I don't understand how dark pools attract liquidity

Discussion in 'Order Execution' started by WhiteOut56, Nov 23, 2010.

  1. If you provide on a dark pool Chances are they charge u something like .25/100. How do dark pools even attract anyone who is interested?

    How can anyone be profitable w those margins
  2. Maybe its done for tax avoidance....?
  3. I'd imagine it allows people to unload large positions without the majority of the market seeing it and reacting.
  4. dinn13


    Don't know what it's like for retail but for institutional traders most dark pools don't charge anywhere near 25 mills. There are a few that do and charge more but they tend to be for exclusively trading large size

    Knight and Getco are known for not charging anything for crossing the spread to take liquidity.

    Credit Suisse Crossfinder and Goldman Sachs Sigma X cost far less than 25 mills but it is negotiated per firm based on volume.

    So for liquidity takers it is a lot cheaper to remove liquidity than on Nasdaq/Bats/Arca/Nyse/Edgx and one doesn't affect the NBBO directly so a lot less likely to move the price.

    For liquidity providers one can post size while not showing your hand to the market. Also since the quote is not part of the NBBO, when the market is swept one won't necessarily get filled which can be a good thing since it tends to be hft players who find the pricing advantageous to them. So fills are more likely to be from natural buyers/sellers although hft players are quite involved with dark pools and will often sweep the dark pools prior to sweeping the NBBO exchanges in order to source liquidity prior to a market move. Can be mitigated to a degree by having a minimum fill size set on the order (something that not all exchanges allow so another benefit for many dark pools).
  5. it's less than 25, but regardless, there are perks. anonymity, reduced market impact etc. except for the arb crowd, there are relatively few people who make markets in db's. it's mostly buyside moving size on longer term plays.
  6. How does one access Credit Suisse for less than $2.50/1000? What's the minimum volume they want on the firm side to get the cost reduced?
  7. are there dark pools for futs?
  8. copied from source:

    Taurus Compliance Consulting, LLC
    Money laundering in the dark does not refer to back alley transactions or those conducted in parking garages without lights, but to transactions facilitated on complex trading avenues of un-displayed market liquidity more commonly known as "dark pools". Dark pools represent a source of liquidity in the electronic market place that is unknown to the average investor and have seemingly been given a “pass” when it comes to the transparency required by other trading venues with respect to displayed liquidity.

    These dark pools are set-up to serve as legitimate trading venues that offer benefits such as market stability and trading efficiency. Institutional traders, for example, can acquire or dispose of large blocks of shares without significant market impact. However, they also raise concerns. In particular large transactions are facilitated in a seemingly undetectable venue in millisecond timeframes. By their very nature and structure they completely lack any degree of transparency until after the trade has been executed, which does little for price discovery. Furthermore, the structure of a dark pool makes the current regulatory framework designed to detect and deter money laundering much more difficult.

    The introduction of dark pools makes it all the more important to focus AML controls on the placement stage of money laundering where the illicit funds are first introduced into the financial system. This is the stage where the funds are most vulnerable to detection since they are still close to the illegal activity. Once the funds have gone dark the ability to detect the monies as having originated from illegal activity is greatly diminished.
  9. Perhaps someone could elaborate on how this can be true - at least as a general statement. It seems obvious that trying to move size in a relatively illiquid market will create more of an impact than in a liquid one. Maybe you keep some pennies here and there in the very short run by avoiding HFT, but surely illiquidity carries a price, and in any case aren't there better ways to do the same thing? For example, accumulating/distributing using simple algos that randomize interval, size and order pattern.
  10. Are darkpools required to pay SEC fees? Or is that just exchanges?
    #10     Nov 29, 2010