The Rise of Dark Pools

TheTradeNews.com reports that institutional traders are leaving traditional displayed market venues for dark pools:

Experts like Justin Schack, partner and managing director at Rosenblatt Securities, has seen the overall market share of dark liquidity pools rise from 6.55% in 2008, just after the adoption of Regulation NMS and the introduction of its Trade Reporting Facility – a source of off-exchange trading data – to 13.36% at the end of 2012.

However, fleeing to dark pools wasn’t enough – other strategies have been put in place to mitigate against the high-frequency traders:

Some dark liquidity pool operators responded to this change in order size by introducing ‘order bunching’, where they would aggregate a series of smaller orders to create the other half of an institutional trade. In theory, an institutional trade could interact with four or five high-frequency traders on a 2,000-share trade instead of a single high-frequency trader in a 200-share trade.

Other dark pools define a variety of trader profiles and are allowing participants to specify with which profiles they are prepared to trade.

Leave a comment

Filed under Finance

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s