7 ms·

It 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 th

It 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 ago
Isn'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 ago
  It 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 ago
    That 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 ago
  It'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.
  - ikmckenz 2y ago
    No, "I am XYZ hedge fund and I want to buy stock ABC" is not material non-public information to XYZ hedge fund. If it was, any buying or selling of stocks would always be illegal, since you would be "insider trading" on your desire to buy the stock.
    - deleted 2y ago
      [deleted]
  - gruez 2y ago
    The "insider" in "insider trading" refers to trading on privileged nonpublic information, not arranging the trades in a private venue.
    - deleted 2y ago
      [deleted]
  - oangemangut 2y ago
    Even in dark pools the trades have to happen within the NBBO, they can't just trade at whatever price they want.
- ikmckenz 2y ago
  > Isn't the problem that this allows for all kinds of forms of insider trading? No, it doesn't. All trades are made public after they happen, as per regulations. There is no difference to insider trading regulations if a bad actor trades via a lit exchange or via a dark pool. Dark pools only "hide" pre-trade information, such as standing buy or sell limit orders.
  - JKCalhoun 2y ago
    Really? Isn't knowing that an extremely large trade is about to take place insider information?
    - tedunangst 2y ago
      That is only insider information for the person making the trade.
      - deleted 2y ago
        [deleted]
      - JKCalhoun 2y ago
        And there are no other parties involved before the trade? That was not my understanding.
        tedunangst 2y ago
        You may be thinking of front running, which is an agency problem, and also not this.
crazygringo 2y ago
Insider trading. Also potentially tax evasion?
reverendsteveii 2y ago
It's manipulation by definition. These hidden trades exist to prevent other people from being able to act in their own best interest based on available information. This isn't about what's going on in your neighbor's house. Your neighbor's house is private, markets are public. This is about being at a public auction in the middle of bidding on something when someone else walks up to the crier, whispers a few words in his ear, and then the crier just quietly says "bidding is closed" and you have no idea who bought the item or for what price but now you have to try to price similar items.
- oangemangut 2y ago
  In the case of Dark Pools, it would actually be the crier saying "a lot 10x the size of what I'm auctioning just traded somewhere else where none of you lot can trade for xx price". So after they say that you actually do know the price that they bought the item(s). This is since the dark pools have requirements to report to the trade tapes their trades in fairly similar latency to the exchanges themselves. EDIT: The rules also dictate the allowed prices the dark pools trade at. They have to be within the national BBO, they can't just trade at whatever price they want. So the public auction is actually helping them find the prices, without their pre-trade information affecting the price before execution.
- gruez 2y ago
  >It's manipulation by definition. These hidden trades exist to prevent other people from being able to act in their own best interest based on available information. So if I have a RTX 4090 to sell (a very sought after commodity these days), and I sell it to my buddy rather than listing it on ebay, I'm doing market "manipulation"?
  - wesapien 2y ago
    Depends on the volume
    - gruez 2y ago
      Fine, is OpenAI doing "manipulation" when they buy 10k H100s from nvidia directly, rather than on the open market?
oangemangut 2y ago
If you look up RegNMS the goal is to make public markets fair by having rules that have to be met in order to trade. Dark pools allow participants to 'hide' information that's not public. It is mostly about the order books. If dark pool sell order for 1B of TSLA stock goes on the order book, only other members of the pool get that information. The dark pools are required to still follow RegNMS rules for trade prices, but there is an inherent asymmetry in the market information in this case as the dark pool participants can see the public markets and their dark pool in order to make trading decisions. In your neighbor's house example, it would be like if there was a street market auction for trading cards happening in your neighbor's front yard, but in the house your neighbor and another neighbor had gotten together to trade 100x the average #of cards using the prices they hear from outside, and the people outside only see the deal they made after it's done.
- gruez 2y ago
  >Dark pools allow participants to 'hide' information that's not public. It is mostly about the order books. If dark pool sell order for 1B of TSLA stock goes on the order book, only other members of the pool get that information. The dark pools are required to still follow RegNMS rules for trade prices, but there is an inherent asymmetry in the market information in this case as the dark pool participants can see the public markets and their dark pool in order to make trading decisions. But traders can easily hide the size of their "true" order by breaking it up into chunks and constantly refilling the order if it's taken? This is basically trading 101. If you want to do a big selloff, you're not going to dump all of that in one order.
  - rtkwe 2y ago
    But by breaking up the order they have to wait and the market can move in reaction to their sell off unless they do it very slowly. Dark pools can completely hide a large sell or buy order from the market long enough to execute at the current strike if there's another member in the pool buying. They wouldn't use it if it didn't give them an advantage because it costs more than regular trades.
    - 2y ago
nowayno583 2y ago
Markets are supposed to be decision makers, and having pricing information be public helps firms and other allocators take better decisions. The question at hand is if the flow of information today is so fast that it deters smart decision makers because of other participants who can extract their decisions from them before they can act on them. Wether you believe markets should be more or less opaque should be decided by where you sit on this spectrum imo.
mmooss 2y ago
> 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. Massive public investments and global finance could result in you and your neighbor losing your jobs and houses, and cost you a lot of tax dollars rescuing them. It's happened multiple times. That's why they need to be regulated.
6stringmerc 2y ago
Great points - to put it another way, considering the data is available and investors now have the horsepower to crunch the numbers…why doesn’t Wal-Mart publish their entire inventory for every store in their system in an easy to digest CSV or whatever? Investors deserve to know!!! Or, you know, sometimes people do business behind closed doors because day to day operations aren’t useful in many scenarios.
tester756 2y ago
For me stock market should be about transparency of trades. Of course small trades aren't relevant, but big ones should be visible.
- chii 2y ago
  i thought these "dark pools" are visible _after_ their trades have completed. The information about someone _wanting_ to buy or sell a large amount, is hidden via the dark pool, so that this order doesn't make the public markets move.
  - tester756 2y ago
    Oh, I thought they arent
lmm 2y ago
Public, lit markets are a public good that lifts all boats. If people are feeling the need to move away from them that doesn't mean those individuals are up to no good, but it's a bad sign for the health of the system.
- JumpCrisscross 2y ago
  > Public, lit markets are a public good that lifts all boats To a point. The benefits of millisecond-grain transparency really stretches my credulity. Let people trade. Make them report it in a reasonable period. The folks who need millisecond granularity will find it. Most economic activity doesn’t need that, and while the liquidity is good, again, I’m not convinced it needs to be publicly disseminated in the way it is now.
  - chipsrafferty 2y ago
    Make everyone trade on public lit markets and make the minimum time increment 1 second.
solatic 2y ago
It's insider trading, just with a different class of insiders (i.e. first level of insiders are people associated with the company itself, and the second level of insiders are Wall Street traders with access to non-public pricing signals). Insider trading is illegal because it undermines faith in the fairness of the public market. If insider trading is legal, then market actions by insiders are almost guaranteed to result in the action being a poor deal for the other side. Either the insider is buying shares because they have strong confidence that the price is about to skyrocket (i.e. prior to the announcement of a massive sales deal), in which case the prior holder lost out when they would have preferred to hold; or the insider is selling shares because they have strong confidence that the price is about to crater (i.e. announcing very poor results), in which case the person purchasing the share probably would have preferred not to buy at that price. The end result is that nobody wants to buy or sell shares anymore (since they will get the raw end of the deal) and the market collapses as a result. When companies are privately held, buying and selling shares without insider knowledge (i.e. deals being conditional on due diligence) is much less common, so it's really only a concern for public markets. Public markets absolutely depend on regulators enforcing that information asymmetry is kept to the absolute minimum possible, so that the market will be perceived as fair, so that people will continue to participate.
- concordDance 2y ago
  > The end result is that nobody wants to buy or sell shares anymore (since they will get the raw end of the deal) and the market collapses as a result. Finance noob question here: has this actually happened? And related, don't non-pro traders basically always lose money on trades but still exist? (I've been genuinely unsure why insider trading by non-decisionmakers is banned, always seemed like it would result in more accurate prices)
  - chii 2y ago
    > And related, don't non-pro traders basically always lose money on trades but still exist? by the same token, gamblers also on average lose money, but still exist.
- cjpearson 2y ago
chipsrafferty 2y ago
It is perfectly natural to distrust anything you don't know about

radlad 2y ago

Isn'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 ago
It 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 ago
  That 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 ago
It'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.
- ikmckenz 2y ago
  No, "I am XYZ hedge fund and I want to buy stock ABC" is not material non-public information to XYZ hedge fund. If it was, any buying or selling of stocks would always be illegal, since you would be "insider trading" on your desire to buy the stock.
  - deleted 2y ago
    [deleted]
- gruez 2y ago
  The "insider" in "insider trading" refers to trading on privileged nonpublic information, not arranging the trades in a private venue.
  - deleted 2y ago
    [deleted]
- oangemangut 2y ago
  Even in dark pools the trades have to happen within the NBBO, they can't just trade at whatever price they want.
ikmckenz 2y ago
> Isn't the problem that this allows for all kinds of forms of insider trading? No, it doesn't. All trades are made public after they happen, as per regulations. There is no difference to insider trading regulations if a bad actor trades via a lit exchange or via a dark pool. Dark pools only "hide" pre-trade information, such as standing buy or sell limit orders.
- JKCalhoun 2y ago
  Really? Isn't knowing that an extremely large trade is about to take place insider information?
  - tedunangst 2y ago
    That is only insider information for the person making the trade.
    - deleted 2y ago
      [deleted]
    - JKCalhoun 2y ago
      And there are no other parties involved before the trade? That was not my understanding.
      - tedunangst 2y ago
        You may be thinking of front running, which is an agency problem, and also not this.

crazygringo 2y ago

Insider trading. Also potentially tax evasion?

reverendsteveii 2y ago

It's manipulation by definition. These hidden trades exist to prevent other people from being able to act in their own best interest based on available information. This isn't about what's going on in your neighbor's house. Your neighbor's house is private, markets are public. This is about being at a public auction in the middle of bidding on something when someone else walks up to the crier, whispers a few words in his ear, and then the crier just quietly says "bidding is closed" and you have no idea who bought the item or for what price but now you have to try to price similar items.

oangemangut 2y ago
In the case of Dark Pools, it would actually be the crier saying "a lot 10x the size of what I'm auctioning just traded somewhere else where none of you lot can trade for xx price". So after they say that you actually do know the price that they bought the item(s). This is since the dark pools have requirements to report to the trade tapes their trades in fairly similar latency to the exchanges themselves. EDIT: The rules also dictate the allowed prices the dark pools trade at. They have to be within the national BBO, they can't just trade at whatever price they want. So the public auction is actually helping them find the prices, without their pre-trade information affecting the price before execution.
gruez 2y ago
>It's manipulation by definition. These hidden trades exist to prevent other people from being able to act in their own best interest based on available information. So if I have a RTX 4090 to sell (a very sought after commodity these days), and I sell it to my buddy rather than listing it on ebay, I'm doing market "manipulation"?
- wesapien 2y ago
  Depends on the volume
  - gruez 2y ago
    Fine, is OpenAI doing "manipulation" when they buy 10k H100s from nvidia directly, rather than on the open market?

oangemangut 2y ago

If you look up RegNMS the goal is to make public markets fair by having rules that have to be met in order to trade. Dark pools allow participants to 'hide' information that's not public. It is mostly about the order books. If dark pool sell order for 1B of TSLA stock goes on the order book, only other members of the pool get that information. The dark pools are required to still follow RegNMS rules for trade prices, but there is an inherent asymmetry in the market information in this case as the dark pool participants can see the public markets and their dark pool in order to make trading decisions. In your neighbor's house example, it would be like if there was a street market auction for trading cards happening in your neighbor's front yard, but in the house your neighbor and another neighbor had gotten together to trade 100x the average #of cards using the prices they hear from outside, and the people outside only see the deal they made after it's done.

gruez 2y ago
>Dark pools allow participants to 'hide' information that's not public. It is mostly about the order books. If dark pool sell order for 1B of TSLA stock goes on the order book, only other members of the pool get that information. The dark pools are required to still follow RegNMS rules for trade prices, but there is an inherent asymmetry in the market information in this case as the dark pool participants can see the public markets and their dark pool in order to make trading decisions. But traders can easily hide the size of their "true" order by breaking it up into chunks and constantly refilling the order if it's taken? This is basically trading 101. If you want to do a big selloff, you're not going to dump all of that in one order.
- rtkwe 2y ago
  But by breaking up the order they have to wait and the market can move in reaction to their sell off unless they do it very slowly. Dark pools can completely hide a large sell or buy order from the market long enough to execute at the current strike if there's another member in the pool buying. They wouldn't use it if it didn't give them an advantage because it costs more than regular trades.
  - 2y ago

nowayno583 2y ago

Markets are supposed to be decision makers, and having pricing information be public helps firms and other allocators take better decisions. The question at hand is if the flow of information today is so fast that it deters smart decision makers because of other participants who can extract their decisions from them before they can act on them. Wether you believe markets should be more or less opaque should be decided by where you sit on this spectrum imo.

mmooss 2y ago

> 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. Massive public investments and global finance could result in you and your neighbor losing your jobs and houses, and cost you a lot of tax dollars rescuing them. It's happened multiple times. That's why they need to be regulated.

6stringmerc 2y ago

Great points - to put it another way, considering the data is available and investors now have the horsepower to crunch the numbers…why doesn’t Wal-Mart publish their entire inventory for every store in their system in an easy to digest CSV or whatever? Investors deserve to know!!! Or, you know, sometimes people do business behind closed doors because day to day operations aren’t useful in many scenarios.

tester756 2y ago

For me stock market should be about transparency of trades. Of course small trades aren't relevant, but big ones should be visible.

chii 2y ago
i thought these "dark pools" are visible _after_ their trades have completed. The information about someone _wanting_ to buy or sell a large amount, is hidden via the dark pool, so that this order doesn't make the public markets move.
- tester756 2y ago
  Oh, I thought they arent

lmm 2y ago

Public, lit markets are a public good that lifts all boats. If people are feeling the need to move away from them that doesn't mean those individuals are up to no good, but it's a bad sign for the health of the system.

JumpCrisscross 2y ago
> Public, lit markets are a public good that lifts all boats To a point. The benefits of millisecond-grain transparency really stretches my credulity. Let people trade. Make them report it in a reasonable period. The folks who need millisecond granularity will find it. Most economic activity doesn’t need that, and while the liquidity is good, again, I’m not convinced it needs to be publicly disseminated in the way it is now.
- chipsrafferty 2y ago
  Make everyone trade on public lit markets and make the minimum time increment 1 second.

solatic 2y ago

It's insider trading, just with a different class of insiders (i.e. first level of insiders are people associated with the company itself, and the second level of insiders are Wall Street traders with access to non-public pricing signals). Insider trading is illegal because it undermines faith in the fairness of the public market. If insider trading is legal, then market actions by insiders are almost guaranteed to result in the action being a poor deal for the other side. Either the insider is buying shares because they have strong confidence that the price is about to skyrocket (i.e. prior to the announcement of a massive sales deal), in which case the prior holder lost out when they would have preferred to hold; or the insider is selling shares because they have strong confidence that the price is about to crater (i.e. announcing very poor results), in which case the person purchasing the share probably would have preferred not to buy at that price. The end result is that nobody wants to buy or sell shares anymore (since they will get the raw end of the deal) and the market collapses as a result. When companies are privately held, buying and selling shares without insider knowledge (i.e. deals being conditional on due diligence) is much less common, so it's really only a concern for public markets. Public markets absolutely depend on regulators enforcing that information asymmetry is kept to the absolute minimum possible, so that the market will be perceived as fair, so that people will continue to participate.

concordDance 2y ago
> The end result is that nobody wants to buy or sell shares anymore (since they will get the raw end of the deal) and the market collapses as a result. Finance noob question here: has this actually happened? And related, don't non-pro traders basically always lose money on trades but still exist? (I've been genuinely unsure why insider trading by non-decisionmakers is banned, always seemed like it would result in more accurate prices)
- chii 2y ago
  > And related, don't non-pro traders basically always lose money on trades but still exist? by the same token, gamblers also on average lose money, but still exist.
cjpearson 2y ago

chipsrafferty 2y ago

It is perfectly natural to distrust anything you don't know about