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The Almighty Buck Technology

Computer Trading and Dark Pools 222

Posted by samzenpus
from the quick-money dept.
Bob the Super Hamste writes "CNN Money has an article on computerized trading; specifically, the non-public markets that are often used to execute orders. The company that the article discusses executes 1/8 of all stock trades in the U.S., or about 900 million trades a day. For comparison, the NYSE executes about 700 million trades. The article discusses 'dark pools,' or private markets where quotes aren't disclosed to the broader public markets. If the company is unable to fill an order from within its own dark pool, it will submit the order to the broader public market (13 public exchanges), as well as up to 20 other private dark pools. The quotes offered by the private dark pools, by law, have to be the same or a better quote than those offered on public exchanges. There have been recent questions about whether the quotes provided by dark pools have been the best for customers and there is a current investigation by FINRA into the methods used by market makers and dark pool operators to fill orders."
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Computer Trading and Dark Pools

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  • by i kan reed (749298) on Monday July 08, 2013 @11:46AM (#44216887) Homepage Journal

    If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.

    • by dintech (998802)
      Actually it's doing an end-run around exchange fees and showing your hand to the market. All trades are publicly reported anyway, just not the quotes of where you are sitting in the market.
    • by ackthpt (218170) on Monday July 08, 2013 @12:06PM (#44217057) Homepage Journal

      If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.

      If Mitt had been elected, this would be cheered on by the Whitehouse as good and normal capitalist activity and the FINRA would be disbanded.

      • Re: (Score:3, Insightful)

        by Anonymous Coward

        If Mitt had been elected, this would be cheered on by the Whitehouse as good and normal capitalist activity and the FINRA would be disbanded.

        That's because Mitt and the people who agree with him on economics are FUCKING MORONS.

        If you got rid of FINRA, the entire stock market would be open for fraud by companies like Enron, and the whole market would be expected to become "Screw you, because I just did".

        These guys want some drooling idiot version of anarcho-capitalism where if the bank rips you off from your

        • by g0bshiTe (596213)
          So then bankers would become like the politicians? Say it ain't so!
          • by ackthpt (218170)

            So then bankers would become like the politicians? Say it ain't so!

            Why be like them, it's cheaper to just buy politicians.

            Remember when Post-2008 banking regulations were proposed, the sort which were enacted after 1929 when some of the same dirty practices were in effect? Didn't a whole load of House representatives object to and fight better oversight of banks? Sure makes you wonder who in their home districts they were pretending to represent. I'd have been down to my reps office with a boiling vat of tar and a bag of feathers had he tried that.

        • Re: (Score:2, Insightful)

          by dkleinsc (563838)

          That's because Mitt and the people who agree with him on economics are FUCKING MORONS. ...

          That particular view of capitalism wants corruption, cheating, and outright theft to be rewarded, and is only advocated for people who would immediately start acting corrupt, cheating, and outright stealing. All these idiots who are worshiping at the altar of unrestricted capitalism basically want to get rid of the rules which keep them honest.

          Umm, I think you just answered your own question: Mitt, who built his fortune on various forms of cheating and theft, wants to get rid of the rules that might stop him from continuing to cheat and steal. And he definitely doesn't want to be honest.

          • No, at a certain point, it becomes about ego. "Look at all I own, I deserve the presidency." It's hard to imagine this, but there is such a thing as so much money that you can do whatever you want, period and Romney was well past that threshold. He didn't need more money. He needed a way to feed his ego when there were those who were richer than him.

        • by swb (14022)

          I'm fine with that form of anarcho-capitalsm because I presume it comes with enough lawlessness that I can reclaim (or attempt to reclaim) my funds through the barrel of a gun.

          It's one thing to lie and cheat and then hide behind the protections of civil society, it's quite another to lie and cheat when there's no protection of civil society.

          • by ktappe (747125)
            >I presume it comes with enough lawlessness that I can reclaim (or attempt to reclaim) my funds through the barrel of a gun Of course you can't, because you're not rich enough for the laws to not apply to you.
        • Re: (Score:2, Insightful)

          And people like you are under the impression that government involvement is any better than no government involvement. Enron Happened. Housing Market Happened. Multiple other scams have happened, all under the watchful eye of Government. Yet I don't see you blaming government for their lack of oversight. I wonder why that is.

          And if you think big government is okay, then you're probably fine with big government spying on people, targeting people by the NSA, IRS etc, while shirking any responsibility by sayin

          • by Tailhook (98486)

            Housing Market Happened

            The US government invented MBSs [wikipedia.org]. The US government made the MBS market via fannie, freddy and the whole clan of bubble inflating quasi-government enterprises buying trillions [wikimedia.org] in MBSs. Government is the reason mortgages became liquid assets. Prior to then mortgages were balance sheet assets held by deposit banks and Wall Street didn't get to play with them.

            then you're probably fine with big government spying on people

            These goose stepping lefties have no problem indulging double standards. They cheered Obama on as he created the CFPB [wikipedia.org] to sift through all electronic f

        • FINRA is a private corporation. Pretty sure that's the kind of thing Republicans like.
        • by stenvar (2789879)

          These guys want some drooling idiot version of anarcho-capitalism where if the bank rips you off from your life savings that's your problem.

          Instead, Obama and progressives want some drooling idiot version of a "social market economy", which in practice means ineffective regulation, the occasional sacrificial lamb for propaganda purposes, and complete protection of these cozy little fraudulent oligopolies from competition through onerous regulation.

          I can't speak for Mitt, but what I want is to get rid of the

      • What does that have to do with anything?

        Might as well have said "If Emperor Palpatine was elected, he probably would have laughed that creepy little laugh of his and then destroyed Alderaan."

        Yes, you're probably right. However, Mitt is not president. You don't need to worry about him being elected in 2012, because it's over. We still have lots of real problems.

        To your point however, I also observe that Obama does not seem to have any problems with Wall Street practices either. It's almost like
        • by ttucker (2884057)
          So they are just two pieces of bread with shit on one side? That sounds like a fairly lucid analysis.
      • by DarkOx (621550) on Monday July 08, 2013 @12:46PM (#44217419) Journal

        So to make sure I understand you correctly. What you are saying is Obama and his management of financial regulations is so pathetic, and shamefully corrupt; your only option is to compare his actions to other hypothetical time lines to make him look better. Got it.

        • That pretty much sums it up. This comes from someone who voted for Obama in 2008, and voted Green in 2012, so I'm not exactly a rabid right-winger upset that Mitt didn't get elected. I'd vote for the Democratic party if it was still around.

        • So to make sure I understand you correctly. What you are saying is Obama and his management of financial regulations is so pathetic, and shamefully corrupt; your only option is to compare his actions to other hypothetical time lines to make him look better. Got it.

          Well, this is the shit sandwich that passes for political choice in our era. And this article about dark pools pretty much exemplifies exactly what is happening (and has been happening) in Washington DC - the public side is a side-show only dealt with by the power players when the real "behind closed doors" private power-trading doesn't pan out.

          When this is the case and when the two parties are being bankrolled by the private dark-pool players... well, you see where this is headed.

      • by Anonymous Coward on Monday July 08, 2013 @12:52PM (#44217451)

        If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.

        If Mitt had been elected, this would be cheered on by the Whitehouse as good and normal capitalist activity and the FINRA would be disbanded.

        Well, if Obama had been elected, he would have just ignored the law anyway [washingtonpost.com]. Just like he did with his own health care reforms.

        And then taken the Fifth [nytimes.com]. Just like his IRS attack dog did.

        Then the most transparent administration evah would secretly transfer all records to the CIA [cbsnews.com] so they could avoid FOIA requests.

        I guess it's a good damn thing Obama didn't get elected. Imagine those corrupt tyrants reading all your emails.

        That could never happen in the US of A. There aren't that many USELESS FUCKING IDIOTS more than willing to be fooled over and over again, now are there?

    • by geekmux (1040042) on Monday July 08, 2013 @12:26PM (#44217259)

      If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.

      And apparently after the financial meltdown of 2008 and the new rules surrounding those who are deemed "too big to fail", if the question arises regarding who will be punished for such activity to the point of preventing it from happening again, the answer will always be good luck with that shit.

      • by phantomfive (622387) on Monday July 08, 2013 @01:49PM (#44217951) Journal
        Paul Volcker had the right answer, IMO.

        He said, "We may not always be able to prevent collapses, but any bank that is too big to fail (ie, any bank that takes government money) needs to be broken up and sold off in pieces to prevent it from happening again."

        The way things are now, we're just waiting for another collapse. Nothing was fixed from the last time.
        • by rhekman (231312)

          Paul Volcker had the right answer, IMO.

          It's a shame more people don't pay attention to Volcker.

          I also think it's a shame /. commenters string together a series of cuss words and add the word "capitalist" and get modded up. Instead, how about we have an intelligent discussion about whether this trading practice promotes bad ethics or somehow hides information from customers or trading partners.

          Also, since this is supposedly a technology site, can we discuss whether the fact this trading is computerized somehow makes it unique from other

          • Well, I understand the dislike for cursing in place of meaningful debate, but there's a lot of legitimate criticism to be had about modern incarnations of free-market capitalism, especially where social responsibility of investors/capitalists is a factor. I'm not saying there's a clearly better system, but there is a "religion of the free market" that reminds me a lot of how soviet true-believers used to think "true communism" was just around the corner.

            • Definition of "social responsibility:" the things the speaker thinks a corporation should do.

              That's why you run into problems discussing social responsibility, it has too many definitions. Much like morality and ethics.
    • by Jawnn (445279)

      If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.

      But that's the "free market" at work. How dare you suggest that taking advantage, even extremely unfair advantage of suckers is somehow wrong. That's just..., just... un-American.

  • Why is this making me think of private torrent trackers?

  • That's going to be the new financial mumbo jumbo that will destroy the economy again in another 10 years or so??

    • At least this one sounds sufficiently evil. "Secured Debt Obligation" sounds like it should be secure. "Credit Default Swap" sounds confusing, and probably not something you would want to mess with ("Why would I want to swap defaults?"). But Dark Pools? That sounds good and evil.
    • Re:Dark pool, eh?? (Score:5, Insightful)

      by Teancum (67324) <robert_horning@ n e tzero.net> on Monday July 08, 2013 @12:29PM (#44217285) Homepage Journal

      This isn't really any voodoo here, and it is something stock brokerage companies have been doing for decades or even from the very beginning. If you have two customers where one customer is trying to unload some stock and another is trying to buy the same issue of stock.... why not simply exchange the stock certificates between the two customers without having to go through the big stock exchange?

      The point is that these trading companies sometimes have thousands of trades going on all of the time, sometimes with customers having "put" or "stop" orders in place to buy or sell at certain prices. On the whole it really does make the markets much more efficient because the only time you go to the "big boards" is when you have a large number of your customers either all trying to sell or buy a particular stock issue.

      This is certainly not something that will "destroy the economy", but rather that it will even help make the "economy" run even better by making sure that those who are either buying or selling shares can get the best possible price among the most number of people who may be interested in either buying or selling that stock. It also keeps stock brokerage costs down, thus lowering your fees for making an individual transaction. In other words, this makes it much easier for "ordinary people" to get involved with the stock market if you really care to do something like that. The New York Stock Exchange was explicitly set up with this kind of arrangement in mind, where people "with a seat" would carry on major transactions on behalf of trading companies, and ordinary people would contract out with those trading companies if you wanted to make occasional trades or buy in low volumes.

      That there are problems with brokers and reasons to be concerned about how they are handling your money is something to be concerned about, the mere fact that "dark pools" exist isn't one of those things to panic over. If they didn't exist, all trades would need to happen on the major exchanges and would be a whole lot more expensive with much higher fees. The end result is that it would cause the world economy to collapse if they were outlawed or something else equally stupid. That brokerage houses should be expected to be honest to their customers is what this whole story is about, not the existence of these trading environments.

      • by dywolf (2673597)

        this is /.
        all banks and financial institutions are the devil!
        how dare you explain how things work in reality without hyperbole and fear mongering!!

  • When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...
    • by Rob Riggs (6418)

      When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...

      The difference you are looking for is between "telegraph" and "network", and "human" and "computer", not between "computer" and "telegraph".

      • by mi (197448)

        The difference you are looking for is between "telegraph" and "network", and "human" and "computer", not between "computer" and "telegraph".

        The similarity you are missing is that in both cases new technology was/is used by some traders to gain advantage over others. In both cases the advantage thus gained is deemed — by some — to be "unfair", immoral, and — if they could do anything about it — illegal.

    • How is computer-trading different from telegraph?

      When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...

      Now I'm disappointed. When I saw the title, I thought there was gonna be a funny punch line.

    • This story isn't really about computer trading, it's about trading that happens before it goes to the exchanges.
      • by Rockoon (1252108)
        ...which isnt any different than Joe going to Bob and trading shares of a company without either a brokerage or the exchange involved.

        The confused seem to think that its wrong if a brokerage is a middle-man in the trade, but somehow right if the exchange is the middle-man in the trade or if nobody is a middle man in the trade.

        Its quite clear that they are simply afraid of what they dont understand, but instead of taking the (quite minimal) time to learn about the subject, they spread nonsensical FUD.
  • Fun with names (Score:4, Interesting)

    by Tailhook (98486) on Monday July 08, 2013 @12:26PM (#44217257)

    Junk bonds, liar loans, "derivatives", "subprime", EFTs, dark pools, etc. Yes, it's a new bubble. Yes, the regulators are 45 steps behind.

    You can't make liquid financial markets safe. You can only outlaw them after they emerge, and unless you're willing to employ gulags and torturers you can't prevent them from emerging.

    This is why you're supposed to keep your pension funds, endowments, real property and other critical assets out of liquid markets. It is disappointing that doing this means they're not going to grow 8% a year, but juicy returns require big risks.

    We use to understand this but hey, working for a living sucks so abso-fucking-lutely everything has to be hung out on the precipice to return enough dosh. So we employ righteous hyper-statists to punish anyone that might jiggle system a bit and upset all that tasty income. Every few years a new regulatory regime blossoms on top of all of the existing ones to make sure nobody tampers with the magic money faucet.

    Keep printing Ben. There aren't enough lawyers on the planet to keep that bubble under control.

    • Re:Fun with names (Score:5, Insightful)

      by dkleinsc (563838) on Monday July 08, 2013 @12:50PM (#44217449) Homepage

      This is why you're supposed to keep your pension funds, endowments, real property and other critical assets out of liquid markets. It is disappointing that doing this means they're not going to grow 8% a year, but juicy returns require big risks.

      When the pension funds, endowments, etc were buying up various mortgage-backed securities, they were buying what they were told was AAA-grade investments. That's the same grade the rating agencies give US Treasury bonds (actually, for a little while it was a better grade than US Treasury bonds), and even now US Treasuries are pretty universally perceived as the safest investment on the planet. Another way of saying this: The big banks took turds, worked with the rating agencies to polish them up really nice, sold them as gold, and then successfully ducked responsibility when it turned out that they were still turds.

      And yes, there were US federal regulatory agencies that at one time would have stopped this. They didn't, and it's a disgrace that they didn't, but that doesn't mean that we shouldn't have the agencies, it means that the people who didn't do their jobs at the agencies should be fired and replaced by people who will do their jobs, and the bankers who committed these kinds of fraud should be spending a while in PMITA prison so that they will be less tempted to do it again.

      • by slew (2918)

        Actually, it was slightly more problematic that you describe.

        The pension funds, endowments, etc, are required to invest a large portion of their money in securities that are AAA-grade because that is what was required by their charters because the need to reduce their risk profile. As it stood, GNMA (the government backed version of mortgage securities) effectively created a non-treasury AAA-grade mortgage-backed security that had an artifically higher rate than treasuries (both govt backed, but one based

        • by dkleinsc (563838)

          That doesn't change the story too much: Either the banks and rating agencies hid what they were doing from big investment managers, or banks and rating agencies and big investment managers hid what they were doing from the ordinary people that ostensibly owned the assets.

    • unless you're willing to employ gulags and torturers you can't prevent them from emerging

      I wasn't aware the SEC employed gulags and torturers. Is there an SEC gulag hidden deep in the interior of Alaska, of do they just rent space at Gitmo?

      So we employ righteous hyper-statists to punish anyone that might jiggle system a bit and upset all that tasty income.

      Being a philosopher means never having to address reality. Which one are you a fan of, Ludwig, Murray? To avoid ideological cognitive dissonance ignore the fact that between 1933 (Glass-Steagall) and 2007 we had the greatest amount of statist intervention, and the most stable and trusted financial markets in history. Many fortunes were made off it too. The wh

      • by Tailhook (98486)

        I wasn't aware the SEC employed gulags and torturers.

        I wasn't aware the SEC was effective.

  • there is a current investigation by FINRA

    FINRA tries to pass itself off as an independent regulator of the financial industry.

    .
    Just take a look at the firms that make up FINRA [finra.org] and you will see what a farce it is to use FINRA and financial industry regulation in the same sentence.

  • by nimbius (983462) on Monday July 08, 2013 @12:47PM (#44217427) Homepage
    Automated trading systems are far different than whats intended for a working stock market...one could make a compelling argument to suggest automated trading was by its design made to quickly and quietly abdicate the big players from any sense of liability or responsibility for a crash. If for example automated trades dont go the way wall-street firms like, they can have them rolled back. its not selling a share, its not cancelling a buy, its literally going into the system and undoing the trade. HFT is based on algorythms that themselves are as unfounded and hypothetical as the very modern theory of economics. Market Making, or as we know it to be pump and dump, is a real algorythm employed daily by firms.

    dark liquidity markets take this a step further, but HFT has cataclysmic potential here. the buyer and seller are generally not known, quantities can be limited for sale or purchase, the markets themselves are not available to the general public, and there is very minimal oversight. The dark market was invented for the financial sector. its purpose is to silently enjoy the benefits of things like credit-default swaps and predatory lending, but without having to atone for their sins on the open market once they start printing the eviction notices.
    • If for example automated trades dont go the way wall-street firms like, they can have them rolled back.

      I keep hearing this, but nobody seems willing to provide the evidence. Can you cite a recent example? The "flash crash" on May 6, 2010 prompted the standardization of trade bust rules, which AFAIK shut down any discretionary-bust shenanigans.

      Market Making, or as we know it to be pump and dump, is a real algorythm employed daily by firms.

      You are wholly incorrect on this. Market making is the practic

  • It's about prices. (Score:5, Informative)

    by lasermike026 (528051) on Monday July 08, 2013 @01:06PM (#44217577)

    I worked at a dark pool.

    When a whale buys or sells a sizable amount of stock in the public market it moves the price. When they execute the trade it doesn't happen all at once but in blocks. When bids and offers are made other players in the market see it and they try to jump on. This moves the price. The whale would like the price not to move so they can maximize profit. When trades are executed in a dark pool the market doesn't see the trades until they clear at the end of the day. Who trades in a dark pool you might ask? Other whales. Stocks traded in a dark pool are usually fairly distributed between groups of buyers and sellers so no one trading party has an advantage.

    • When a whale buys or sells a sizable amount of stock in the public market it moves the price. When they execute the trade it doesn't happen all at once but in blocks. When bids and offers are made other players in the market see it and they try to jump on. This moves the price. The whale would like the price not to move so they can maximize profit.

      In other words, the great defenders of the Free Market don't want the markets to function if it'll cost them. In a market, if somebody is buying a lot of X, I would expect the price to go up. Supply and demand is a key part of capitalism. By your account (and I have no reason to doubt it) the dark pools defeat the purpose of a public stock exchange, which should let everybody see the prices and volumes at any time. Market theory says markets function best when everybody has as much information as possible,

      • by Rockoon (1252108)

        In other words, the great defenders of the Free Market don't want the markets to function if it'll cost them.

        no, in other words they want a free market where A can sell to B without C sticking his nose into it.

        That thing you call an exchange is a market, but its not the only market.

        Is it your intent to claim that when two people trade amongst themselves that that is not a free market? Really?

        • Is it your intent to claim that when two people trade amongst themselves that that is not a free market?

          You're using the shopworn libertarian/market-fundamentalist rhetorical trick of talking about it like it was a couple of regular Joe's doing a little exchange. Guess what, I don't think garage sales should be regulated. Sell that old rocking chair and the lawn dart set for whatever you like. No sales tax either. Golly Homer, how are things around the pickle barrel these days? Should we play checkers today, or put on some bespoke suits and trade a few billion in equities?

          Corporations (not "two people" as you

          • by Rockoon (1252108)

            The stock markets that effect my retirement and my employment? Not so much.

            You want the benefits without the risks.. we get it.. you think there is a free lunch, built on the efforts of others, and that you are entitled to it.

            You aren't. You are a thief.

      • by dywolf (2673597)

        whomever said the whales are the defenders of the free market? you're getting causes and effects reveresed, and confusing the open stock exchange (ie, walls treet) with a the ideal of a "free market". the phrase you want is rational self-interest

  • It's called speculation for a reason.
    A long term investment in a company that you believe has a bright future: yes, please.
    Speculation to make some quick money: die die die.

    Dark pools? I don't even want to know what kind of shady way THIS is to ruin the already corrupt financial system.

    And while I have the undivided attention of the NSA: Banks and stock markets. That's where you will find terrorists that ruin whole societies.

  • by plopez (54068) on Monday July 08, 2013 @07:39PM (#44221059) Journal

    Because unregulated markets always work the best. Disregard the panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1874, 1884, 1890, 1893, 1907, and the Great Depression. Those were just anaomolies, as were the crashes which occurred as the market regulations were dismantled starting in the 1980s. The unregulated market is always the best.

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