Dark Pools are opaque stock trading platforms operated by the largest Wall Street banks and other firms. They are, effectively, stock exchanges but have been given exemptions by the Securities and Exchange Commission (SEC) from having to register as a stock exchange or to submit to more rigorous oversight by the SEC.
The rationale for the existence of Dark Pools owned by the mega banks has escaped the public since these are the same banks that are serially fined for abusing the public’s trust and rigging other markets like foreign exchange, Libor, and the Nasdaq stock market in the 1990s. Their conduct was so bad in the Nasdaq matter that they were forced to submit to having their trading phone calls taped and reviewed by regulators.
Dark Pools are referred to as “unlit” markets because the public can see very little about what is going on. In a speech delivered by Brett Redfearn, SEC Director of the Division of Trading and Markets on June 3 of last year, he said that dark pools “in aggregate,” are responsible for “14 percent of listed equity volume.” That figure does not include over-the-counter stocks. According to a report in the Wall Street Journal using data from the Tabb Group, “the share of U.S. stock trades executed on dark pools and other off-exchange trading venues rose to 38.6 percent in April, the highest level in more than a year,” which was “up from 34.7 percent in December.”
