Wall Street Hides from Regulators in “Dark Pools”

Saturday, April 13, 2013
(photo: Lehigh Valley Pool Service)

While the federal government has pushed Wall Street to make itself more transparent with trading, many high-rolling investors are avoiding more visible venues like the New York Stock Exchange (NYSE) and instead spending their money in so-called “dark pools.”

 

Established in the 1980s, dark pools are electronic Alternative Trading Systems, often run by big banks, which function similarly to the NYSE, except that traders buy and sell without knowing the bids of others involved.

 

Participants aren’t the only ones left wondering what exactly transpires in dark pools. Federal regulators have had a tough time knowing if these deals are proper or in the best interests of the market.

 

A few years ago dark pools made up only a small percentage of all trading. But, recently, there have been days when these shadowy transactions comprised nearly 40% of all deals, up from 16% in 2008. In January, daily dark pool trading actually surpassed the New York Stock Exchange with 920 million trades to 900 million for the NYSE.

 

So far the Securities and Exchange Commission has refused to adopt new rules regulating dark pools. Some foreign governments, like those in Australia and Canada, have taken a more hands-on approach to limit off-exchange trading.

-Noel Brinkerhoff

 

To Learn More:

As Market Heats Up, Trading Slips Into Shadows (by Nathaniel Popper, New York Times)

10 Things People Don't Get About Dark Pools: Ross (by D. Keith Ross, CNBC)

GASPARINO: Mysterious Dark Pools Are Seeing More Trading Action Than The NYSE For The First Time Ever (by Linette Lopez, Business Insider)

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