dark pool” may have seemed like a smart idea a few years ago when these special types of trading facility started growing in popularity.
But the phrase – referring to a facility that allows the anonymous trading of large blocks of shares – appears to have become something of a liability.
Regulators, and some politicians in Europe, are starting to scrutinise how they work due to a heightened focus on market transparency amid the ongoing financial crisis.
http://www.ft.com/cms/s/0/1f99cb80-bbfb-11dd-80e9-0000779fd18c.html
The SEC says there are 32 dark pools in the US, making up nearly half the list of 68 alternative trading systems in the US, most of which are in equities.
Concerns in the market centre on the ability of traders to use dark pools to manipulate prices on the public markets by “gaming” other traders in the anonymous dark pools.
A gamer enters a dark pool with a small order to discover if there is significant volume on the opposite side of the trade with the intention of exploiting the information to push up the price of the stock in the public markets.