Dark Pools
Facts:
Dark Pools: Trading pools without transparency. The investors involved, usually large institutions, can trade in secret without informing the public of their transactions. Prices are driven by publicly traded information but have no public visibility.
Since this is a new hot issue with the SEC we thought we’d weigh in a little bit on this issue.
In order to get a sense of what’s really going on we decided in this month’s blog post to show the “Pros” and “Cons” of Dark Pools.
Please feel free to comment if you disagree or even applaud some of what we’ve found.
Argument For Dark Pool Oversight:
• In order for there to be ‘Fair Trade,’ there needs be transparency and assurance in publicly traded stock.
• The allowance of Dark Pools and their increased trend would undermine the Sarbanes-Oxley Act of 2002 which was designed to promote transparency and assurance.
• The opacity of the dark pool allows a ‘two tiered market’ where one group (participants of the dark pool) will have privileged information that those outside the dark pool would not.
• This transparency would allow for an actual free market equilibrium that the current opacity and the increased growth of Dark Pool would inhibit.
• Dark Pools become similar (if not the same) as illegal insider transactions where only a privileged few have access to information that the public at large does not have access to.
Argument Against Dark Pool Oversight:
• Not disclosing these large trades by institutional investors prevents others to unfairly capitalize on their large transactions. For example, if CALPERS were to “dump” a few million shares of their holdings of eBay, then the rest of the market would “feel” they know something the rest of them don’t therefore causing the stock to take a dump in price more often than not on wrong information, and they are “emotionally” selling their shares because an institutional investor sold off their shares.
• Technically restricts a free market economy by increasing regulation. This increased regulation restricts the market from finding its own true equilibrium considering that the actual market equilibrium is one that was ‘guided,’ by shining a light onto the dark pool so to speak.
• If the two tiered market is what the free market is tending towards, it may be due to a socio-economic need that the SEC may not be aware of. (Structural Functionalist argument).
In conclusion, dark pools have existed without much of a ripple in our free market society. However, given new political climate of “reform” and “yes, we can make change” it seems like Wall Street will have to bend to new regulations on these dark pools. We’d like to hear from you all and get your feedback on whether dark pools should or shouldn’t be more regulated?
References:
Securities and Exchange Commission, 2001. ‘SEC Issues Proposals to Shed Greater Light on Dark Pools.’ Available at: http://www.sec.gov/news/press/2009/2009-223.htm Accessed November 03, 2009
Securities and Exchange Commission, 2001. ‘Insider.’ Available at: http://www.sec.gov/answers/insider.htm Accessed November 03, 2009
Benyon, D. 2009. OTC derivatives face Mifid II ‘ripples-black-pool-185×114.’ Available at:
http://www.risk.net/oprisk-and-compliance/news/1557020/otc-derivatives-mifid-ii
Accessed November 03, 2009
April 20th, 2010 at 11:32 am
Мне кажется это отличная идея. Полностью с Вами соглашусь….
Since this is a new hot issue with the SEC we thought we’d weigh in a little bit on this issue.
In […….
May 17th, 2010 at 9:24 pm
dibility-405…
хороший сайт посвящен бизнесу здесь http://cook495.ru/, заходите, не пожалеете…
June 13th, 2010 at 2:41 am
Браво, эта мысль придется как раз кстати…
http://rel” rel=”nofollow”> Prices are driven by publicly traded information but have no public visibility…..