Monday, July 10, 2017

Dark pools

Matt Levine:
For a long time, a big worry about dark pools, in the U.S., was that they were marketed as places for institutional investors to quietly trade large chunks of stock with each other away from the prying eyes of high-frequency traders, but they were actually full of high-frequency traders. That just turned out to be a feature of how stock trading works: Big institutions tend not to want to sell big chunks of stock at exactly the same millisecond that other big institutions want to buy similar-sized chunks of the same stocks, so high-frequency traders -- proprietary trading firms, or the trading desks of the banks that ran the dark pools -- serve a useful role in buying from the sellers and selling to the buyers. The purity of big institutions just buying and selling to each other, off in a quiet corner away from the public exchanges, had an obvious appeal -- no one likes a middleman, and everyone worries about "front-running" -- but it rarely seemed to work out that way.

Don't need a proprietary trader to make  the  market.  A pit boss bot works just fine, and the gains and losses for the pit boss are shared by  all. The pit boss is just un-owned code and never buys a beer. 

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