Dark pool

As dark pool (also Dark pool of liquidity ) is a banking or - exchanges internal trading platform for anonymous trading of financial products referred to, which is completed outside the open securities trading of the stock exchanges. The dark pools include areas such as Forex (spot currency trading) and CFD ( Contract for Difference ). Dark pools are not subject to the rules and supervision of the European stock exchanges. The central feature of the dark pools is the lack of transparency. The traders are not shown how many securities are being offered or requested at what price. That makes pricing difficult. The exact design of the trading options differs between the dark pools. Most operators of “dark pools” finance themselves through the bid-ask spread , i.e. the difference between the bid and ask prices , and offer the actual transaction free of charge to the user. The fees that are covertly financed over the range can be far higher than those of regulated exchanges. It is time-consuming for traders to compare the exact costs, since the bid and ask prices of a "dark pool" must be compared with the corresponding offer on the stock exchange at precisely this point in time.

Trading transactions that are carried out outside of the stock exchanges but are reported to the stock exchanges (for example block trades) are also counted on the "dark side".

functionality

While the supply and demand for individual securities on most exchanges can be seen by all market participants based on the order book , the available liquidity is kept secret in dark pools. If a trader wants to purchase securities via a dark pool, it is not clear to him whether he can execute his order. A transaction only occurs if another trader wants to sell at least the same number of securities in the same period. The price is typically derived from another exchange. The average value of the highest purchase offer and the lowest sale offer (bid-ask spread) is common here. By definition, the execution of an order is therefore uncertain. In return, the price is cheaper for both the buyer and the seller than on the stock exchange. In addition, the other market participants do not receive any information about the transaction. This is especially relevant when selling large quantities of securities, as changing supply and demand on the stock exchange affects the price.

backgrounds

In contrast to regulated or regulated markets , dark pools have no or only marginal transparency requirements. In the summer of 2008 there were no well-functioning dark pools in Europe and only a few in the USA. At the end of 2009, according to the Financial Times, 1.25 percent of all equity trading in Europe took place via the dark pools of the six major banks that were then active in this business. In the following years, the topic of dark pools became increasingly important in Europe and Asia, as many investors with large order volumes prefer to remain anonymous. Many stock exchanges followed the example of the first providers and initiated new dark pools together with large investment banks . In mid-2009, the US Securities and Exchange Commission ( SEC) was critical of the lack of transparency and threatened regulation.

Worldwide existing dark pools

NYSE Euronext , HSBC and BNP Paribas have been operating a dark pool called SmartPool since the end of 2008 . This handle its clearing through EuroCCP , and settelt via LCH.Clearnet .

Crédit Agricole operates a dark pool called BlocSec through its subsidiary CLSA .

In addition, there is a dark pool operator in New York , Liquidnet , which has access points in Japan , Hong Kong , South Korea and Singapore .

Since August 23, 2010, Deutsche Bank has been operating a dark pool in Hong Kong with the Deutsche Bank Automated Trading System (DBATS) .

The German stock market had spoken reasons of neutrality against the creation of such an offer in 2008, but now offers Xetra midpoint of. The corresponding offer from the Swiss stock exchange is called SIX Liquidnet Service .

Crossing Networks

Crossing networks are trading systems that allow a trading participant (e.g. a major bank) to merge ("match") various customer orders, provided that they match, in order to prevent them from being forwarded to external exchanges . In some cases, these systems also execute customer orders against the respective trading participant's own stocks. This enables participants to save fees. Since these systems do not transparently display the bids and asks in the books, they are also counted among the dark pools.

Even Goldman Sachs operates in Hong Kong since March 2009, a dark pool under the name Sigma X , with the internal "Crossen" is possible by matching trading orders before they are forwarded to external trading venues. The process is also known as internalization .

Credit Suisse also operates such a dark pool with Crossfinder .

Dark Trade

The dark pools represent only a part of the so-called "dark trade". Dark trade is the term used to describe all trade that is carried out over the counter between banks and market participants. “Lit Trade”, on the other hand, refers to trading on regulated exchanges and the Multilateral Trading Facilities (MTF) , regardless of whether it is carried out on the floor or via an electronic trading system. According to the London Association of Chartered Financial Analysts (CFA), at the beginning of 2011 the market share that was traded via Dark Trades in Europe was almost 40% of the trading volume of major European stock exchanges, and even 50% for some of the most important standard indices (including the DAX).

Web links

• Stock trading seeps into dark channels (affects dark pools and other alternative trading systems) Neue Zürcher Zeitung of May 16, 2014. Accessed on May 16, 2014.

See also

• Turquoise
• Multilateral trading system
• Alternative trading system
• Directive 2004/39 / EC on markets in financial instruments (MIFID)

Individual evidence

1. ^ ITG Research: "Are you trading in a toxic dark pool?" ( Memento of the original from April 17, 2012 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 227 kB)  
2. ↑ Markus Diem Meier: Credit Suisse opens the door to the “Dark Pool”. In: Basler Zeitung. January 18, 2010, accessed May 16, 2014 . 
3. ↑ Bloomberg: SEC may force more disclosure about Dark Pools , June 19, 2009.
4. ↑ Smartpool appoints clearing and settlement partners: EuroCCP & LCH Clearnet
5. ↑ Bloomberg: Deutsche Bank Starts Hong Kong Dark Pool as Demand Increases. August 22, 2010.
6. ↑ For reasons of neutrality, Deutsche Börse is not planning a dark pool offer (August 5, 2008)  ( page can no longer be accessed , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice.  
7. ↑ stocktrading.com - sigmax ( memento of the original from April 19, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 612 kB)  
8. ^ Frankfurter Allgemeine Zeitung of February 4, 2011.