One of those little noticed news items from last month has been keeping me awake. That is the probe into the huge “dark pool” run by Barclay’s Bank. Sometimes, when large institutional investors need to buy or sell large stock positions, it can cause the stock market to move suddenly and irrationally. So, “dark pools” were developed where these positions could be traded in private, which is quite legal. Large banks handle the BUYS and SELLS between their customers directly, avoiding the sunshine at the New York Stock Exchange and other exchanges. Today, 37 percent of all stock trades are secret.
Of course, secrecy breeds conspiracy theories, and there have been many. This probe also involves high-frequency trading (HFT), which has been discussed in this blog frequently. HFT is also not illegal, but this unholy marriage of high-frequency trading inside secret pools does keep me awake at night!
Unfortunately, this probe is not aimed at the practice but is instead aimed at whether Barclay’s was honest about it. I wish it was instead aimed at the unholy marriage .