As Summer Temperatures Rise, Dark-Pool Volume Climbs Higher

Traders Magazine ^ | 07/18/08 | Nina Mehta

[TigerLikesRooster]

As Summer Temperatures Rise, Dark-Pool Volume Climbs Higher

By Nina Mehta

July 18, 2008

Dark pools are on a hot streak. They're tearing through volume records and turning into big-league market centers in their own right.

Goldman Sach's Sigma X dark pool yesterday executed 406 million shares, making it the seventh-largest market center for U.S. equities. That put Sigma X in line behind Nasdaq, NYSE Arca, the New York Stock Exchange, BATS Trading, Direct Edge ECN and the National Stock Exchange. And ahead of all other venues.

Sigma X's volume is up 100 percent over the last seven weeks, according to Rishi Nangalia, head of product development at Goldman Sachs Electronic Trading. "It's a virtuous circle," he said. "We have more volume passing through from more clients and their algos, and as a result of higher fill rates, we get more flow, which in turn further increases the match rates." This surge is taking place against a backdrop of higher equity market volume overall and greater volatility.

[TigerLikesRooster]

Ping!

[Onelifetogive]

"It's a virtuous circle," he said.

What??? Spell-check said it was ok...

[kms61]

a reverse-Freudian slip.

[FreedomPoster]

So help me out. What’s the issue here? Reduced transparency in an important part of our financial system?

[beebuster2000]

explain “dark pool” please

[TigerLikesRooster]

Right.

[TigerLikesRooster]

A bunch of big players get together, and runs their own non-public exchange via computer software. There are several of them and their number is growing. They can move stuff without others finding out about it. It could create multiple compartmentalized market with different prices for a same item. Those prices are known only to those in the pool.

So a bunch of stuffs could be unloaded in one dark pool, but those in public stock exchange or other dark pool venues do not know what is going on. People may trade things assuming their price is high, but in reality, it can be low.

Price as a market signal for demand and supply breaks down.

[dirtboy]

Yep. Looks like another opportunity for something to blow up because of lack of transparency.
And our good buddies at GS are once again leading the way.

[Ron Jeremy]

It could create multiple compartmentalized market with different prices for a same item. Those prices are known only to those in the pool.

Nah.. all they can hide is volume. Prices won't be different as different prices create an arbitrage opportunity that these quants would quickly make disappear.

[TigerLikesRooster]

I heard price-finding itself became a complicated affair.
People and computer softwares guessing accurate prices in other venues ahead of others.

[Right Wing Assault]

Sorry. “Dark pool” is a racist term. Have to come up with something else.

[TigerLikesRooster]

How about “#000000 pool”?
Of course, “#FF0000 pool” would be “red pool.” :-)

World is getting needlessly complicated thanks to liberals.

[JohnLongIsland]

its like anything else: don’t be the last one holding the bag.

[Entrepreneur]

Reduced transparency creates the potential for much mischief. Goldman Sachs seems especially prone to favor dark markets, having been a prime operator in dark market commodities speculation (and manipulation?). I'm starting to fear Goldman, Morgan Stanley, and J.P. Morgan more than al-Qaeda.

Here are some links for anyone curious...

Bourses lose business to the 'dark pool'

Everybody Into the Dark Pool

'Dark Pools' Threaten Wall Street

Transparency is good for the public and essential for the small investor.

I wonder how many ex-Enron employees work at Goldman Sachs. Goldman sure seems to be executing the things Enron executives planned, but never got a chance to perform.

In the past Wall Street has performed a necessary function by efficiently matching capital with enterprise. Today, however, Wall Street is a collection of overly smart people (not as smart as they think they are) with little understanding of the companies and industries they're playing in, but an excellent understanding of the numbers. This results in short-term investment thinking, which is purely by the numbers, because they don't understand how real companies generate wealth and how to recognize long-term potential.

In short, we've got a bunch of people who make nothing, build nothing, distribute nothing, warehouse nothing, and know next to nothing about real business. But, they control vast sums of money and their greed and monopoly games are threatening to wreck the country and world's economies. These are the guys who helped create the sub-prime mess and the run-up in commodity prices.

[/conspiracy theory][/rant]

[NVDave]

Wait a sec — isn’t the whole point of dark pools to hide the trade (especially, as you say, the volume) because seeing a huge block of shares traded on the open exchanges would move the price?

They’re hiding the volume so as to prevent market reaction (ie, price changes). They might not be affecting the overall price setting of an issue, but they’re trying to get preferential pricing on their trade.

[headsonpikes]

In short, we've got a bunch of people who make nothing, build nothing, distribute nothing, warehouse nothing, and know next to nothing about real business. But, they control vast sums of money and their greed and monopoly games are threatening to wreck the country and world's economies. These are the guys who helped create the sub-prime mess and the run-up in commodity prices.

As if lawyers weren't curse enough on society!

/abridged rant

[JohnLongIsland]

In short, we've got a bunch of people who make nothing, build nothing, distribute nothing, warehouse nothing, and know next to nothing about real business. But, they control vast sums of money and their greed and monopoly games are threatening to wreck the country and world's economies. These are the guys who helped create the sub-prime mess and the run-up in commodity prices.

how wrong, the congress created this mess by basically giving people unworthy of home ownership homes. what's the old adage? what do you call a person who puts zero percent or a couple of thousand down on a house? a renter.

[GOPJ]

So a bunch of stuffs could be unloaded in one dark pool, but those in public stock exchange or other dark pool venues do not know what is going on. People may trade things assuming their price is high, but in reality, it can be low. Price as a market signal for demand and supply breaks down.

Sounds like what's happening with oil - but I don't believe this is done with commodities, is it?

[TigerLikesRooster]

Dark pool puts one more layer of veil on the market, and it is a thick veil, too. As if we would not already have enough problem with price signal with speculative demand in the market.