Dark Pools Looking More Like the Kiddie Pool: Shallow and Smelly (pfblogs.org)

2 interesting articles this week from WSJ and Reuters on the untamed and unaccountable dark pools in the market.What are dark pools?The WSJ defines them as "the secretive electronic trading networks that match buyers and sellers anonymously." These trades are done outside of the traditional stock markets like the NYSE and NASDAQ.The WSJ journal points to the dark pools at failing on their promise of making it easy to move large shares without affecting price. In fact with more dark pool firms competing for volume and their share of the business, the consulting firm TowerGroup reports that the average trade was just 260 shares at the beginning of 2008. A decade ago it averaged over 1,400 shares. Ugly shrinkage.The Reuters article observes that as a result of the competition for liquidity and volume, many dark pool firms are falsely boosting their trade volume numbers. With no standards among these market players, many are knowingly double counting attempts to fill blocks as new and reportable volume.I mention the articles because this has been a recurring theme when I speak with our Director of Trader Education, Jamie Hodge. He shared his observations in his recent interview ...