Dark Pools: Where's the Transparency?
Dark Pools Background:
- Dark pools refer to electronic liquidity pools that do not display quotes in consolidated quote data. They match buy and sell interest without exposure to an exchange auction market.
- Dark pools exist in stocks but not in options. In the options market, all orders must be marked on an exchange, thus providing price transparency. In stocks, orders can bypass an exchange, thus the name "dark pools" of liquidity.
- According to the SEC, active dark pools trading National Market System (NMS) stocks have grown from about 10 in 2002 to 29 in 2009. For the second quarter of 2009, trading volume of these dark pools was approximately 7.2% of total share volume in NMS stocks.