(September 20, 2012, New York) The Australian reports that once upon a time, brokers who needed to execute large share transactions would do so on the "upstairs market". Used by institutions and private clients alike to conduct trades without placing undue pressure on the share price, the upstairs market was a place of privilege and privacy.
According to ASX chief executive Elmer Funke Kupper, about one-quarter of the value of all Australian trades are taking place through dark pools, although on occasion it has been much, much higher. "In the first half of this calendar year, it has been as high as 43 per cent." That's a concern because research by Nasdaq, the world's second-largest exchange, has shown that when 40 per cent of trading is conducted through dark pools the exchanges' ability to act efficiently begins to deteriorate.
Today, the upstairs markets have acquired a different name. The ominous and more sinister-sounding "dark pools". That's because the once rarefied domain of institutions has been infiltrated by high-frequency traders, a new breed of investor who uses computer programs to exploit fractional differences in share prices to eke out small gains over long periods. Needless to say, it's hard to tell who's who in the dark and the establishment doesn't like it one bit.
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