One problem that people with a lot of time on their hands like to get worked up about is that academic economists sometimes write papers advocating positions that benefit organizations that give them money, while being coy about that relationship. On the other hand this newish paper about dark pools, which compete for stock trading orders with exchanges like NYSE and Nasdaq, has a first author whose affiliation is listed as “The NASDAQ OMX Group, Inc.,” so that’s fine then. Guess what he thinks? No, kidding, you don’t get to guess, he thinks dark pools are bad, duh.
The study, by Dr. Frank Hatheway, Nasdaq OMX Group; Dr. Hui Zheng, the University of Sydney; and Dr. Amy Kwan, the University of New South Wales, looks at US trading venues with restricted access and without displayed orders – generically referred to as “dark pools” – which increasingly segment order flow in the US. … The authors show that the effects of order segmentation by dark venues are damaging overall price discovery and market quality.
I’m a sucker for market microstructure papers because I like the Hobbesian world they imagine, where everyone is trying to rip everyone else’s face off, and keep their own face on, every nanosecond. Read more »
hello who is it?
Former Online Brokerage Chief Offers Handy How-To-Guide Re: Getting Banned From The Securities IndustryBy Bess Levin
Regardless of what you think of the Securities and Exchange Commission, a good rule of thumb is that if you are regulated by the agency, you probably don’t want to go out of your way to unnecessarily insult and/or anger it. In fact, to play it safe, you might want to just show the place complete and total deference, whether you’re violating its rules or not. This is an attitude that many investment professionals have adopted over the years, some of their own volition, others by strong advisement. Then you have Sheldon Maschler. The former chief trader of Datek Online, who in 2003 paid a $29.2 million fine and was banned from the securities industry, took a different approach. From Wall Street Journal reporter Scott Patterson’s new book, Dark Pools: Read more »
Goldman Sachs, Morgan Stanley and UBS said this morning that they have agreed to share their “dark pools,” the trading arenas used by institutional investors seeking to trade large blocks of stocks without alerting the broader market about such moves. All of the major investment banks operate dark pools, with Goldman Sachs widely thought to be the industry leader.
Dark pools have been criticized as sapping transparency from the market, perhaps making pricing less efficient and certainly creating more uncertainty about the actual volume of shares trading hands. Large trading orders are broken into smaller pieces and matched to other orders by computers. Traditionally this has been done internally within each individual bank. Under the plan announced today, Goldman, UBS and Morgan Stanley will allow for the secretive trading to take place between their clients. The pools are Goldman’s Sigma X, Morgan Stanley’s MS POOL and UBS’s PIN ATS.
The move threatens to take business away from the public stock exchanges and furthers consolidation in the brokerage industry, as the large investment banks with many clients are obviously best positioned to employ dark pools. Dark pools now account for some 10 percent of equities trading in the United States, and more than 20% of all trades in New York Stock Exchange-listed stocks.
Goldman, UBS and Morgan Stanley agree on dark pools [Reuters]