In the field of finance, dark liquidity pools(dark pools of liquidity), also called dark liquidity(dark liquidity) or just dark pools (dark pools) or black pools ( black pools) – is trading volume or liquidity, which is hidden from most players (participants) exchange market.
Most of these transactions form large financial institutions , information about which is not displayed on general trading platforms, that is, such auctions are held anonymously. Such transactions are usually carried out through alternative financial networks. (ECN) or directly between major players on the exchange market.
Benefits
One of the main benefits for institutional investors using dark pools is buying or selling large packages of securities , not showing their intentions to other market participants and thus avoiding influence on the market , since neither the size of the transaction, neither the buyer or seller in this case is disclosed.
but, it also means, that some market participants are at a disadvantage, since they cannot see trades before executing them; prices agreed by the participants in the dark pool, so the market ceases to be transparent.
There are three main types of dark pools.
- The first type includes independent companies., specially created for, to offer our clients unique conditions for exchange trading.
- Second type – these are dark pools, owned by a particular brokerage company. Trades within such dark pools are usually carried out between clients of this brokerage company..
- Third type – sometimes open exchanges also create their own dark pools , to provide your clients with certain advantages due to the anonymity and secrecy of trading.
Iceberg orders
Some markets include dark liquidity in their Books orders – this is usually done through Iceberg orders.
This type of orders allows you to split the total large order-order into a chain of smaller orders., which participate in the market.
Iceberg order participates in the queue of regular orders, but thus, that only the top of his chain is visible. – only the top in the glass. As soon as the price reaches the first iceberg order in the chain, it is this order that is executed, other orders are moved to the end of the queue, and so on, until the whole chain is executed. As a result, Iceberg orders are executed more slowly., than ordinary open orders and carry a hidden additional share of losses due to the, that execution is not always at the best market price. Icberg orders cannot be called completely hidden either., since the auction is usually visible after the passage of prints.
The real dark is the off-market liquidity of dark pools. Dark pool rules are very similar to regular market rules., it's just that liquidity is deliberately not advertised – the depth of the market is not shown either.
Dark pools don't need iceberg orders, since they do not seek to bring their prints to the public, unless it is provided by law. And in this case, they try to slow down such a conclusion of prints as much as possible in order to reduce the impact on the market and get a response from speculators.. Dark pools are often formed from brokerage book orders and other off-market liquidity.
Dark pools offer the same to large institutional investors, as usual pending order books, only with that difference, that their orders are not shown. Nobody is shown who placed the order at any price. Dark pool prints take place at CTS
The Consolidated Tape System (CTS) is the electronic service, introduced in April 1976, that provides last sale and trade data for issues admitted to dealings on the American Stock Exchange, New York Stock Exchange, and U.S. regional stock exchanges.
Deals, taking place on the Dark Pool sites, reflected in the national consolidated feed of transactions (national consolidated tape).
Impact on the market
While we can say, that trading on the dark side reduces market impact, but very unlikely, that will bring it to zero.
liquidity, which crosses when there is a transaction, in particular, from somewhere — and at least some of that may come from the public market., how automated broker systems intercept market pegged orders and instead cross them with buyer / seller. This disappearance of the opposite side of liquidity as he trades with a buyer / seller and leaves the market will lead to exposure. In addition, it slows down the movement of the market in a direction beneficial for the buyer / seller and its speed in an unfavorable direction.. For the market, the impact of hidden liquidity is greatest, when all government liquidity has a chance to cross with the user and at least when the user will be able to cross with only other hidden liquidity, which is not on the market. In other words, the user has a compromise: decrease the execution speed by crossing with only dark liquidity or increase it and increase its influence on the market.
Independent dark pools Dark pools / Dark Pul
- Instinet
- Liquidnet
- NYFIX Millennium
- Posit/MatchNow from Investment Technology Group (ITG)
- Pulse Trading BlockCross
- RiverCross
- SmartPool
- TORA Crosspoint
- ETF One
Broker-dealer who have dark pools
- Barclays Capital – LX Liquidity Cross
- BNP Paribas – BNP Paribas Internal eXchange (BIX)
- BNY ConvergEx Group (an affiliate of Bank of New York Mellon)
- Cantor Fitzgerald – Aqua Securities
- Citi – Citi Match, Citi Cross
- Credit Agricole Cheuvreux – BLINK
- Swiss credit – CrossFinder
- Fidelity Capital Markets
- GETCO – GETMatched
- Goldman Sachs SIGMA X
- Knight Capital Group – Knight Link, Knight Match
- Deutsche Bank Global Markets – DBA (Europe), SuperX ATS (U.S.)
- Merrill Lynch – Instinct-X
- Morgan Stanley – NightVision
- Nomura – Nomura NX
- UBS Investment Bank – UBS ATS, UBS MTF, UBS PIN
- Societe Generale – ALPHA AND
- Bloomberg Tradebook (an affiliate of Bloomberg L.P.)
- Daiwa – DRECT
Consortium
- BIDS Trading – BIDS ATS
- LeveL ATS
Exchanges owned by dark pools
- International Securities Exchange
- NYSE Euronext
- BATS Trading
- Direct Edge
- Swiss Block
- Nordic@Mid
- Chi-X
- Turquoise
Dark pool aggregators
- Fidessa – Spotlight
- Bloomberg Tradebook
- SuperX + - Deutsche Bank
- Azores - The Financial
- Progress Apama
- ONEPIPE – Weeden & Co. & Pragma Financial
- Xasax Corporation
- Crossfire - Credit Agricole Cheuvreux
Video о Dark Poools
