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Wall Street’s ‘Private Rooms’
- mertleee 2y agoHistorically, the "private dark room" has always been a mechanism of goofy elites. To an extent these will always exist - but what we define as investigative journalism will likely decide whether we hear about these at all haha.
- jimbob45 2y agoCarlos Cabana, head of equity sales and trading at CastleOak, dubs the room a “diversity pool,” because the participants are all minority-operated brokerage firms. While in this instance CastleOak doesn’t know specifically who is on the other side of every trade, it knows it will be one of about 10 counterparties who meet certain eligibility criteria related to ownership and investment goals. I am convinced that they only added this bit to make sure people would argue about skin color and ignore the implications of the rich making sure the peasants aren't allowed to play the same game as them.
- potato3732842 2y agoIt's far more likely that it's a tongue in cheek inside joke than it is they care what outsiders think. Or it's an internal reference that's a dig at someone or something and was never meant to be made public (these firms are small enough this kind of stuff can happen). Non-consumer facing finance is just about the least diversity conscious industry ever. They only care about green. Source: work in industry.
- Vecr 2y agoIt's a dark pool.
- deleted 2y ago[deleted]
- dheera 2y agoI've been wading through terabytes of financial data over the past month. (I'm an ML/AI software engineer trying to create a trading bot that makes me more consistent income during times of uncertainty that are outside my control.) This is some of the data I'm looking at. NVDA price on a particular day vs. average position of trades in bid ask spread aggregated over 10 seconds, on all the exchanges it is being traded on. When it is close to 1, it is trading at close to the NBBO ask; when it is close to 0, it is trading at close to the NBBO bid. https://imgur.com/a/lcCwDsj https://imgur.com/a/lcCwDsj One of the things I found is that the dark pool trades predict price action very well on a few-minute time horizon. "FINRA Alternative Display Facility" on the 2nd plot from the top is all the darkpool trades. If I had access to dark pool trade data in real time I think I could piggyback off the manipulators and make bank. Unfortunately the SEC only requires them to report transactions within 15 minutes, not in real time.
- whatevermom 2y agoThere might be other ways to know about the data in advance? Some kind of flaw somewhere that lets us sniff the “dark rooms”?
- dheera 2y agoI tried to train a model to predict the darkpool transactions from the rest of the transactions. It didn't work. I'm back to the drawing board trying other things now.
- slowtrek 2y agoThere might be other ways to know about the data in advance? Yeah, just have lunch with a few of the insiders. That's the issue and will always be the issue.
- deleted 2y ago[deleted]
- rkagerer 2y agoIf that's the case, couldn't the providers who operate the dark rooms (like OpenChronos) use their own realtime data to do so? Are there any who do that today? (i.e. monetized market surveillance). If so, does it run afoul of regulations?
- qweiop 2y agoI remember reading about dark pools and asking a friend in finance if the sector really is as corrupt as it sounds, his reply? "Oh much more"
- Nifty3929 2y agoDid he elaborate on this?
- LatteLazy 2y agoGoldman and others got in trouble for selling access to the supposedly secret orders in their dark pools back in the day. They were fined 800k I think? I believe dark pools started growing post flashboys when people realising what hft meant and wanted an escape (see comment below). But as they got big they became a target in and of themselves (ecology in action I guess). I worked in algo trading at the time (not hft, but anti hft)
- gaadd33 2y agoDark pools started in the 1980s once the SEC permitted securities to be traded off the exchange they are listed on. I think that was well before flashboys.
- LatteLazy 2y agoI had no idea they went that far back? Good knowledge!
- chipsrafferty 2y agoDark Pools were the original "equitable market"; when market makers were trading in 1/8ths and fixing markets, dark pools enabled people to trade in 0.01 increments.
- QuantumGood 2y agoAnd then they found that some of the liquidity in dark pools was by dark HFT.
- Nifty3929 2y agoIt is not clear to me what nefarious things people believe are going on there that we should be worried about. All the article says is that people are doing things we don't know about, but implies that somehow we should feel not-okay about this. I don't know what's going on in my neighbor's house either, and it could certainly be bad stuff, but that's doesn't mean that it is bad or that I should start spying on them.
- radlad 2y agoIsn't the problem that this allows for all kinds of forms of insider trading? > Insider trading—the practice of buying or selling a company's securities based on material, nonpublic information—has long been a contentious issue in financial markets. https://www.investopedia.com/terms/i/insidertrading.asp https://www.investopedia.com/terms/i/insidertrading.asp There's also a question of whether they are good for the health of the overall market: https://www.cbsnews.com/news/finances-dark-pools-explained/ https://www.cbsnews.com/news/finances-dark-pools-explained/
- JKCalhoun 2y agoIt stands to reason that if the buyer/seller are seeking private rooms there is something unfavorable for them about "lit" trading. That alone should raise red flags.
- roenxi 2y agoThat raises red flags that the standard market regulations are bad - they are signalling that they believe an exchange with different rules is better for both traders. That would be bad for all the traders stuck on the exchange with inferior rules, but the solution is to reform the standard exchange. Probably trying to get away from HFT if I were going to guess blindly.
- ajross 2y agoIt's by definition insider trading. If they made the trades in public the market price would change to reflect the demand. They don't want that to happen, they want the trade to happen at a non-market price set by people with information about the deal.
- ajsnigrutin 2y agoBan high frequency trading, ban instant transactions (put them on hold for some time before buying/selling (hours minmum, longer for larger quantities), make the held transactions public, and tax the profits on a time-owned scale. This would turn "investments" into investments again... you really believe that company XY will do something good? Buy stocks and keep them for few years until they grow. Politican John Bobson dumps his stock of ZX company? Well, now we know before they actually get dumped, and can sell our stocks too. Buying stocks of a company for 1.7 seconds and selling them back is not an 'investment' by any kind of proper definition.
- tremarley 2y agoBanning something doesn’t make it go away. Millions of people will be doing it, irregardless if it’s banned or not. The best thing you can do is let it happen, monitor it and call out bad actors.
- jandrese 2y agoCalling out bad actors doesn't work so well if said actors have no shame.
- JKCalhoun 2y agoWild if true.
- MegaButts 2y agoDo you also believe we shouldn't make laws just because people will still break those laws?
- mmooss 2y ago> Banning something doesn’t make it go away. It does make it much more expensive, and something that people with other options won't want to be involved in. If 'dark room' trading was illegal, Goldman, etc. would exit those markets. It's true that people break laws, but the extreme idea that laws and law enforcement are therefore useless is obviously wrong. Look, for example, at the Republicans and their allies banning DEI - it's had quite an effect.
- computator 2y agoDo all trades get reported to some agency of the government (including those done in private rooms)? Do companies themselves know who owns their shares (including those done in private rooms)? If the answer is no to either or both of the above, doesn't that create all sorts of ownership problems? As an analogy, I'm imagining a country where there is no reliable municipal property registry, and no one knows who owns a particular house. Wouldn't that create chaos?
- gruez 2y ago>As an analogy, I'm imagining a country where there is no reliable municipal property registry, and no one knows who owns a particular house. Wouldn't that create chaos? That's basically how it works in many (most?) US states. There's no authoritative record of all claims on a property. Land registries exist, but they're not authoritative. Liens can exist without being registered on it, and surface later. Hence the need for "title insurance". https://www.bitsaboutmoney.com/archive/working-title-insurance/ https://www.bitsaboutmoney.com/archive/working-title-insuran...
- hobermallow 2y agoYes there is a record for most trades done. The regulating body depends on the type of instrument (equities, options, futures, fixed income, etc.) The Consolidated Audit Trail (CAT) is the primary location for this data as it relates to equities. https://www.finra.org/rules-guidance/key-topics/consolidated-audit-trail-cat https://www.finra.org/rules-guidance/key-topics/consolidated... The settlement cycle also dictates the frequency of reporting for many investment instruments. https://www.finra.org/investors/insights/understanding-settlement-cycles https://www.finra.org/investors/insights/understanding-settl...
- robertlagrant 2y agoI don't quite understand this - are these "rooms" where ownership of shares is tracked separately to how an exchange tracks them? E.g. I own 80% of a company, and I keep the official ownership, but let people buy them from me and from each other, but I keep the record of who owns them?
- infecto 2y agoIt's simply a mechanism to allow trades to happen outside of the lit market, not much to do with ownership tracking. The DTCC still "owns" the shares and the brokers are keeping track of individual ownership. There may be a clearing house to facilitate trades between brokers. Dark pools are available to retail traders via some brokers but of course most are not that easy to get into. Its really no different than trading on the open market but there is less available information.
- gruez 2y ago>They’re offering what are dubbed private rooms, gated venues that take the core benefit of a dark pool — the ability to hide big equity deals so they won't impact prices — and add exclusivity, specifying exactly who can partake in any trade. I'm not sure what all the consternation is about. Even without dark pools you could always do direct trades[1] with a party of your choosing, which is even more private and exclusive. The "private rooms" mentioned in this article just makes this slightly more automated than some trader messaging his buddies on the bloomberg terminal. [1] https://en.wikipedia.org/wiki/Over-the-counter_(finance) https://en.wikipedia.org/wiki/Over-the-counter_(finance)
- hayst4ck 2y ago> won't impact prices I strongly suspect that wall street has looked at 401k's/index funds as a giant money filled piñata. It is a huge pile of money following a well understood algorithm which makes it vulnerable to attack. I suspect that this is the absolute core of "dark pool" strategy. Any trade that happens behind closed doors that "doesn't impact prices" means that an index fund is buying or selling at a price other than the "real" price meaning that dark pools are functionally a wealth transfer from grandma to an institutional trader.
- dudeinjapan 2y ago[dead]
- deleted 2y ago[deleted]
- gruez 2y ago>I suspect that this is the absolute core of "dark pool" strategy. Any trade that happens behind closed doors that "doesn't impact prices" means that an index fund is buying or selling at a price other than the "real" price meaning that dark pools are functionally a wealth transfer from grandma to an institutional trader. Is there evidence for this, or this all baseless speculation?
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- PeterStuer 2y agoAnyone remember the not so distant past when you were labeled a "conspiracy theorist" when you mentioned dark pools?
- moomin 2y agoIf you think this is cause for concern, consider that most economic activity in the US isn’t even on an exchange to begin with.
- _bin_ 2y agotons of trades have been filled for a long time by IBing your buddy down the street. i don't see how this is particularly different/worse besides maybe improving efficiency.
- mitchbob 2y agohttps://archive.ph/eUY8T https://archive.ph/eUY8T
- onepremise 2y agoIt sounds like they want to hide congressional investments and stock trades from their constituents, or at least this could be used in a way to achieve that.
- outer_web 2y agoUh they still have to report their trades.
- 6stringmerc 2y agoThis actually sounds really cool as a vetting of counterparties and risk reduction for liquidity. I worked munis 2008-2010 in support but learned a ton about all sorts of Wall Street products - traditional and synthetic. So these are for trades, formal, with a bit more teeth to them than CDS type transactions, which even post crash were crazy amounts of money on paper but structured by usually pretty knowledgeable firms (in our pool). Every tool can be misused, and the minority owned room / platform actually seems neat to me. The casino is big and brutal and smaller firms have roles too. Will these lead to another London Whale? Time will tell.
- rvz 2y ago"Wall Street" and "Transparency" is an oxymoron.
- quanto 2y ago> a New York-based minority-run brokerage [...] wants to trade with similarly minded businesses, so it uses a private room provided by the ATS operator OneChronos. “It’s about exercising control, what liquidity a broker wants to interact with” Carlos Cabana, head of equity sales and trading at CastleOak, dubs the room a “diversity pool,” because the participants are all minority-operated brokerage firms. While in this instance CastleOak doesn’t know specifically who is on the other side of every trade, it knows it will be one of about 10 counterparties who meet certain eligibility criteria related to ownership and investment goals. The fact that, under this mechanism, one can quite literally choose the skin-color of the counterparty trader, under the banner of "diversity" and "similarly minded"-ness, is quite fascinating regardless of politics or morality.
- rhelz 2y agoAfter coming of age on Milton's and Hayek's views of the market--as a mechanism for processing information and allocating resources which was far better than any central planning could be--it was a huge eye opener when I actually did go to Wall Street. The degree to which market players are going to make market signals to not have the correct meaning is amazing. Dark pools, chopping up buys and sells and strategically rerouting them--all meant to make the market as bad of an information source as possible. In retrospect, it seems obvious that they would do this. If the market is the best source of information, you can't beat the market, because you'll never knew more than it will.
- formvoltron 2y agoWhat is interesting here is that if more & more volume goes to private exchange activity, then as the volume dries up on public exchanges, there will be more volatility.. and more reason to move to private exchanges. There must be some point where this becomes self defeating though, no?
- blitzar 2y agoDark pools work in generally liquid and broadly balanced (between buy orders and sell orders). In times of volatility or when the order book(s) become heavily skewed to buy or sell orders - everyone will scramble to primary liquidity at the exchange.
- darod 2y agoMany comments are saying that these rooms have been created to give fund managers the ability to execute large trades while keeping the price similar or close to what is available on the open market. I guess my question is why should they should be allowed to be protected from this type of risk? If they were not protected from this large type of risk, then maybe we would have more competition in the large fund manager space because, like hedge funds have experienced, after managing a certain amount of money there is a diminishing return as others will see and follow your trend.
- Invictus0 2y agoYou're asking why two people should be able to trade with each other in private?
- joemazerino 2y agoWild that Bloomberg includes a trader who focuses on "diversity funds" as an example. Imagine now that traders focus on only non-diversity funds, and how that looks.