Where do Dark Pools come from?
To be frank, everyone has a different story and everyone says some different things.
Well we can’t be too sure after a few years have passed, let alone a few seconds, but we can atleast Speculate.
And believe you-me, I place my bets on Speculation. Industry professionals call this a *looks at notes* speculatory bet. lmao. It’s like gambling but for rich people, like how being homeless is for the poors but for the rich it’s called a ‘Bohemian’ lifestyle.
It’s a bit complicated to go into the Depths and Fathom how Deep and Dark the Dark Pools can be, so let’s dive shallowly deeper into the history of Some Watering Faucets of Dark Pools.
History of Dark Pools
It’s not exactly clear why they were invented, but from a person-who-loves-money’s perspective, it was probably to rig some prices or protect your own trades. So people were trading off market to avoid getting undercut on their trades, ‘allegedly’.
We’re talking post 1940’s Robber Baron type shit. So of course you’d want to protect your trade, investments, and your interest. It’s not like people actually had Faith and Trust in the markets. Definitely no new organizations were created to restore investor faith in the markets.
Some people speculate that Dark Pools were created to avoid HFT (High Frequency Trading) slicing and dicing of large Block Orders/trades. This of course implies that Dark Pools were created After HFTs. Which HFTs came about around 2005 during the transition to going all-computery on things.
With strong evidence suggesting that Dark Pools were created before HFTs, the role of Dark Pools could have been to supply excess liquidity to the market with the use of Market Maker Priveleges.
Any hoot earlier in Dark Pools III, I mentioned Supplemental Liquidity Pools or SLPs. Yes. These exist and serve a function in the market. Which may or may not be bad depending on how they are used.
(And boy oh-boy, do they supply liquidity. In fact, it’s practically counterfeit. But I’m not going to explain that today.)
Because all-in-all, Dark Pools are akin to tools. Neither morally good nor bad, but like any good tool, you can use it as a weapon. Guns. Germs. Steel. Stones. Sharp Spears. Swords. Your Nudes. Your Mom’s Nudes. Your Wife’s Boyfriend’s Nudes. All Tools, all can have their function weaponized.
Eventually I’ll cover the weaponization of Dark Pools as a Financial Tank.
But until then, let’s stick to the history.
Here are some quotes from sources;
“ATSs reportedly first appeared in the late 1960s, but they truly began to flourish after the Commission’s 2005 adoption of Regulation NMS.”-The SEC quoting a Policy Concern Paper from Federal Financial Economists
“Although dark pools first appeared in the early 1980s, the SEC regulated them for the first time in 1998 by enacting Regulation ATS, under which dark pools and any other ATS must register as broker-dealers”
“The SEC later enacted Regulation NMS in 2005, which was an effort to comprehensively overhaul the structure of the securities market by increasing disclosure requirements and decreasing fragmentation.”
“Regulation NMS inadvertently encouraged traders to move to dark pools to avoid the increasing disclosure requirements on the public market.”-Source 2013-2014 DEVELOPMENTS IN BANKING LAW
So who is right, The SEC or some research/thought paper with sources? Was it ATS or NMS or ABC’s?
I don’t care.
Point is, ATS’ came into being around mid 1900s and then was regulated under Regulation ATS superseded by Regulation NMS. The supersession was to help be up to date with the technology, because we started using computers late 1900s. But I mean, technically, we’ve been using ECN (Electronic Communication Networks) since the 70s, it just takes time for regulation to play catch-up.
Think of it like seat belts. Cars get invented, then later ‘safety’ ideas come into being. But Seat belts were optional for the most part because “The auto industry fought seat belts successfully for a very long time and many people died,” (-Elon Musk). Then eventually, after thousands or so deaths, we got seatbelts to be required and regulated the auto industry to provide them.
Think of the Auto Industry like the Finance Industry and Seat Belts are akin to Regulation NMS. So you sort of see the time-value-cost parallels, not factoring the lobbying, comment letters, and thoughtful or biased judicial process for regulating things. . . Yea.
So, Dark Pools came about around 1900s (give or take an entropic death of the universe) and long before HFTs posed a reasonable threat to block trades. Even though ATS’ themselves were around in the 1960s, before the official recognition of Dark Pools and de-regulation that allowed them to exist in 1979 (per Wikipedia).
What does that tell you?
That people were finding ways to create a racket and prime the floodgates in equities during market and non-market hours. Allowing people to also be able to trade against or ‘ahead’ of their competition while licking their wounds or prepping for the next monetary bout of damage in after hours. It’s kind of like front-running but non-intraday.
This is happening in atleast the 1980’s mind you. I say at least because that’s the official time in which Dark Pools were made Public and aware, like ITG’s POSIT or ‘After Hours Cross’.
So Dark Pools create a Racket
And you might be a naive-skeptic and say;
“how can you say that they used Dark Pools to create a Racket?”
It’s elementary my Dear Watson,
Because if I were in their shoes, then I certainly would use Dark Pools to create a Racket. It would be the most reasonable pathology when presented such a grand opportunity to make money.
You’re saying that I could run my own market outside of market eyeful regulations? And that I would have to self-report myself if I do anything dishonest as a Self-Regulatory-Organization? With an industry that cares about profits and can be bribed with profits? And that this market can trade in equities and derivatives that I can reroute away from or flood the real lit markets? And that I could essentially control order flow and prices of various securities like a Hungry Hungry Hippo?
And then ATS regulations were a thing and SLP’s were introduced, all sanctioning this practice disguised under the cloak and dagger of ‘For Liquidity’.
As if making the markets was more important than making money from the markets.
Yea, looks like we’re back in business.
Because Profits Matter.
Are there Greedy People in the world?
All we greedy little goblins ever care about is pumping those rookie-numbers up in this racket and getting richer, we don’t stop to ask ourselves ‘Why?’ let alone ‘Should we?’. Society is a big game of Circle-jerking one-up man ship, and money is just another meaningless quantifiable point system where we aim to get the high score.
Who’s counting? Well, at least my corporate accountant is.
You’d have to be retardedly smooth brain not to game the system when you’re given new tools.
I mean, when the Portuguese gave Japan Guns, you’d have to be retarded not to end the Shogunate and wreck all the Daimyo’s to create a new ruling class overturning the Bushido Code. It’s like common sense.
Anyways, if you want more history and purpose, then you can hit up wikipedia or find it at the bottom of a glass bottle like the rest of us.
If you don’t believe that Dark Pools can be weaponized, then stay tuned for future segments that I’m definitely writing Drunk on.
I think it’s to note, a lot of retarded economic policies happened in 1970s and 1980s, to including banking reforms and Market restructures that have lead to a serious inequity issue. So, uh, that’s a big problem outside of the scope of Dark Pools alone. It’s just that, Dark Pools, most certainly didn’t help the whole ‘wealth inequality’ thing.
Anyways I’m going to move on. . . to a tangent before closing,
As mentioned earlier in Dark Pools Part III, You could argue and reason that the entire market itself started as a Dark Pool. (You can even further argue that the market itself and the world itself is still a Dark Pool, but words themselves get a bit tricky if the meaning applies to everything).
The whole deep dark waters below, and then someone said ‘let there be light’ and created Lit exchanges with computer technology or other shit.
Point is, Dark Pools sort of existed.
No one asks where the ‘Dark Ages’ came from, we just focus on how backwards the Dark Ages are compared to the ‘Light Age’ or ‘Renaissance’ where we reinvented ourselves.
Much like how Lit exchanges and NMS changed the game, we think of shadowy Dark Pools that existed since primordial times are bad things because they’re simply ‘old’ and have the word ‘dark’.
Well that’s just retarded (De)-Generate-tionalism think. As retarded as thinking Fiat and MMT is the great way to go because Gold is a useless store of value or whatever the NuAge Economists of the new Scientific R-Value based Papal preach nowadays.
“Dark = Bad” is basically the low resolution thought that mainstream plebeians have lapped up like kitten-cattle to the slaughter. Unlike me, as an Augur who obviously stare at birds all day on Tweeter, I can forsee the Marian Reforms of our future. The previous sentence is just a bunch of made up hogwash to elude to an appeal of bullshitting you into thinking I know what’s going to happen. Jeez, another scam.
Don’t worry comrade, I’ll also join in on being slaughtered, like this conspiratorial cow here;
You know, Death is sort of like it’s own Dark Pool. And you sort of have to guess how long Death has been around. You know, one of those original OG Dark Pools.
Life also is a scam, but Death is also a Scam
Thus Existence itself is a Scam
I did the math to mathematically prove that Existence is a Scam, and it at least used an integer in the answer, and maybe had a decimal or some Arabic numerals. Yea, here is more proof.
I honestly forgot what I was talking about half way through.
But I hope this covers the idea that Dark Pools had a history or something. What, you thought you were going to lern uh sum tin?
This Shit Post is more or less to tell you and solidify the fact that Dark Pools are a real thing and not some made up boogeyman. This is all bullshit Primer Knowledge, because the juicy paint is going to come up in a few segments. So lather up you Paint Roller you, and maybe you too can get a few (paint) chips on yer shoulder.
The History itself isn’t really important, because we’ll repeat it sure enough.
Mainly because idiots keep on writing, re-telling, modifying, adding more lies by claiming to add more ‘truff’ and now history is perverse and perverted in nature by a whole bunch of shit posters unlike myself.
Yea, so who cares. We’ll repeat ourselves again and again, if not, it’ll atleast rhyme.
That’s arguably a safe bet. But since you don’t know the risk or the R-values, it’s not a safe bet.
*Not Valid Financial, Legal, Life, or Any Advice