Sense on Cents

Kudos to Joe Saluzzi once again. While a number of people in the markets have been pushing for increased oversight of high frequency trading, in my opinion, nobody deserves more credit than Joe Saluzzi of Themis Trading. The pressure initiated by Joe and pushed by others is starting to bear real results. How so?

The highly predatory nature of ‘flash orders’ will likely be discontinued. Now we learn that trading activity in dark pools will also likely be seriously restricted. What are dark pools? Why should you care? If you have an interest in the markets, you should care. Let’s navigate.

I was honored to have Joe join me on August 2nd on No Quarter Radio’s Sense on Cents with Larry Doyle. From my review of that interview, we learned that dark pools have developed in the following manner:

– Originally launched by one or two exchanges for the purpose of allowing major money managers to cross large blocks of stock ‘off the floor’ and thus protect the buyers and sellers identities and the price of the transaction

– Now every dealer and exchange have developed dark pools resulting in more and more business occurring off exchanges and without any benefit of transparency. Who is disadvantged? Those without access to the dark pools.

– Dark pools initially had minimum size orders, but many dark pools have increasingly shifted away from a size requirement.

– Dark pools have developed in such a way that some market participants will abuse the intended purpose of the facility, that is to transact, and instead will look to discover information on pending orders through these dark pools. (more…)