4 ms·

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' inf

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.
  - gruez 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 it kinda works out because the other side is also smart and will also break up their orders. Putting in a massive buy order is a good way to pay through the nose.
thaumasiotes 2y ago
> 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. Isn't that how everything is traded? Am I supposed to be outraged that everything I buy retail also exists in a wholesale market?
- oangemangut 2y ago
  For these institutional traders, the pools offer them opportunities to trade with a small set of counter parties that also have deep deep liquidity, so in a sense it is kind of like the wholesale markets for retail. Orders hit the book in the pool and they don't have to worry about 'current retail' stock and can trade massive blocks with trade certainty.
roenxi 2y ago
And what would the problem be with that example? It seems everyone has agreed on a fair price and is trading on it. There isn't any incentive for the private traders to trade at a different price or one of them is getting ripped off due to the arbitrage potential. And they don't believe that publicising the trade would move the price or - again - one of them would have an incentive to do so because it'd move in their favour. I don't see how I'd be disadvantaged as any actor in that scene.
- hattmall 2y ago
  You are disadvantaged as an outsider because you don't know who is buying or selling and how much they are trading. You don't know the demand levels at various price points. If, for example, you want to buy Stock A which is currently trading for $5 and sell it for $6, but there is someone trying to sell 5 million shares for $5.05 but you can't see that you can't make an informed decision on ideal price points for your trade.
  - Dylan16807 2y ago
    > you want to buy Stock A which is currently trading for $5 and sell it for $6 It sounds like I'm asking for a pony in this scenario. I shouldn't expect to get that. If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough.
    - nairboon 2y ago
      > If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough. It does, it means that you could've gotten the stock for maybe $4.9 instead of $5.
      - roenxi 2y ago
        ^_~ How? Nobody was selling it for $4.90 in that example.
JumpCrisscross 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 That was the goal and it failed at it in everything but the most technical sense. Why two people coming to a handshake deal about the price of their property is illegal is insane. I previously bought the argument about propensity for fraud. But if we’re normalising crypto, there is zero need to continue treating stock like it’s radioactive.
rcxdude 2y ago
>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. I mean, that's literally what happens with trading cards. It's super common to base face-to-face deals (whether for cash or trades) on internet pricing, including very big ones. (the trading card market is a lot less liquid, though, so it's also common for there to be a fairly big discount or premium on those prices in the deal for various reasons)

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.
- gruez 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 it kinda works out because the other side is also smart and will also break up their orders. Putting in a massive buy order is a good way to pay through the nose.

thaumasiotes 2y ago

oangemangut 2y ago
For these institutional traders, the pools offer them opportunities to trade with a small set of counter parties that also have deep deep liquidity, so in a sense it is kind of like the wholesale markets for retail. Orders hit the book in the pool and they don't have to worry about 'current retail' stock and can trade massive blocks with trade certainty.

roenxi 2y ago

And what would the problem be with that example? It seems everyone has agreed on a fair price and is trading on it. There isn't any incentive for the private traders to trade at a different price or one of them is getting ripped off due to the arbitrage potential. And they don't believe that publicising the trade would move the price or - again - one of them would have an incentive to do so because it'd move in their favour. I don't see how I'd be disadvantaged as any actor in that scene.

hattmall 2y ago
You are disadvantaged as an outsider because you don't know who is buying or selling and how much they are trading. You don't know the demand levels at various price points. If, for example, you want to buy Stock A which is currently trading for $5 and sell it for $6, but there is someone trying to sell 5 million shares for $5.05 but you can't see that you can't make an informed decision on ideal price points for your trade.
- Dylan16807 2y ago
  > you want to buy Stock A which is currently trading for $5 and sell it for $6 It sounds like I'm asking for a pony in this scenario. I shouldn't expect to get that. If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough.
  - nairboon 2y ago
    > If I want to buy at $5 and hold it for more than a day, I don't think the secrecy of that big sale really affects me. It'll be over soon enough. It does, it means that you could've gotten the stock for maybe $4.9 instead of $5.
    - roenxi 2y ago
      ^_~ How? Nobody was selling it for $4.90 in that example.

JumpCrisscross 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 That was the goal and it failed at it in everything but the most technical sense. Why two people coming to a handshake deal about the price of their property is illegal is insane. I previously bought the argument about propensity for fraud. But if we’re normalising crypto, there is zero need to continue treating stock like it’s radioactive.

rcxdude 2y ago

>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. I mean, that's literally what happens with trading cards. It's super common to base face-to-face deals (whether for cash or trades) on internet pricing, including very big ones. (the trading card market is a lot less liquid, though, so it's also common for there to be a fairly big discount or premium on those prices in the deal for various reasons)