This is from a former Wall Street professional

Wall Street’s edge over retail traders remains, as always, structural: superior data; sophisticated, high-frequency trading software. More important, its traders have access to “dark pools,” private exchanges where they send large orders quietly to avoid moving the market against the trade, and “over the counter” markets, where they trade with one another rather than on public exchanges.

In what way does a trade on a dark pool not move the market price? OTC doesn’t mean not trading with the public.

Democratizing the economy, then, involves curbing speculation and pouring national resources into lifting up Americans and rebuilding public institutions. Canceling federal student debt, which President Biden can do without Congress, would grow the economy, relieve the disproportionate debt burdens carried by Black and brown borrowers, and incentivize science and engineering graduates to consider careers benefiting the public good. A modest wealth tax could be redirected to priorities like universal child care. Lawmakers should ensure hedge funds aren’t taking advantage of regulatory blind spots to make themselves too big to fail. A very small financial transaction tax could fund investments in reducing the racial wealth gap through programs like baby bonds.

Ah, that’s why the NYT has published her. She says the fashionable things despite not knowing what she’s talking about.

20 thoughts on “This is from a former Wall Street professional”

  1. The purpose of a “dark pool” is for would-be buyers and sellers of large blocks of shares outside the standard dealing size to exchange shares for money without undue publicity. If a market-maker knows that X wants to sell $50m of shares in Y, he will lower his buying price (and, often but not always, his selling price) for Y in order to maximise his profit and/or reduce his risk on the deal: if he know Z wants to buy a large parcel of shares he will move his price up. So dark pools exist to match buyers and sellers when they both want trade at/very close to the mid-market price.
    Prior to “Big Bang” when the LSE had “single capacity” a stockbroker with an outsize buy order in a stock would ‘phone up institutions that it knew had a large holding to offer them the chance of dealing at a more favourable price than they would normally get (it was known as a “cross trade” that a jobber would certify for a miniscule margin on the shares where it had no risk and the broker only charged commission on one side of the deal so the seller was 2 or 3% better off than if it had just sold the stock. [And, if the broker had a big seller it would contact those institutions it believed to be willing buyers at that price]
    Post “Big Bang” several people tried to set up “dark pools” in the UK market but the problem was that too many would-be participants wanted to gain *all* the benefits instead of sharing some with the counter-party.

    The simple answer to your question is that a trade on a “dark pool” is not in the market and usually involves one party that would not deal at the *net* price it would get/have to pay in the market because it cuts down, or possibly out, the commission/fee paid to the middle-man.

  2. Just to be pendantic, John, the commission rates on the sort of size deal you’re talking about were 5/8% (0.625 for those can’t handle fractions). So even with the jobber’s put-through turn, under 2% ex’s total incidence.

  3. Canceling federal student debt, which President Biden can do without Congress

    Imagine lefty Yanks thinking the Joepedo’s handlers are going to give them anything more than the odd, worthless token woke gesture (a black woman on the $20 bill, trannies being allowed to get maimed in Afghanistan) while they focus on the important business of stuffing their wallets with bribes and encouraging massive, uncontrolled Third World immigration.

    No refunds, lol.

  4. Student debt forgiveness helping “Black and brown borrowers”? Hedge funds which are too big to fail? I think I got dumber reading this…

    Who is ‘Wall Street’ anyway? And why on Earth is any retail investor trying to compete with them? The public should limit their investment to funds, unless they have good intel or a special deal (employee share plans) – either of which should easily beat ‘Wall Street’.

  5. @ bis
    The big difference was the size of the spread on deals outside the jobbers comfort zone on unhedged long or short positions: that could easily be 2% (or even more) in less liquid shares. The put-through on matched bargains “cross-trades” could be 1/16th %

  6. “Wall Street’s edge over retail traders remains, as always, structural: superior data; sophisticated, high-frequency trading software. ”

    All that stuff gives you a fraction of an edge, and is probably worth the money, but the real wins in buying and selling shares aren’t about being there 1 second before the next guy, or even about the “superior” data. It’s about thinking through the effects of technological change or what’s around the corner, and figuring out how that impacts particular shares.

  7. You’re not far off, John. Typically three-hapence in the pound on well traded stock rising to thruppence in more obscure or volatile stuff. Could even see a tanner. But, of course, that’s just asking for a quote*. Dealers used to earn their money, you know.
    *Generally, you asked for price & size if you were serious trading. And might get back different sizes between bid & offer.;

  8. “Black and brown”? What not “Black and Brown”? I know Americans have killed grammar and there’s no hope for “black and brown”, but… well, I was going to ask for consistency, but they’ve killed that as well. Orange Man Bad. Untaxed Overseas Profits Bad. Orange Man taxes overseas profits. Oh, wait, nothing to see here, Orange Man Bad, Overseas profits are not being taxed. Hey, stop reading that tax law, Overseas profits ARE. NOT. BEING. TAXED. Evil multinationals!

  9. @ bis
    And the bid price would be lower in size if he thought you were a seller, the offer would be higher if he thought you were a buyer. It was simply a case of reducing the jobber’s risk of being stuck with a short (long) position if the market went up (down) in the morning or when Wall Street opened.

  10. Ah to reminisce. As a fair sized broker we made a market in several stocks. So one might be ringing round institutions trying to place or pick up lines. Needed knowing who was interested in what, which way, how many & at what. In a range of shares. All without computers or even a calculator. Just a pencil, a notebook & most of it in your head.

  11. “And the bid price would be lower in size if he thought you were a seller, the offer would be higher if he thought you were a buyer.”
    Didn’t really work like that. A lot of the time, you’d open your book. Don’t forget what you’re actually trying to do. Arrange a transaction between the ultimate buyers & sellers to the best advantage of both. You’re not playing poker. The jobber’s working with you, not against you. He’ll make his turn, whatever the price. He’s trying to not be in an exposed position.

  12. In the hoo-ha it seems to have been lost that Robin Hood is commission free because they sell the trade data (and i think i’m right in saying a time delay). So if a few hedge funds were caught out, ok, but there does seem to be an obvious way for pros to have an edge of the memesters. Pay robin hood for that data.

  13. “A very small financial transaction tax …”

    It sounds as if Alexis Goldstein is used to talking to toddlekins. Oo’s a good boy, then? Oo’s gonna eat a very small, a very very small, spoonful of broccoli? Aw, oo’s a good boy, then?

  14. Ducky

    Tech support for an equity derivatives desk? No, not really a Wall St professional. She is a professional activist though and has been for more than ten years Safely ignored.

  15. @ bis
    I have *not* forgotten what it was like – the jobber was working with the broker on a cross-trade but in a simple buy or sell the broker was working for the buyer (or seller) and the jobbers were competing (a little) with each other. I occasionally got unexpectedly good terms when the jobber expected the broker I was using to be selling instead of buying (or vice versa).
    *Sometimes* it was in mutual interest for the broker to open his book but I should consider that unusual.

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