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Illuminating the New Dark Influence on Trading and U.S. Market Structure
- Thread starter ASusilovic
- Start date
Sigh... let's do this as a good ol' voice trade skit:
Ring Ring....
bears21: hello -
Institutional Trader: I need a bid in competition, 100k block of XXY
bear21: ur... I can bid $50 for 10k
IT: What about the other 90k? Can you bid on the whole size?
bear21: nope, you'll have to look away.
Ring Ring....
GS: hello -
IT: I need a bid in competition, 100k block of XXY
GS: $48 bid
IT: that works
GS: done.
This is why all sorts of execution venues exist.
Ring Ring....
bears21: hello -
Institutional Trader: I need a bid in competition, 100k block of XXY
bear21: ur... I can bid $50 for 10k
IT: What about the other 90k? Can you bid on the whole size?
bear21: nope, you'll have to look away.
Ring Ring....
GS: hello -
IT: I need a bid in competition, 100k block of XXY
GS: $48 bid
IT: that works
GS: done.
This is why all sorts of execution venues exist.
Quote from bears21:
Quote from Bob111:
one thing is certain to me from years of US stock market observation-today we(the little retail guys) have ZERO transparency...
dunno about you,but it's certainly impact my trading. are you happy to see executions for thousans of shares at your price or even below at some dark place,instead of exchange,where you sitting at? and you got no fill on this "winning" trade?
i'm surprized, that ET member since 2005 don't know nothing about possible impact of the dark pools for retail trader. good luck! [/QUOT
+1 bob
all i know is that i show price improvement and i get traded through all the time. nms must have meant shit but they should have to include all venues lit or dark sweep any liquidity in the displayed market even if its hidden then the rest goes to the dark pools to fill the rest of the order. i mean geez im giving price improvement is anybody gonna bitch if they sell 10k shares and i give them a 7 cent improvement on 1000 of them i mean more money in someones pocket plus i can add liquidity.
Quote from sjfan:
Why? Other than you stand to benefit at the detriment of someone else? Why should the institutional trade be harmed via greater market impact because you need to get a cut? That would in effect take away liquidity.
think about the other side of the trade if they are a seller bring the price down i shorted before this seeing the weakness then i bid to give him back some shares higher than where he would execute through a dark pool do you think the sell side would be opposed to selling 5 or 6 cents higher for a portion of his order. would he take offense to that and say no man forget that i want the whole lot going off where its gonna go off. if anything i am helping the other side of the trade save a little more money. i get what i want he gets what he wants no harm in that.
See my little skit I posted on the last page. You may offer a small amt of price improvement on a partial fill, but market impact could cause the whole execution package to be done at a worse level. Giving up a little gain in term for eliminating slippage and execution uncertainty is rational and economically useful - and worth something.
Quote from bears21:
think about the other side of the trade if they are a seller bring the price down i shorted before this seeing the weakness then i bid to give him back some shares higher than where he would execute through a dark pool do you think the sell side would be opposed to selling 5 or 6 cents higher for a portion of his order. would he take offense to that and say no man forget that i want the whole lot going off where its gonna go off. if anything i am helping the other side of the trade save a little more money. i get what i want he gets what he wants no harm in that.
Quote from sjfan:
Sigh... let's do this as a good ol' voice trade skit:
Ring Ring....
bears21: hello -
Institutional Trader: I need a bid in competition, 100k block of XXY
bear21: ur... I can bid $50 for 10k
IT: What about the other 90k? Can you bid on the whole size?
bear21: nope, you'll have to look away.
Ring Ring....
GS: hello -
IT: I need a bid in competition, 100k block of XXY
GS: $48 bid
IT: that works
GS: done.
This is why all sorts of execution venues exist.
first off good skit and yes i understand that but my whole thing comes down to the trade through rule which is suppose to be enacted through nms. obvioulsy it doesnt cover dark executions or adf trades. but it should otherwise were still dealing with a two tiered market.
heres my example
xyz is trading at 45.25 im short from like 45.50 i have bids at 44.90 some showing some hidden. trade goes off at 44.85 for 10k why not hit me at 90 for whatever im there for then the rest goes to the dark order at 85 why trade around me. does that seem fair
Quote from ASusilovic: http://www.iijournals.com/doi/abs/10.3905/jot.2008.700218
Unfortunately, that link goes to paywalled content.
Quote from sjfan:
See my little skit I posted on the last page. You may offer a small amt of price improvement on a partial fill, but market impact could cause the whole execution package to be done at a worse level. Giving up a little gain in term for eliminating slippage and execution uncertainty is rational and economically useful - and worth something.
but if the order was for 10k and i get 1k a few cents higher the remainder of the order would get filled at the dark venues price but instead of getting 10k off they got 9k. i mean these routes were just made for the instituional person to not have to interact with the retail guy. moving big shares without market impact is so off in terms of transparancy. i mean nms was suppose to improve all these points and honestly it goes totally against most principles. dont get me wrong i can use the darks to my advantage as well because i have access to a few of them but you have to love the irony with what nms caused.
There's actually several pretty good reason.
First reason - If you sell you a partial block at 44.9, for all I know, you'll need to dump that same block at the market in the next few minutes. Given I still have more to do, you are now competing against me for liquidity.
Second reason - There's no reason why I should stop with you right? I'll hit you, and the hit the next, and so on - but the market then sees the bids getting taken out and trades down against me. Basically, by hitting your bid and take that level out on the screen, I've moved the market for all to see. Minimizing market impact is what I'm trying to do and is exactly what I've done if I hit you.
It's fair because your bid is only good for a small size - a size too small in relation to what I need to do. If someone offers me a price that works for my entire size at once, why shouldn't I go with that.
Think of it as the price of execution certainty rather than a 'two tier' market. If you can provide me the same execution certainty, then we'd trade at your price.
First reason - If you sell you a partial block at 44.9, for all I know, you'll need to dump that same block at the market in the next few minutes. Given I still have more to do, you are now competing against me for liquidity.
Second reason - There's no reason why I should stop with you right? I'll hit you, and the hit the next, and so on - but the market then sees the bids getting taken out and trades down against me. Basically, by hitting your bid and take that level out on the screen, I've moved the market for all to see. Minimizing market impact is what I'm trying to do and is exactly what I've done if I hit you.
It's fair because your bid is only good for a small size - a size too small in relation to what I need to do. If someone offers me a price that works for my entire size at once, why shouldn't I go with that.
Think of it as the price of execution certainty rather than a 'two tier' market. If you can provide me the same execution certainty, then we'd trade at your price.
Quote from bears21:
first off good skit and yes i understand that but my whole thing comes down to the trade through rule which is suppose to be enacted through nms. obvioulsy it doesnt cover dark executions or adf trades. but it should otherwise were still dealing with a two tiered market.
heres my example
xyz is trading at 45.25 im short from like 45.50 i have bids at 44.90 some showing some hidden. trade goes off at 44.85 for 10k why not hit me at 90 for whatever im there for then the rest goes to the dark order at 85 why trade around me. does that seem fair