"It keeps the trade anonymous and keeps people from knowing your true intentions," says one trader.
They are particularly popular with traders from money management firms, where the cost of trading can often rise with a large order, particularly if the stock is illiquid.
Analysts estimate only 250 million shares a day are bought and sold in these pools - still a relatively small slice of total volume...but that's up from nearly nothing 6 six years ago. And even more growth could be on the horizon.
The Investment Technology Group (ITG) operates the "Posit System," one of the largest dark liquidity pools around. Bob Gasser, the company’s Chief Executive joins the panel for this conversation.
Who uses these, really?
“The market really changed dramatically back in the mid-1990’s when “Reg ATS” was brought into being by the SEC in response to NASDAQ trading scandals.”
“In the mid-90’s collusion between broker-dealers was discovered…”
“Exactly. (During that time) there was a bucket brigade which consisted of a buy-side trader sending an order to a sell-side sales person who sent it to a sell side trader who sent it to a clerk on the floor on the NYSE who sent it to a broker who went into the crowd and executed it with a specialist.
He adds, “And institutional buyers… grew frustrated.”
Is there liquidity?
“Quite frankly the technology has evolved to the point where we are one of the leading aggregators of all of these dark pools. So when someone comes into ITG they have the ability to not only access Posit, but other liquidity pools. To them it seems like one seemless pool."