Dark pools, the term coined for private exchanges for trading securities not accessible by the investing public. They are also known as “dark pools of liquidity,” for their complete lack of transparency. A recent creation, they were created to facilitate block trading by institutional investors, who want to hide their large orders. Dark pools keep traders from using the large block stock trades for their benefit. Peter Conti-Brown, Wharton professor of legal studies and business ethics, some banks are engaging block trades on a large scale and they are lying.
Two weeks ago, U.S regulators exacted fines exceeding $154 million from Barclays Caprial and Credit Suisse involving their use of dark pools. Some criticized the settlement because if the cases had been litigated they would have revealed more about the use of dark pools which Conti-Brown believes has created systemic risk. He says that the Securities and Exchange Commission needs more resources to enforce laws governing high-frequency trading, especially more modern technology. William Black, Professor of economics and law at the University of Missouri-Kansas City believes that the Department of Justice and SEC should litigate these case to set precedents. Even if they were to lose cases, more information is revealed and in addition, such litigation in finance produces efficiency. It is presently unknown how many such dark pools are used each day in trading