Skip to comments.Dark markets may be more harmful than high-frequency trading
Posted on 04/07/2014 7:53:08 AM PDT by shove_it
NEW YORK (Reuters) - Fears that high-speed traders have been rigging the U.S. stock market went mainstream last week thanks to allegations in a book by financial author Michael Lewis, but there may be a more serious threat to investors: the increasing amount of trading that happens outside of exchanges.
Some former regulators and academics say so much trading is now happening away from exchanges that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is. And this problem could cost investors far more money than any shenanigans related to high frequency trading.
When the average investor, or even a big portfolio manager, tries to buy or sell shares now, the trade is often matched up with another order by a dealer in a so-called "dark pool," or another alternative to exchanges.
Those whose trade never makes it to an exchange can benefit as the broker avoids paying an exchange trading fee, taking cost out of the process. Investors with large orders can also more easily disguise what they are doing, reducing the danger that others will hear what they are doing and take advantage of them...
(Excerpt) Read more at news.yahoo.com ...
Why in the heck does government believe it should be able to pull this scam anyway: “paying an exchange trading fee”.
Why in the heck should there even be an exchange tax??
The exchange fee is not a tax; it’s a fee from the market to trade there.
Ebay does the same thing — you pay to have a place to trade.
That said, you are correct the reason the gubmint cares is markets do report trades to the gubmint and it is harder to tax things you do not necessarily know about.
The “exchange trading fee” is not a tax, rather a fee brokerages pay to the stock exchanges. Scottrade is my brokerage which may execute trades within their order book without going through an exchange, thereby avoiding the “fee”. I notice on some trades that, on large orders especially, the transaction is executed in partial tranches. This occurs mainly on sell orders rather than buy orders, I’ve noticed and is usually to my benefit vs. the market ticker. In this way, the brokerage becomes a mini-exchange. This is nothing new, it’s been going on ever since there were brokerages.
Thanks for the info.
Once again, no matter who levies it, a fee is something that markets seek to avoid. I understand the need for a fee, but I understand why people would seek “dark markets.”
Seems to me that the same people who flash trade would figure out how to arbitrage away differences between prices on the lit versus dark markets.
Leftists coin these sensational labels like “dark market” as if it is a bad thing needing regulation. For example: “Will flash trades now lead to a financial transaction tax?”