What Are Dark Pools? 10 Things to Know.

-Examples of dark pools include $Morgan Stanley (MS.US)$ ’s MS Pool and $Goldman Sachs (GS.US)$ ’s Sigma X.
-Institutional investors primarily use them to enact large trades, or block trades. These institutions can possibly receive a better price for their trades on the dark pool than on the open market.
-Furthermore, they are advantageous to institutional investors because there are no exchange fees.
-Buyers and sellers exist in dark pools looking for a specific trade at a specific price.
-In addition, when block trades are enacted over the dark pool, the details are released to the consolidated tape after a delay.
-As a result, the “market impact is significantly reduced for large orders” when conducted through a dark pool.
-There are three types of dark pools: broker-dealer-owned, agency broker or exchange-owned, and ones owned by independent operators.
-A concern surrounding dark pools is that stock prices on public markets may not reflect the actual price at all times. For example, imagine an institutional investor sells a large portion of stock X. That trade may not be reflected on the actual stock price until the dark pool trade is disclosed.
-Dark pool operators have engaged in misconduct in the past, such as front-running trades. Securities regulators have received more than $340 million from these operators since 2011 to settle various allegations.
-The bottom line is that dark pools can provide pricing advantages to institutional investors. However, the lack of transparency can create conflicts of interest for dark pool owners — and hurt retail traders in the process.
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