Darkpools.

Paul71 · May 18, 2007

What are they hiding for? Do darkpools harbour the obligatory 'dumb money' participants?
Or are darkpools proof that something else, something foul, something underhand is and always has been simmering below the surface of the markets?

Thanks.

PS. If there is another thread about this subject i would like to know, i didn't actually look for one before i started typing away.

options · May 19, 2007

What are darkpools?

Ease up on those lines son. lol

Paul71 · May 19, 2007

Mornin' Options.

To be honest, i only read a bit about them last night, but here goes...

They are vast amounts of shares being exchanged between anonymous companies, but not on the exchanges, it's not for viewing (for some reason).

Put 'darkpool' into google, this will explain better than me.

Always a cynic.(where money is concerned)

Good trading.

Paul71 · May 19, 2007

Darkpools.

Designed to provide/search for liquidity for big money algo trading.

Provides anomynimty.

Not thoroughly regulated.

Will these pools fragment market valuation and efficiency?

Where will that leave the retailers and the markets traded by the retailers?

If any members know more on this subject i would like to hear about your thoughts and feelings about darkpools and their impact on todays markets.

Thankyou.

PS. Who buys vast amounts of overvalued stock? It's not dumb money thats for sure. What do these corps/institutions do with all this rubbish stock once they have them?
Do they wait for years? Sell them back years later? Are institutions/corporations working on huge timeframes? When will liquidity end? Will liquidity go parabolic? What am i on about?

alexander · May 19, 2007

linesniffer said:
Or are darkpools proof that something else, something foul, something underhand is and always has been simmering below the surface of the markets?

No, it's like a real-estate broker. You can try to sell or buy a home yourself but going to an broker and paying the fee offers you many alternatives in exchange.

Dark pools match buyers and sellers of large blocks of stock. Prices are based on exchange traded prices.

Dark pools help maintain stability in the markets because the transfer of large blocks outside of the exchanges prevents sudden increases/decreases in liquidity and resulting imbalances.

It's just another way of doing large block transfers that always took place but it provides anonymity these rich people desire.

In the US there are about 10 of those dark pools last thing I read someplace, I think it was business week magazine.

Alex

Alex

options · May 19, 2007

Thanks for the explanation Alexander, I know what Linesniffer is on about now.

Us old 'un know it as when the larger players didn't have the capital to make a purchase they wanted so they went to the big banks to borrow money to buy the shares they wanted, then pay the banks back from the profit they generated. That's a rough example.

Splitlink · May 19, 2007

options said:
Thanks for the explanation Alexander, I know what Linesniffer is on about now.

Us old 'un know it as when the larger players didn't have the capital to make a purchase they wanted so they went to the big banks to borrow money to buy the shares they wanted, then pay the banks back from the profit they generated. That's a rough example.

Doesn't always mean that they have made money, though. Could I mention, as an example, Mercedes purchase of Chrysler, which must have taken billions and, now, the sale of their share to another company at a loss of 2 billion.

Split

Paul71 · May 19, 2007

alexander said:
No, it's like a real-estate broker. You can try to sell or buy a home yourself but going to an broker and paying the fee offers you many alternatives in exchange.

Dark pools match buyers and sellers of large blocks of stock. Prices are based on exchange traded prices.

Dark pools help maintain stability in the markets because the transfer of large blocks outside of the exchanges prevents sudden increases/decreases in liquidity and resulting imbalances.

It's just another way of doing large block transfers that always took place but it provides anonymity these rich people desire.

In the US there are about 10 of those dark pools last thing I read someplace, I think it was business week magazine.

Alex

Alex

Thanks Alex.

Sigma X, is one of them companies. I may stop using IB and switch to Sigma X.

Should the transactions be private?

What are the companies like Sigma X, getting out of this type of business?

Imformation?

What do they do with this info,...sell it on?

Thanks.

grantx · May 19, 2007

When one is called out of the blue by a stranger recommending a stock that will fly, its origin will be similar. Someone has a big line in a crock and can’t dump it on the market without depressing the price. So they’ll contact one of the bucket shops and offer it at a substantial discount to the bid. The bucket shop will then sell it to unsuspecting clients at the offer plus a comm and clean up.

At one time off-exchange trades could be facilitated by a simple stock transfer sheet. However, given the degree of regulation I’m surprised this still goes on.

Grant.

options · May 19, 2007

Ta Split.

I know you are well up on the shares scene. It was also a way for the larger players to go short shares. The forerunner to the sb company?

Just gogled Sigma X.

It comes from Goldman Sachs; Your getting well into the big boys league to even think about using that.

Paul71 · May 19, 2007

grantx said:
When one is called out of the blue by a stranger recommending a stock that will fly, its origin will be similar. Someone has a big line in a crock and can’t dump it on the market without depressing the price. So they’ll contact one of the bucket shops and offer it at a substantial discount to the bid. The bucket shop will then sell it to unsuspecting clients at the offer plus a comm and clean up.

At one time off-exchange trades could be facilitated by a simple stock transfer sheet. However, given the degree of regulation I’m surprised this still goes on.

Grant.

Hi Grant.

That's always something i've thought about but never took the time to look into, discounts on stock.

How does a market allow for discount in it's valuation? What is the typical size of discount % wise, i think of discount as a price being typlically sold down to that level but without the selling. Do i make any sense?

grantx · May 19, 2007

Paul,

As it’s a private, off-exchange trade, the market will be in ignorance thus no effect. However, some positions are known which are off-market. For example, one reads in market reports that a stock rallies due to a overhang in the market, ie a major broker has cleared a large position off its books (sold it to clients).

So what is the difference between the dodgey operators and the large institutions? Not much – they’re doing the same thing but the institutions have the facade of credibility and respectability. I honestly believe fund managers are the worst perpetrators of this. They’re unquestioned legitimacy allows them to pile their discretionary clients into any shtie. They're returned favours: “I’ll help you if you help me”.

Grant.

Paul71 · May 19, 2007

Grant,

Firstly thanks for the reply. This sounds almost illegal, a large institution surely cannot buy stock from a 'ligit' market, if you like, move the price, then basically sell off the stock behind closed doors not even putting the stock up for 'sale' on the market in which it bought them from in the first place. To me that just blows apart what the markets are all about, or should i say what i thought they were all about.

Good trading.

alexander · May 19, 2007

options said:
Thanks for the explanation Alexander, I know what Linesniffer is on about now.

Us old 'un know it as when the larger players didn't have the capital to make a purchase they wanted so they went to the big banks to borrow money to buy the shares they wanted, then pay the banks back from the profit they generated. That's a rough example.

You may find this article in MarketWatch interesting.

Alex

grantx · May 19, 2007

Paul,

As far as I know, there is nothing illegal here as long as the stock is traded at a price equal or better than the market. So, one could buy below the market offer price or sell above the market bid price, but not vice versa.

However, if the size of a trade is above the normal size then I suspect it’s open to negotiation, hence share pushers loading up on penny stocks at good prices.

In the final analysis, it would be naive to assume there aren’t any questionable methods pushing the boundaries of best-practise. That said, I think we can still maintain our faith.

Grant.

new_trader · May 19, 2007

grantx said:
Paul,

As far as I know, there is nothing illegal here as long as the stock is traded at a price equal or better than the market. So, one could buy below the market offer price or sell above the market bid price, but not vice versa.

However, if the size of a trade is above the normal size then I suspect it’s open to negotiation, hence share pushers loading up on penny stocks at good prices.

In the final analysis, it would be naive to assume there aren’t any questionable methods pushing the boundaries of best-practise. That said, I think we can still maintain our faith.

Grant.

Isn't this what Malcolm Glazer did during his takeover of Manchester United?

http://en.wikipedia.org/wiki/Malcolm_Glazer_takeover_of_Manchester_United

"On 12 May 2005, Glazer reached an agreement with shareholders J. P. McManus and John Magnier to purchase their 28.7% stake in the team, giving him a controlling stake with just under 57% of the team's shares."

Or have I completely misunderstood dark pools?

maybe I have...I suppose this wasn't an anonymous transaction...

grantx · May 19, 2007

I just googled ‘Dark pool’ and did a quick read.

This is an old practise and far from sinister as may have been implied. When I was in stockbroking the practise was known as making an ‘agency-cross’, or a ‘matched bargain’ ie you had a buyer and seller of stock XYZ and matched them (don’t know if the broker kept the spread, though).

As mentioned in the google article, this is cheaper than trading through the exchanges. However, the lack of transparency could be a double-edged sword; while anonymity may be advantageous, if something is amiss there has to be a case for public disclosure.

NT,

I haven’t checked the price Glazer paid for his stakes but I suspect it would have been at a premium. Given his history, I doubt McManus and Magnier would have settled for less – I’m sure there was a Russian oligarch or two waiting to step in should he have failed.

Grant.

Splitlink · May 20, 2007

options said:
Ta Split.

I know you are well up on the shares scene. .

I've got a lot of experience. Take that how you like

But I am willing to post my numerous mistakes for others not to follow

Split

options · May 20, 2007

alexander said:
You may find this article in MarketWatch interesting.

Alex

Thanks Alex.

Very interesting article.

Paul71 · May 20, 2007

Thanks for the input guys. I guess darkpools are not the sinnister and underhand shadow of the markets that i first thought they were. Then again, if there was anything untoward in the nature of darkpools i'm sure they would not be advertised all over the internet? Food for thought though, at least.

Thanks.

Darkpools.

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