How do dark pools benefit all participants?


[I hope this question is not considered off-topic but related to stocks and price movements.]

Putting aside the legal and fairness questions around dark pools, i am still not able to understand how it could benefit ALL the participants.

Here is an example:

  • Let's say I am a Big Institution who wants to sell 1 million shares of Stock A at current market price of $100. As an order initiator, this is beneficial to me since this very large order information goes to a limited number of participants and the price wont tank immediately to 97 (as an example). So, i may end up selling all the shares in blocks at an average price of 99 per share. In the open market, this might have resulted in an average price of 97.

  • Now, let's say I am another Big Institution in the same dark pool who wants to buy Stock A, i would have preferred the above sale information to become more public and the price to fall to 97 so that i can pick up the stock at a cheaper price. So, it is not in my interest to fill the order in the dark pool.

The reverse is also true where the big order is a Buy instead of sell.

So, dark pools seem beneficial only in the situation where I am the large order initiator and never when i am on the other side. The only way i can see dark pools working is where the pool creator (like JPM, GS, BBG) forces all participants to provide liquidity much like market-makers and bond aggression markets.

I am sure there has to be much more to this for all the participants. Anyone with more knowledge able to chime in on how dark pools benefit all the participants?

Thanks


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