![]() Eastern Standard Time, an algorithm matched buyers with sellers using the security's closing price for the session as means for settlement. In 1986, the company Instinet started the first dark pool trading venue known as "After Hours Cross." It was an off-exchange marketplace where customers entered orders during the day, and at 6:30 p.m. Initially, the off-exchange trading of securities was referred to as "upstairs trading" and represented a small portion of total trading activity. It states that any security listed on a given exchange after Apmay be actively traded off the exchange in which it was listed. The origin of dark pools can be dated back to 1980 and the enactment of SEC Rule 19c-3. However, if the transaction is conducted in a dark pool, out of the trading public's view, then the trade is executed without creating any abnormal volatility in the marketplace. Through processing the transaction in private, the institutional trader is able to realise a desirable price for the trade without worrying about having to pay a premium to the market.įor instance, if investment bank ABC wanted to buy 1 million shares of company XYZ to diversify their equities portfolio, the purchase would likely have an impact upon the current market price of XYZ. The pricing of securities offered by a public exchange can become compromised when the large order hits the open market. Having an order filled according to NBBO is especially important to institutional traders engaged in the trading of large blocks of securities. The NBBO is defined by the United States Securities and Exchange Commission (SEC) as being the best current bid and offer price available for an exchange-based security. The main objective of a dark pool is to provide traders with the ability to have their orders filled according to the ideals set forth in the National Best Bid and Offer (NBBO) regulation. Dark pools are also referred to as "dark pool liquidity" or "dark liquidity." Purpose Of Dark Pools Dark pools facilitate non-exchange-based trading practices between broker-dealer firms and investors interested in placing orders for the trade of specific securities outside of public scrutiny. ![]() Dark pools are networks of privately held trading forums, exchanges or markets that provide a platform for the anonymous trading of securities.
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