Items in italics are direct quotes from the articles below
Dark pools are an ominous-sounding term for private exchanges or forums for trading securities; unlike stock exchanges, dark pools are not accessible by the investing public. Also known as “dark pools of liquidity,” they are so named for their complete lack of transparency. Dark pools came about primarily to facilitate block trading by institutional investors, who did not wish to impact the markets with their large orders and consequently obtain adverse prices for their trades. While dark pools have been cast in a very unfavorable light in Michael Lewis’ bestseller “Flash Boys: A Wall Street Revolt,” the reality is that they do serve a purpose. However, their lack of transparency makes them vulnerable to potential conflicts of interest by their owners and predatory trading practices by some high-frequency traders. (See also “How IEX is Combating Predatory Types of High-Frequency Trades.”) Dark pools have been around since the 1980s. Since you may not have heard of dark pools before, I’m going to use a lot of quotes from this article. Consider the options available to a large institutional investor who wanted to sell 1 million shares of XYZ stock before the advent of non-exchange trading. This investor could either (a) work the order through a floor trader over the course of a day or two and hope for a decent VWAP (volume weighted average price); (b) split the order up into say five pieces and sell 200,000 shares per day, or (c) sell small amounts until a large buyer could be found who was willing to take up the full amount of the remaining shares. The market impact of a 1-million sale of XYZ shares could still be sizeable, regardless of whether the investor chose (a), (b), or (c), since it was not possible to keep the identity or intention of the investor secret in a stock exchange transaction. With options (b) and (c), the risk of a decline in the period while the investor was waiting to sell the remaining shares was also significant. Dark pools were one solution to these issues. There are more than 40 dark pools registered with the SEC, made up of three types: broker-dealer owned, agency broker or exchange-owned, and electronic market makers. There are pros and cons of dark pools. The advantages are reduced market impact, and lower transaction costs. The disadvantages are exchange prices may not reflect the real market, pool participants may not get the best price, vulnerability to predatory trading by HFTs, and small average trade sizes reduces need for dark pools. The recent HFT controversy has drawn significant regulatory attention to dark pools. Regulators have generally viewed dark pools with suspicion because of their lack of transparency, and the controversy may lead to renewed efforts to curb their appeal. One measure which may help exchanges reclaim market share from dark pools and other off-exchange venues could be a pilot proposal from the Securities and Exchange Commission (SEC) to introduce a “trade-at” rule. The rule would require brokerages to send client trades to exchanges rather than dark pools unless they can execute the trades at a meaningfully better price than that available in the public market. If implemented, this rule could present a serious challenge to the long-term viability of dark pools. Dark pools provide pricing and cost advantages to buy-side institutions such as mutual funds and pension funds, and these benefits ultimately accrue to the retail investors who own these funds. However, dark pools’ lack of transparency makes them susceptible to conflicts of interest by their owners and predatory trading practices by HFT firms. The recent HFT controversy has drawn increasing regulatory attention to dark pools, and implementation of the proposed “trade-at” rule could pose a threat to their long-term viability.
Big ideas can come in small packages. Take TED Talks, the beloved lectures on technology, entertainment, and design. Some of the most insightful talks take up less than 10 minutes of the viewer’s time. They’re perfect for when you want to expand your horizons and still get to that thing you’ve been meaning to do. Here are some talks to turn to if you want to get smarter in a hurry. “How to speak so that people want to listen” by Julian Treasure. Julian gives six tools to consider when speaking, including pitch, and other factors. Anyone can use the power of words
if he does it intentionally. “Get ready for hybrid thinking” by Ray Kurzweil. Ray Kurzweil, a futurist and inventor, argues that in two decades, human thought will be a mixture of biological and nonbiological processes. According to Kurzweil, the brain would operate the same as it does today, but if you needed some extra juice you’d be able to connect to the cloud for external neural connections — all thanks to nanobots that would live in your brain and connect to that cloud. The remaining suggested TED Talks are: “I listen to color” by Neil Harbisson, “5 dangerous things you should let your kids do” by Gever Tulley, “The next outbreak? We’re not ready” by Bill Gates, “The hidden power of smiling” by Ron Gutman, “Grit: The power of passion and perseverance” by Angela Duckworth, “Let’s try emotional correctness” by Sally Kohn, “Forget multitasking, try monotasking” by Paolo Cardini. Each suggested video is only ten minutes long, but it provides a wealth of information. I suggest that each day you should try to watch or read something new to constantly challenge your mind. Your mind is a muscle too, and it needs to be exercised.
For this week, I’ve included Warren Buffett – How to Stay Out of Debt Forever from Truly Rich Noypi YouTube channel.
“If you think you know it all, you’re a fool for sure; real survivors learn wisdom from others.”
Proverbs 28:26 MSG