Dark Pools are an interesting thing in the markets....

Why?

We will find out sooner or later.


From Wikipedia.

http://en.wikipedia.org/wiki/Dark_liquidity#Dark_pools

Dark liquidity

From Wikipedia, the free encyclopedia

In finance, dark pools of liquidity (also referred to as dark liquidity or simply dark pools) is trading volume or liquidity that is not openly available to the public.^[1] The bulk of these represent large trades by financial institutions that are offered away from public exchanges so that trades are anonymous. The fragmentation of financial trading venues and electronic trading has allowed dark pools to be created, and they are normally accessed through crossing networks or directly between market participants.

One of the main advantages for institutional investors in using dark pools is for buying or selling large blocks of securities without showing their hand to others and thus avoiding market impact as neither the size of the trade nor the identity are revealed until the trade is filled. But it also means that some market participants are disadvantaged as they cannot see the trades before they are executed; prices are agreed upon by participants in the dark pools, so the market becomes no longer transparent.^[2]

There are three major types of dark pools. The first type is independent companies set up to offer a unique differentiated basis for trading. The second type is broker-owned dark pools where clients of the broker interact, most commonly with other clients of the broker (possibly including its own proprietary traders) in conditions of anonymity. Finally, some public exchanges are creating their own dark pools to allow their clients the benefits of anonymity and non-display of orders while offering an exchange ‘infrastructure’. Depending on the precise way in which a ‘dark’ pool operates and interacts with other venues it may be considered, and indeed referred to by some vendors as a ‘grey’ pool.^[3]




Dark pools
Truly dark liquidity can be collected off-market in dark pools. Dark pools are generally very similar to standard markets with similar order types, pricing rules and prioritization rules. However, the liquidity is deliberately not advertised—there is no market depth feed. Such markets have no need of an iceberg order type. In addition, they prefer not to print the trades to any public data feed, or if legally required to do so, will do so with as large a delay as legally possible—all to reduce the market impact of any trade. Dark pools are often formed from brokers' order books and other off-market liquidity. When comparing pools, careful checks should be made as to how liquidity numbers were calculated—some venues count both sides of the trade, or even count liquidity that was posted but not filled.

Dark liquidity pools offer institutional investors many of the efficiencies associated with trading on the exchanges' public limit order books but without showing their actions to others. Dark liquidity pools avoid this risk because neither the price nor the identity of the trading company is displayed.

Dark pools are recorded to the national consolidated tape. However, they are recorded as over-the-counter transactions. Therefore, detailed information about the volumes and types of transactions is left to the crossing network to report to clients if they desire and are contractually obligated.^[5]

Dark pools allow funds to line up and move large blocks of equities without tipping their hands as to what they are up to. Modern trading platforms and the lack of human interaction have reduced the time scale on market movements. This increased responsiveness of the price of an equity to market pressures has made it more difficult to move large blocks of stock without affecting the price. ^[6]

Dark pools are run by private brokerages which operate under fewer regulatory and public disclosure requirements than public exchanges.^[7] Tabb Group estimates trading on the dark pools accounts for 32% of trades in 2012 vs 26% in 2008.^[7]