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Wall Street’s ‘Private Rooms’

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Re: Wall Street’s ‘Private Rooms’

#201

Post by chipsrafferty »

reverendsteveii wrote: post #19
qweiop wrote: post #6

I remember reading about dark pools and asking a friend in finance if the sector really is as corrupt as it sounds, his reply? "Oh much more"

The only reaction more adverse than the one you get asking coders about remote voting is the one you get asking finance people about transparency and anticorruption. It's an open secret at this point that any effort that would weed out a significant proportion of the fraud would cripple our finance sector overall just because everyone who runs it would be in prison.

If you want to know information before the public knows it (like the interest rate adjustment) go to a Wall St. bar and ask a trader. None of them are supposed to know that. They all do (unless they don't go out or talk to friends), and they trade based off of that information.

Re: Wall Street’s ‘Private Rooms’

#202

Post by chipsrafferty »

LatteLazy wrote: post #62
gaadd33 wrote: post #61

Earlier quoted context omitted.

Dark pools started in the 1980s once the SEC permitted securities to be traded off the exchange they are listed on. I think that was well before flashboys.

I had no idea they went that far back? Good knowledge!

Dark Pools were the original "equitable market"; when market makers were trading in 1/8ths and fixing markets, dark pools enabled people to trade in 0.01 increments.

Re: Wall Street’s ‘Private Rooms’

#203

Post by bormaj »

ipv6ipv4 wrote: post #133
bormaj wrote: post #97

Earlier quoted context omitted.

HFTs/market makers are competing for pennies on the dollar. They do not hold risk (long term), they exist to readily provide liquidity to your buy/sell orders. HFTs can be quite profitable, but that doesn't make them inherently evil. Can you elaborate why those bans will improve the market and what the issues are with HFTs in your eyes?

These dark pools and private rooms appear to be a response to HFT. To get away from HFT. So HFT appears to be fragmenting the market which is probably not a net good. If that is not the purpose of dark pools and private rooms, then what other purposes do they have?

One of the unique aspects of dark pools (and this can vary by venue) is that orders are segmented according to the source type (e.g. retail, client of the operator of the venue, institutional trader, etc) and the quality/grading of their order flow. As an institutional trader trying to leg into/out of a large position, you'll want many different execution options to help minimize price impact + information leakage + execution time. Dark pools are a great option in which you may have the option to specifically trade against non-toxic order flow (e.g. retail) to achieve better execution.

There are other reasons as well, but these venues essentially exist to solve some very niche problems for institutional trading. Public filings are available for review in case you're interested in the rules of each dark pool. [0]

[0](https://www.sec.gov/about/divisions-offices/division-trading...)

Re: Wall Street’s ‘Private Rooms’

#204

Post by solatic »

infecto wrote: post #174
solatic wrote: post #141

Earlier quoted context omitted.

It's insider trading, just with a different class of insiders (i.e. first level of insiders are people associated with the company itself, and the second level of insiders are Wall Street traders with access to non-public pricing signals). Insider trading is illegal because it undermines faith in the fairness of the public market. If insider trading is legal, then market actions by insiders are almost guaranteed to r…

Please don't define things when you have no idea what you are talking about. Everything in this post is simply wrong. Markets are not about information fairness, individuals are free to do research and come up with their own prices.

Individuals are free, in their research, to access sources of information that are available to all other market participants, even if that information is usually out of reach for most people. The canonical example is using satellite photos of parking lots to predict earnings calls, i.e. https://newsroom.haas.berkeley.edu/magazine/summer-2019/stoc... . It's still legal because hypothetically anybody could do it. What's not legal is "doing research" by talking to insiders to get information that is not public.

Re: Wall Street’s ‘Private Rooms’

#205

Post by solatic »

cjpearson wrote: post #150
solatic wrote: post #141

Earlier quoted context omitted.

It's insider trading, just with a different class of insiders (i.e. first level of insiders are people associated with the company itself, and the second level of insiders are Wall Street traders with access to non-public pricing signals). Insider trading is illegal because it undermines faith in the fairness of the public market. If insider trading is legal, then market actions by insiders are almost guaranteed to r…

One of Matt Levine's common refrains is "Insider trading is not about fairness, it is about theft." There are always market participants with different levels of information. The problem occurs when you misappropriate confidential information you were entrusted with for personal gain.

I respectfully disagree with Matt Levine's framing. Yes, confidential information belongs, in a statutory sense, to the company, and using it for personal gain instead of company gain is a kind of theft, similar to an executive who uses their company car for personal trips, or any employee who might browse Facebook on a work laptop or take a personal call in a company office. But this argument is akin to saying that no senior executives should ever incur personal criminal or civil liability for the actions that they take in the name of the company, because it is the "company" that did it and not the individual. Most people (particularly after public implosions like 2008) find this argument reprehensible. In fact of the matter there are individual executives who do act in their personal interest. Should stock buybacks be illegal because it happens to be very much in the personal interest of the executive whose bonus depends on a rising stock price, while shareholders may have benefitted more from the executive focusing on day-to-day operations, thus the executive "robbed" shareholders because of making a decision to focus on the wrong thing? It's not reasonable to expect executives to "wear different hats" where one day they act out of their personal interest and the next they are some kind of selfless worker who works for The Company and whose only interests are the Board's and shareholders'. Executives are holistic individuals, they make decisions as holistic individuals, they were hired with the expectation that they would make decisions as holistic individuals, and in and of itself there is nothing wrong with that.

Rather, the theft is from the market participant who is getting the raw end of the deal. Legal trades require consent. If you sell someone a hard disk that you know crashed and is unusable, under the guise that it is working, you committed fraud. If you sell someone a new car that it turns out is going to break down almost immediately, you are subject to lemon laws and must refund or replace the car. If you had sex with someone in a case where consent was not in place, including in cases where the sex was pleasurable but the other person was defrauded to who you were (i.e. not their long-time partner), that is rape. And if you take stock that you're pretty confident is going to lose 80% of its value in three days when poor earnings will be announced, and offload it to an unsuspecting victim, no I don't think you can make the case that there is genuine consent here.

Re: Wall Street’s ‘Private Rooms’

#206

Post by infecto »

solatic wrote: post #204
infecto wrote: post #174

Earlier quoted context omitted.

Please don't define things when you have no idea what you are talking about. Everything in this post is simply wrong. Markets are not about information fairness, individuals are free to do research and come up with their own prices.

Individuals are free, in their research, to access sources of information that are available to all other market participants, even if that information is usually out of reach for most people. The canonical example is using satellite photos of parking lots to predict earnings calls, i.e. https://newsroom.haas.berkeley.edu/magazine/summer-2019/stoc... . It's still legal because hypothetically anybody could do it. What…

Was this supposed to defend your position that dark pools are illegal? Full stop it does not and will never meet the definition of insider trading. Your free to believe whatever you want but it does not meet the definition and your posts offer little more than strange steps into loaded words like consent.

Re: Wall Street’s ‘Private Rooms’

#208

Post by Sniffnoy »

thescriptkiddie wrote: post #196
Sniffnoy wrote: post #115

Earlier quoted context omitted.

No? It seems to be quite common. What's your reason to think that it might be illegal?

How are any of the regulations that govern trading enforced if a trade is not done on an exchange or otherwise publicly disclosed?

How is any law to be enforced? Most actions governed by law don't take place via such a visible and formal mechanism, and yet laws are written about them anyway!

(Also, when I spoke of a "reason to think it might be illegal", I had in mind, like, some sort of citation to a law or regulation or decision (or summary of such) that would indicate that, rather than, like, an inference about what the law would have to be in order to make other laws more easily enforceable...)

Re: Wall Street’s ‘Private Rooms’

#209

Post by roenxi »

chipsrafferty wrote: post #200
roenxi wrote: post #91

Earlier quoted context omitted.

Most things are different from each other. Why does that difference matter in this case? It looks a lot like traders trading in a market. That isn't manipulation.

A graphics card is non-fungible due to depreciation from use.

That isn't so; I looked up an RTX 4090 on Ebay [0]. The only information I see related to depreciation is "Used: An item that has been used previously" and a representation from the seller that they weren't using it for crypto, suggesting that the seller (and the buyer; this looks like a standard graphics card listing to me) are treating used graphics cards as fungible.

[0] https://www.ebay.com.au/itm/306189964097

Re: Wall Street’s ‘Private Rooms’

#210

Post by hattmall »

roenxi wrote: post #139
nairboon wrote: post #136

Earlier quoted context omitted.

Although the above example was missing some details, I suspected it was meant to illustrate the following effect: The public last price was $5, so bid/ask will be around that price let's say 4.99/5.01, if you buy with a market order you'd pay approximately $5 ($5.01). But if there is a new large sell order for 5 million shares at 5.05, then the market would react to this information and adjust bids & asks. For illust…

That is irrational. It suggests every time someone sees a market price at $5 they could put in an enormous fake sell order for shares at $5.05 to buy shares at $4.90 then cancel the fake order, which makes no sense. "The market" is giving away freebies in an insane way. If the clearing price is $5 and someone puts in a huge sell order for $5.05 there is no reason for the clearing price to drop.

>If the clearing price is $5 and someone puts in a huge sell order for $5.05 there is no reason for the clearing price to drop.

Except that the market is all game theory. If someone who bought a million shares with an ideal exit of $5.10 sees 5 million shares for sell at $5.05 it can absolutely inspire them to sell cheaper because the idea is predicting directional movements.

I design some financial software and the best way to think about it is to abstract away the idea of money and numbers. Think of it as a maze and every stock and price point combination is a doorway.

Normally a door, when you open it, you can see down the hallway to how long the next door is without actually entering the hallway. (In the stock market this is called Level II data) the impact of dark pools is that when you open a door you can't see how long it is. Except that it looks like every other hallway with a defined length, but you don't know that it is a hallway that keeps going for an undetermined amount of time. There's no way to figure out the length without entering the hallway and going as far as you can until you either reach the end or become exhausted (Not a great way to solve a maze).

Without access to the dark pool the best you can do is enter the hallway and figure out it doesn't behave as expected and move away from it.

It's a significant advantage when you are playing against other people to see the complete picture of the maze at any given time. There are entire teams of PhDs working to decode the positions of dark pools they don't have access to by analyzing option data.

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