Dark Pools
An alternative trading system ("ATS") that doesn't publish quotes to the marketplace gets the regrettable moniker "dark pool". That label leads some inside the investing public to believe that nefarious activities are taking place, when the fact is dark liquidity has existed in several forms given that the start of trading on organized stock markets. Indeed, ATSs that don't publish quotes are only one form of "dark" trading that happens nowadays.
The Securities and Exchange Commission (SEC) is focused on equity marketplace structure, amongst its many responsibilities. With numerous rule proposals, along with a idea release looking for comments on a wide range of market structure topics, the SEC has sought and received input from a lot of market participants from the smallest of retail investors to the largest pension plans along with the tiniest of hedge funds to the grandest of money managers, along with all manner of broker-dealers and other monetary intermediaries. The SEC is now synthesizing these comments and taking into consideration what new regulation, if any, is appropriate.
One of the rule proposals relates to feasible adjustments to the regulation of ATSs that don't publish quotes. ConvergEx Group's comment letter on this rule proposal may be discovered on www.sec.gov. The comment letter discusses a few of the history of dark liquidity, the reasons it exists, along with the purposes it serves. The letter also takes a candid examine the SEC's proposed rules and tries to suggest some modifications that could possibly help accomplish the SEC's goals without having hindering this necessary source of liquidity and best execution.
Hedge funds, both huge and smaller, can utilize dark pools to improve their trading techniques in many key ways. Initial, ATSs give extra liquidity that may well not be offered inside the published quotes or on exchanges. Most shareholders appreciate the anonymity obtainable by way of ATS trading, so you are able to obtain further liquidity by accessing dark pools. Second, quite a few ATSs offer price improvement over the published quote. If just about every trade you execute is price improved a penny a share, the fund's alpha would show measurable improvement. Third, huge blocks are much more likely to trade smoothly and with less market impact when traded in an ATS. Fourth, the anonymity afforded by dark pools implies that a hedge fund can submit orders with little or no market impact.
ATSs with non-public trading interest are just as vital to the efficient operating of the equity markets as exchanges and public quotes.
So be afraid of Darth Vader and also the dark side. But don't steer clear of the liquidity and cost progress of dark pools.
The Securities and Exchange Commission (SEC) is focused on equity marketplace structure, amongst its many responsibilities. With numerous rule proposals, along with a idea release looking for comments on a wide range of market structure topics, the SEC has sought and received input from a lot of market participants from the smallest of retail investors to the largest pension plans along with the tiniest of hedge funds to the grandest of money managers, along with all manner of broker-dealers and other monetary intermediaries. The SEC is now synthesizing these comments and taking into consideration what new regulation, if any, is appropriate.
One of the rule proposals relates to feasible adjustments to the regulation of ATSs that don't publish quotes. ConvergEx Group's comment letter on this rule proposal may be discovered on www.sec.gov. The comment letter discusses a few of the history of dark liquidity, the reasons it exists, along with the purposes it serves. The letter also takes a candid examine the SEC's proposed rules and tries to suggest some modifications that could possibly help accomplish the SEC's goals without having hindering this necessary source of liquidity and best execution.
Hedge funds, both huge and smaller, can utilize dark pools to improve their trading techniques in many key ways. Initial, ATSs give extra liquidity that may well not be offered inside the published quotes or on exchanges. Most shareholders appreciate the anonymity obtainable by way of ATS trading, so you are able to obtain further liquidity by accessing dark pools. Second, quite a few ATSs offer price improvement over the published quote. If just about every trade you execute is price improved a penny a share, the fund's alpha would show measurable improvement. Third, huge blocks are much more likely to trade smoothly and with less market impact when traded in an ATS. Fourth, the anonymity afforded by dark pools implies that a hedge fund can submit orders with little or no market impact.
ATSs with non-public trading interest are just as vital to the efficient operating of the equity markets as exchanges and public quotes.
So be afraid of Darth Vader and also the dark side. But don't steer clear of the liquidity and cost progress of dark pools.
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