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Author: yodaorange Big red star, 1000 posts Feste Award Nominee! Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77266  
Subject: Meltup in LSE-pC & Dark Pools Date: 5/11/2013 12:07 AM
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It looks like someone placed market buy orders on LSE-pC today. It closed at 27.12 on Thursday 5/9/13. About 3,000 shares trades >=28.00 today. The closing price today was 27.50, so the high prices were a brief excursion.

The high was 100 shares at 29.9999. You read that correctly as 29 and four nines. This is called a "sub penny" trade. Investors on regular exchanges like NYSE, NASDAQ can only trade in increments of a single cent. Trades on "dark pools" are allowed to trade in less than one cent increments. Dark pools are like exchanges except buyers/sellers are NOT able to see the bid/ask prices until a trade is consummated. In this case, a regular customer probably had an open order to sell at 30.00 that was shown to the public. A sell order for 29.9999 was placed on the dark pool. When the buyer offered to pay up to 30.00, the dark pool seller took precedence because he was willing to sell for .01 cent less per share.

Retail investors can place dark pool orders on some brokerages, but it is NOT the norm. The vast majority of retail investors do NOT have access to dark pools.

The original intent of dark pools was so that others could NOT see what you were trying to sell/buy, particularly in large volume. For example, if you wanted to buy 10,000 shares of LSE-pC, it would drive up the price substantially. If all of the computer algorithmic traders saw the 10,000 share buy order, they would attempt to jump in front of your order and buy the shares first. Then they would immediately flip them back to you for a higher price. This is all done automatically these days in software.

In the old days with manual trading the same thing happened. A trader would physically walk up to the "specialist post" on the NYSE. He would work with the specialist to place your trades. If another buyer/seller determined you were trying to move a large quantity, he would attempt to jump in front of you. It is exactly the same mechanism that occurs today. In the old days, it was human interaction and some guess work. Today it is nanosecond decision making computer algorithms which also involve some guess work. . . .

Some people are unhappy with dark pools. There are proposals to:

1) Do away with dark pools, such that all orders show to the public on “lit pools”

2) Make ALL order be on dark pools. You would NOT see any bid or ask prices. You would only see prices after the trades were completed.

3) Allow dark pools, but force them to trade in one cent increments instead of sub-penny.

I do NOT see traction to implement any of these changes. In the meantime, it is commonly reported that about 1/3rd of US trades are done on dark pools. There are many large ones that institutions trade on.

Good luck competing against dark pool orders. . .

Yodaorange
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