“Dark pools”, Private “Off-the-record” Buying and Selling of Corporate Stocks, Run Deep in Financial Markets

John Malitzis, executive vice president of FINRA

John Malitzis, executive vice president of FINRA

Richard Scamehorn writes that a Dark Pool has no formally designated name because it doesn’t exist as an entity. It only exists in the back rooms of investment bankers — notably in the largest participants, Credit Suisse Group AG, Barclays PLC and Goldman Sachs Group — the world’s largest dark pool. In addition, there are more than a dozen smaller banks that regularly or only intermittently operate a dark pool.

Since 2008, buying and selling stocks in dark pools has boomed. It only was 4 percent of all stock transactions in 2008, but now has risen to 13 percent so far this year, according to the Wall Street Journal (June 6). That is roughly $100 billion per day of secret trades.

One of the most questionable aspects of dark pools is quotations are not listed — i.e., the amount an interested buyer would be willing to pay or the amount an interested seller would be willing to accept. This questionable lack of transparency — hence the nickname — prevents other buyers and sellers from placing a bid.

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