Dark Pools III: Specific types of Dark Pools

So we talked about Darkness in Part I and that Dark Pools Exist in Part II.

Here in Part III, we’ll cover many of the different types of Dark Pools. This is not an all inclusive list, as people make and re-make and invent and re-invent trading on the exchanges and markets. So, things evolve and things change, but here’s the research for what I have on different or specific Types of Dark Pools.

So these companies have different packages and not all Dark Pools are created equal. Hence the confusion and ambiguity, so there are some different names.

Dark Pools being essentially non-public trading venues or off-exchange trading. Not Lit pools.

Which means literally every other type of trading system or venue or exchange or platform or whatever-the-fuck. If it’s not lit, it’s dark.

And in fact, if you really think about it, Dark Pools were the first to allow trading of any sort (they were the O.G.s so-to-speak).

There was darkness before there was light.

I’m sure the bible wasn’t talking about this sort of Dark Pool in the Waters Deep,
But it’s rather fitting that that’s how it was created.
Literally a literary biblical parallel metaphor to the creation of light and lit exchanges.
If you can’t comprehend how genius of a joke this is, then I don’t want to live anymore
(Jokes on you, I didn’t want to live before I said that)

So lit exchanges can only come about due to public markets, reporting practices, and also the aide and advent of technology. Which came much much later. (As a side note, Technology can also obscure, obfuscate, and create darkness too). Technically speaking All markets are Dark Markets, because information and access is always regulated. Technically. (Yes, I “argue white is black” on my free time, it is the way of the Sophist Dao).

Point is, when we first started trading anything, it was a private deal between private persons trading private property. That’s sort of the whole point of a trade or barter.

Anyways, with this Dark Pool stuff, a lot of this stuff overlaps, because the language here isn’t specific to any one type of Dark Pool. Turns out, you can set what you want your exchange or off-brand trading venue to do. Every bundle or Dark Pool offers different services and does different things, to which can match various types of Dark Pools.

Anyways, Here is a list of the various types of things that will be glossed over in this article, you can skip down to one that peaks your fancy. These are more like Archetypes than they are definitions. The Word, or whatever.

  • To Be on a ‘Public Exchange’, or ‘lit pool’
  • OTC or Over-The-Counter (kind of);
  • ATS or Alternative Trading Systems
  • Upstairs Markets, and Trading Up the stairs
  • EX-Clearing (No Clearing Houses)
  • SLPs or Supplemental Liquidity Pools
  • SDPs or Single Dealer Platforms
  • Internalizers or Internalisers
  • Broker-Dealer-Owned Dark Pool;
  • Agency-Broker Pools
  • ECN (Electronic communications networks)
  • Fourth and Third Markets
  • ‘Expert Markets’

To Be on a Public Exchange, or ‘lit pool’

There are some requirements. So let’s talk about the Light part of the Dark Pool. Yes, public exchanges can be semantically considered dark pools.

Public Exchanges are Considered National Market Systems(NMS) with transparency and other things. They follow Regulation NMS and include exchanges like NASDAQ, NYSE, CBOE, etc.

So the public exchanges have listing requirements, to be on a lit exchange, you got to ‘make the cut’, or be on the list. Something like having quarterly public reports, have more than XXX amount of shareholders, At least X amount of Public float or volume, making sure your shares are valued higher than 1 dollar, having a minimum of X market cap, and other bullshit.

Basically, you have to meet the requirements in a ritualistic process called ‘filing for an IPO’ or Initial public offering, where you ‘kiss the ring’ on a Cartel of Banks and Money Lenders in hopes that they won’t gang fuck you before prom night. Basically. An IPO is like a Pop star’s Debut;

But I’m not here to talk about how Pop stars and IPO’d companies
get tossed around and gutted like a cash HuCow floosie.
And if you don’t know what I said, please don’t google it.
And if you do google it, please do it in-cog-nito
And not at work. . .

Point is, there is a barrier for entry in a formal rite of passage for companies to be public and trade on public venues. So Companies are, by default, in dark pools. That’s sort of how private companies work, you know, private, dark, it’s the same thing.

I guess, technically you could sell shares of your company publicly through some sort of traveling door salesmen type shit. But the SEC will probably be balls deep down your throat for trying to do things outside of the box. You know, doing things that makes sense before internet was a thing. (CEOs of prospective companies still call people and present some charts to get some rounds of funding, sort of the same thing).

So, you either make it on the list or not. You don’t have to be listed to trade publicly, but again, protection and legalities and stuff make it really inadvisable for you to go against the grain. It’s kind of a scam really.

OTC or Over-The-Counter;

Well, if you get listed, you can also get delisted. But even if you never made it on the list, you are technically unlisted.

So Delisted or unlisted stocks are available for trade on some of these markets.

The OG way to trade. Over the counter.

OTC markets are sometimes referred to as pink sheets, because back in the day they used to be written on some pink paper. (not to be confused with pink slips for car titles, or deeds. But at the same time, you could probably call pink sheets as pink slips).

Like this
Notice the Pennies in the peicture
It’s to symbolize ‘Big Penny Energy’
Which is what degen penny slot stonk traders use
(I made that up)

Because they have a lack of transparency, much like dark pools, the Pink Sheets are generally frowned upon. But so much has changed in the stonk game that no one really cares about pink sheets anymore, what are you, a degenerate penny stock trader? (Due to the lack of Transparency, OTC markets are akin to Dark Pools and would even classify as such).

It used to be called Pink Sheets LLC, but nowadays the company that runs the OTC markets are called the OTC Markets (OTCM) Group. I mean, who would’ve guessed their name. lmao.

If you want to learn more about em, here are a few links;

OTCM About page and their Ticker $OTCM

Wikipedia and Investopedia for more info. Also an article on Tradingsim.

Also, Due to some young rules passed under Clayton’s SEC (in Sept 2020), Brokers have more control on what risks they want to take on. Meaning retail traders are prevented from buying into certain equities. So the OTC markets are off limits for some people and some equities depending on your access/broker.

Here’s a random quote on the use and abuse of OTC, but that could be an entire article on it’s own right;

“OTC BB market makers (MMs) don’t use fundamental and technical analysis. However, what they do realize is a lot of dumb money does use this newest nitch charting or TA (Technical Analysis) to run a stock either up or down. To the MMs this is like taking candy from a baby. Simply they will paint the tape and use whatever tactic to affect the charting bands. Thus the public and dumb money they will have eating out of their hands.” -Random internet people

In specifically the Forex market, this phenomena of the Brokers Trading against Retail has a name called ‘OTC Gain’;

And if you think because CFD’s are banned in the US, that that would mean Brokers aren’t Trading against you;
Then you’d be fucking retarded. CFD’s being banned in the US means that Broker’s have to use something (not-CFD) else to trade against their Retail Traders. Look up a thing called Securities Lending, and maybe read the fine print sometime? (Unless you use the Shitty Robinhood that Automatically opens you up to Margin, fine print says they can lend your shares).

Oh, the best part of the OTC markets is that even listed stocks can pop up and be traded through OTC. Where there’s a bit of delay or even shittier price reporting practices. So keep that in mind.

Not all trades Over The Counter happen on OTCM, but then you get in to weird territory. I mean, do you trade cars peer to peer? What is this, crypto currency? lmao, so laws and stuff are a concern when not trading under registered brokers. (and technically, you can be Fined and Sued for that. Because SIPC and everyone else is a scam. I have yet to write that article, but believe me, SIPC is a scam).

What I’m saying is, OTC can also happen direct, but there’s strings attached and I don’t care enough to untangle that shit.

ATS or Alternative Trading Systems;

Typically when anyone talks about Dark Pools, they imply Alternative Trading Systems (or ATS). And ATS’s have to be registered and follow a different stack of rules.

But not every Dark Pool is an ATS or even Registered as an ATS, so keep that in mind.

Point is, we got a lot of them.

When professionals, Industry professionals, Professional retards, SEC, FINRA, and other Alphabet bois talk about Dark Pools, they usually mean ATS.

Because ATS’s comprise of many different things and they are even registered as such under ‘Regulation ATS’;

ATS’s are Dark Pools, but not all Dark Pools are ATS’s. That’s part of the problem in using the word ‘Dark Pool’, because some of these Dark Pools aren’t registered as ATS’s or even considered as an ATS.

Upstairs Markets, and Trading Up the stairs

A normal bland looking financial building
Definitely don’t look up who owns it or anything

Sometimes an ATS is referred to as ‘Upstairs trading’ where people in the back room or on the higher floors talk on the phones to allow large block transfers without affecting market price. A bunch of back room technology hooking up and routing things. This would make up, what could be known as, an ‘Upstairs market‘. You know, big money.

Not All ‘Upstairs Trades’ are an ATS or happen on an ATS. It’s just some of these words mix.

It’s a bit different from regional exchanges, which are primarily land-domain based and not so much infrastructure based. But going into the semantics is confusing, just know people trade behind the scenes and aren’t public about it.

And if you want to look at Dark Pools before 1960s, I guess it would be called “Over the Counter” (See above) where people sell things over the trade desk to, believe-it-or-not other people. Turns out, Over the counter is still used today for off-exchange things (because exchanges have listing requirements).

And in theory, you could directly transfer your shares to someone else in exchange for money or other goods or terms and conditions, or even through a Trust company. So, that exchange, isn’t exactly always ‘public information’, so it’s kind of like a dark pool. Kind of.

So ‘light’ of your trades and price matching would all be based on the ability of information to get to you. How fast does light travel pre-internet? How fast does light travel pre-NMS? How fast does light travel pre-Telephone? pre-smartphone? Pre-AI-Super-Over-Lords?

The point is, light takes time to travel. So the information made public is also hinged on the ‘time at which that information gets to you’, which sorts of measures the quality of light. The Speed gives way to the Truth, Fast Facts, sorta thing.

EX-Clearing (No Clearing Houses);

So there’s this thing called a ‘Clearing house’ that ‘Clears’ and ‘Settles’ Trade. It’s sort of like a Trust Company, an Escrow, that insures that the trade happens (ensuring the delivery of a share settlement, and the delivery of cash settlement). . . For a price and some insurance.

The Brokers and Prime brokers will place their cash in the Clearing house, and the other party will place their stonks, and then the switcheroo occurs. That’s basically what Clearing houses are. A nice trusted shell game to swap your cash and equities.

You may not be aware, but a lot of the Clearinghouses got merged, taken over, and circle jerked each other to create a Private Corporation that Clears basically everything. A monopoly called the DTCC (which owns a lot of Clearinghouses like NSCC, OCC, and the DTCC vets/checks clearinghouses indirectly).

Sometimes Brokers don’t want to ‘pay the insurance money’ to the Clearinghouses, thereby making the trade more profitable if they rely on their own trust, based on history and other things that ‘build Trust’ or ‘Appeal to Ethos’. So a block trade between large names, as long as they both deliver, we’re good to go.

And even if they don’t deliver, there’s lawyers that’ll drag the dirty laundry, and that’ll just be bad for business.

-Slightly outdated info
but it’s still good to help paint a picture of what things ‘Once were’
-DTCC April 2011
DTCC is Definitely not biased when it comes to saying ‘Ex-Clearing Bad’
(DTCC is the big big clearing house for stonks if you didn’t know)

You can draw parallels between Ex-clearing and Upstairs trading. The difference is, Ex-clearing specifically avoids Clearing houses.

Upstairs Trading is just a bunch of backroom office deals, where some intern is just shoveling paperwork on some shitty landline telephone and a fax machine. Whether they use Clearing houses or not, that’s up to them. Things have evolved since then.

SLPs or Supplemental Liquidity Pools

Well, some Dark Pools were created to obfuscate and get away from High Frequency Trading. A sort of safe-harbor of trade away from other large interests. And then there is a new breed of Dark Pools that are Combined with High Frequency Trading. All of this is to help support a ‘market function’ and provide ‘supple- mental liquidity’. Supply moar shares.

If we break these words down,

Supplemental => extra

Liquidity pool => exchange

Using SLPs Market Makers can limit price volatility and ensure stability; You know, intentionally manipulate prices.

Because price fixing for stability with excess syntheticated liquidity and making a market as a bonafide Market Maker (with privileges) is definitely not market manipulation. like how retarded is our system, but I digress.

Translation: Retail investors’ and small firms’ buying and selling power will not affect the market at the discretion of their order routing, because their orders are most likely poached and fulfilled with mechanisms that provide supplemental liquidity.

Oh, but don’t worry, The big boys’ buying and selling power will move the markets, whenever they want it to.

So basically, Sanctioned Market Manipulation. Nice.

Don’t worry, they’ll market to you that these Programs are good things;

“We help make trades happen, they’re good”
“More trade liquidity is Good for you”
Even if they’re synthetics. lmao.
Even if they devalue your company. LMAO
That’s an IOU placeholder, it’s as good as gold.

Here’s NYSE with their schtick;

It’s funny how these SLPs are supposed to be good things and at the same time a person from NYSE says that prices don’t really reflect supply and demand, or how-do-we-say. . . Value?

Price is Wrong

Anyways, if you want to know more about SLP here are some links and stuff;

Investopedia link

Some random link I just randomly found, idk just google it or something

And any link above about SLP would also have more info.

SDPs or Single Dealer Platforms (and other Dealer Platforms)

Basically a Single Dealer Platform is a private Dark Pool,

In theory, these SDP can be bespoke/tranched/specifically tailored to offer different Asset Classes. There’s different reasons for the different types of Dark Pools, so it’s up to the owners as to what they want to offer.

Internalizers or Internalisers

Internalization means that the order is not routed to the market maker but the broker itself fills the order from its inventory of shares. It’s basically done in-house or internally. Hence the name Internalizer.

This typically is referred to as the Trade Desk, which is the Same as the OTC. OTC over the counter (internalizers)
Shit that gets traded “at the desk” of a Broker/Market Maker. This might also be referred to as “desking” which refers to the market makers trading desk.

But also, Internalisers can be referred to as the backdoor algorithm ran in-house, or you can think of it like ‘behind the desk’. A sort of Hamster wheel that runs the computer all in-house of course.

Market Makers and Banks can also perform Internalizer functions. Internalisers just deal with the orders directly and take care of it in-house.

You want ten shares of $SHIT, turns out your Broker has a Desk that has million of shares of $SHIT. So they just complete your order without even directing your order to the market. Nice.

Where your Brokerage will just hold on to those trades, either your shares, or your cash, and deliver from their own supply. Or maybe not even deliver anything at all until you ask for it. You know, you can trust the broker, “They’re good for it” -The Broker.

Here’s a bit of a CNBC interview with SEC Chairman talking about Internalisers and other Dark Pools;

The CEO of IEX (an Exchange) said something about 90% of trades being routed through Dark Pools and/or Internalizers. I forgot the exact quote so I’m paraphrasing because I have a shitty memory so the CEO might be talking about a specific Idiosyncratic Risky stock, or maybe I remembered wrong.

Here is someone discussing how internalizers can help to -uh- manipulate the market;

You can ignore that for now, I’ll dig it up later in the Dark Pool Series.

One of the Big takeaways with Internalisers are that they don’t have to register technically with an ATS, because they are not an exchange themselves. Instead, they are directly taking the trade sort-of OTC or ‘at face value’ and not providing a market or exchange for multiple clients to trade with each other. So some Internalizers aren’t even registered.

I mean, you don’t have an individual Tax ICN for your different Wallets or bank accounts. That’s like the same thing here but slightly different.

Broker-Dealer-Owned Dark Pool;

Basically companies offer a private exchange for traders to trade in;

-GS Sigma X

And Crossfinder provides some interconnection between other trade venues and exchanges;

Sort of like a Peddler-between-dark/night-markets pool.

The big point is that People/Institutions can own their own Dark Pools. Hence the Broker-Dealer-Owned part. The other point to learn here is that every exchange, venue, etc. has different bells and whistles and provide or serve different functions.

Sometimes the Broker-Dealer-Owned Dark Pool might also be a SDP, MDP, or some other form. Words are all made up labels anyhow, so a lot of this stuff is basically the same-same but also different.

Sometimes Broker-Dealer-Owned Dark Pools are Electronic Market Makers Dark Pools;

Price action not calculated from NBBO
That’s pretty important not gonna lie
A Bit different

If you want to look up more, check out Consortium-owned Dark Pools and Exchange-Owned Dark Pools. What can I say, there’s a lot of Dark Pools.

Agency-Broker Pools;

Using the same quote, we can go into Agency-Broker Pools like Liquidnet and ITG Posit.

Here’s Liquidnet;

Just a Fintech company with interconnection of market access


I Highlighted the last blurb
Because in the future I’ll bring up a thing
Called ‘after hour trading’ with regards to Dark Pools

Again, tailored for different connections, supplies liquidity, algos, and other things. It’s a private exchange/venue. Dark Pool. What more you want?

ECN (Electronic communications networks);

“ECN brokers simple provide a true market place where all their clients, retail traders, banks, financial institutions can trade against each other on an equal basis – ECN brokers don’t care which of their clients wins and which of their clients lose as they’re clients are effectively trading against each other.” – Quote from a Random Internet Person

ECN’s are generally used in Forex markets where foreign funny money gets traded around. It also just so happens to offer US Stocks and Derivatives as an Asset Class. So, that’s why I cover it here for Dark Pools.

But also ECN’s exist in the US Stock market. See, now I bet you’re confused. Nice.

Although there is ‘no perverse incentive to trade against the customer’ that doesn’t exactly mean that ECN Brokers don’t Trade Against the Customer. Reassuring people who can’t read in between the lines, because Dumb Money is Dumb.

So ECN stands for Electronic Communications Network, and they help deal and route your trades internationally or locally. Think Interactive Brokers, Pepperstone, or other similar sort of brokers.

Here’s Investopedia link if you want to read more,

ECN’s are classified as ATS’s by the SEC and there are some notices about regulations and shtuff.

Fourth and Third Markets;

-rando on the internet
Take it with a grain of salt

Third Market group sometimes create off exchange markets for listed equities by competing with public big markets.

If the first market is the public exchange, the second market is the second choice, then the third and fourth market are just that. The third and fourth choice.

However, that’s just giving them near-meaningless rankings. The importance of third, fourth, fifth, or seventy sixth, markets are the ability to use them as off-exchange markets that can interconnect markets and get best price execution and price discovery.

This is typically known as arbitrage. Buying one thing at one place and selling it at another.

Well, if used for good.

Anyways I stopped caring about this Article, as you should just scroll down to the conclusion at this point.

Here is Quora to answer any more questions about 3rd and 4th markets;

And here’s Investopedia talking about it Third Markets and Fourth Markets, again, I stopped caring,

Anyways, moving on ->

‘Expert Markets’

These are OTC Markets that privatize data and quotes to those who are deemed ‘experts’ and this is done for ‘INveStoR ProTeKtIon”.

Retarded I tells ya.

Here’s a whole bunch of links to things relating to this retarded market;

Sauce and a Source and a Bukkake and Au jus

I just don’t want to cover it, but it’s where the “future” of OTC markets will head, so It’s worth knowing if you want to deal in this retarded market.

Yikes, let’s wrap this up.

So when people talk about Dark Pools

It’s very ambiguous and confusing, because there’s a lot of different types of dark pools. Basically the word ‘Dark Pool’ is near useless because it’s too vague and broad to succinctly describe a specific trading system or exchange. People are arguing and debating a misnomer due to the very many facets and faculties that a Dark Pool Could be.

So one could ask very pointed questions about whether something can happen or not happen in a Dark Pool.

And one could be honest by replying answers specifically about Ex-Clearing Dark Pools, and not about OTC or ATS or any of the Other dark pools that aren’t even mentioned.

Also note that ECN’s and other Dark Pools
Don’t follow NBBO

Basically people are saying the wrong things to each other,
Because they’re using a word that broadly describes many things
And that’s where the confusion is.
Which means Dark Pool is too dumb of a word to be smartly used.

Here is the conclusion but in meme format;

it’s equivalent to being vague and calling things ‘thingy’

Did I mention that there’s a lot of Dark Pools?

Also, earlier I mentioned that your wallet and it’s associated transactions could be a Dark Pool (puddle). So saying ‘dark pool’ is like arguing what flavor ‘Food’ is or what the texture of ‘Food’ is. Like ‘Food’ is vague compared to specifics like Lobster Mac and cheese or a Po’ boy sandwich. See, it’s con-fucking-fusing when we con-fucking-flate these ideas and meanings. Semantics, because *gasp*

Words Mean Things

In Closing

I’m not an industry insider nor do I know how the plumbing for different markets actually work. Turns out, they’re all different. So a lot of this information might be niche or wrong. Because one person’s Dark Pool doesn’t operate like another person’s Dark Pool.

Yea, so I’m way out of my league talking about this stuff, but THAT Doesn’t matter, the big point is that no one understands themselves or each other when they use the word ‘Dark Pool’. Hell, I don’t even understand, and I literally just explained it to you and I’m already confused (again?). I’m willing to (not) safely bet that even industry insiders don’t know what the fuck the nuances are. I mean, do you know how many different flavors of Baskin Robbins Ice cream exist? Like 72 Ice-Cream Goetia, at least. That’s a lot of Ice-cream.

And if you thought Baskin Robbins had only 31 flavor, then you fell for the dumb trap;

That’s the big take away. That ‘Dark Pool’ is too dumb of a word to be smartly used.

Anyways, I’ve elected to get a Nobel Prize winning Neural Enhancement surgery to help me suppress my Passionate Fervor and Rage and become more docile. It’s called a Lobotomy, so I hope it’s good.

Until Next time, unless you want to find me and the boys in the field practicing Brain Trepanation,

It’s like it’s Sunny in Philly
But the Gang performs Neuro procedures,
You know, for Science

*Not Valid Financial, Legal, Life, or Any Advice

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