Here's more - as for "why?" - just as dvdw suggests, it's to keep "us" in the dark, so they can have advantages in trading.
Everybody Into the Dark Pool
June 13, 2008, 1:38 pm
Posted by MarketBeat Staff
blogs.wsj.com
Rob Curran of Dow Jones Newswires reports:
If you can’t beat em, join em: the Nasdaq and the New York Stock Exchange are forging ahead with plans to offer clients access to the “dark pool” networks that compete with them on order execution. The moves come as Wall Street exchanges and brokers race to pull together the popular but disparate “dark pools” in a sort of anonymous electronic-trading waterpark.
Allowing institutions to bid on or offer stocks without revealing their identity or influencing the market with the order, dark pools have increased in popularity in recent years, with about 40 in all springing up. Ultimately, the trades are “printed” on public exchanges, but the dark pools divert revenue from the exchanges in the more lucrative business of order execution.
The Nasdaq recently struck a deal to route orders through five pools that are responsible for an aggregate of more than half the volume run through these electronic venues. The NYSE’s parent is routing orders through as many as 9 and is planning to connect them to roughly 30 eventually. Tuesday afternoon, NYSE Euronext, the parent of the New York Stock Exchange, said Credit Suisse’s Crossfinder dark pool, running a close second to Goldman Sachs’s Sigma X, would be the first accessible through a transaction network it owns.
These deals follow Goldman Sachs’s reciprocal agreement to open up its pool to trading algorithms from rivals UBS and Morgan Stanley. You might call that one the your-software-can-play-in-our-pool-if-ours-can-play-in-yours deal.
Alliances are a delicate business in the dark pool-world, because of concerns the pools will turn “grey,” admitting some transparency. Partnerships could also make it more difficult to achieve the priority of pool operators everywhere: chucking out those swimmers whose flow is “toxic.”
But funds and other clients don’t want to have a mishmash of software and screens to connect with different dark pools, making more partnerships in this vein seem likely.
Demand is running high: Tabb Group estimates about 10% to 12% of U.S. daily stock trading volume washes through the pools. Currently, Nasdaq executes about 18% of its overall volume, or about 350 million shares a day, through its non-displayed platform, which, like dark pools, offers anonymity to clients, up from around 10% about 18 months ago. Nasdaq estimates it will eventually route 5% to 10% of its volume through its dark-pool allies.
Credit Suisse has about 30 dark-pool partners and is building its strategy around alliances. “Just looking at one dark pool, it’s like two ships passing in the night … You could be off by two seconds and you’re not going to get a match … If you have the technology to go out and check as many dark pools as possible with the appropriate algorithmic logic, then you have a better chance of matching the trade,” said Guy Cirillo, the head of global channel sales at Credit Suisse’s algorithmic trading unit. “That’s why it’s so important (for the trading unit) to have as many of the dark pools connected — then the probability of getting execution done for our clients goes up.”
For its part, J.P.Morgan is going with Neovest, which seeks to be the “Google” of dark pools, by connecting clients with a range of them, rather than owning any itself.
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