[HN Gopher] Wall Street's 'Private Rooms'
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Wall Street's 'Private Rooms'
Author : SirLJ
Score : 87 points
Date : 2025-03-17 17:10 UTC (5 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| mertleee wrote:
| Historically, the "private dark room" has always been a mechanism
| of goofy elites.
|
| To an extent these will always exist - but what we define as
| investigative journalism will likely decide whether we hear about
| these at all haha.
| jimbob45 wrote:
| _Carlos Cabana, head of equity sales and trading at CastleOak,
| dubs the room a "diversity pool," because the participants are
| all minority-operated brokerage firms. While in this instance
| CastleOak doesn't know specifically who is on the other side of
| every trade, it knows it will be one of about 10 counterparties
| who meet certain eligibility criteria related to ownership and
| investment goals._
|
| I am convinced that they only added this bit to make sure people
| would argue about skin color and ignore the implications of the
| rich making sure the peasants aren't allowed to play the same
| game as them.
| potato3732842 wrote:
| It's far more likely that it's a tongue in cheek inside joke
| than it is they care what outsiders think. Or it's an internal
| reference that's a dig at someone or something and was never
| meant to be made public (these firms are small enough this kind
| of stuff can happen). Non-consumer facing finance is just about
| the least diversity conscious industry ever. They only care
| about green.
|
| Source: work in industry.
| Vecr wrote:
| It's a _dark_ pool.
| dheera wrote:
| I've been wading through terabytes of financial data over the
| past month. (I'm an ML/AI software engineer trying to create a
| trading bot that makes me more consistent income during times of
| uncertainty that are outside my control.)
|
| This is some of the data I'm looking at. NVDA price on a
| particular day vs. average position of trades in bid ask spread
| aggregated over 10 seconds, on all the exchanges it is being
| traded on. When it is close to 1, it is trading at close to the
| NBBO ask; when it is close to 0, it is trading at close to the
| NBBO bid.
|
| https://imgur.com/a/lcCwDsj
|
| One of the things I found is that the dark pool trades predict
| price action very well on a few-minute time horizon. "FINRA
| Alternative Display Facility" on the 2nd plot from the top is all
| the darkpool trades. If I had access to dark pool trade data in
| real time I think I could piggyback off the manipulators and make
| bank.
|
| Unfortunately the SEC only requires them to report transactions
| within 15 minutes, not in real time.
| whatevermom wrote:
| There might be other ways to know about the data in advance?
| Some kind of flaw somewhere that lets us sniff the "dark
| rooms"?
| dheera wrote:
| I tried to train a model to predict the darkpool transactions
| from the rest of the transactions. It didn't work. I'm back
| to the drawing board trying other things now.
| rkagerer wrote:
| If that's the case, couldn't the providers who operate the dark
| rooms (like OpenChronos) use their own realtime data to do so?
| Are there any who do that today? (i.e. monetized market
| surveillance). If so, does it run afoul of regulations?
| dheera wrote:
| I don't know, honestly. I would imagine it to be illegal to
| trade on that data before it's released to publicly-available
| trade streams.
|
| I'm of the opinion that a huge amount of manipulation happens
| and the SEC either turns a blind eye to it or the SEC goes
| after easier fish that have worse lawyers to get their
| income.
| jandrese wrote:
| > I would imagine it to be illegal to trade on that data
| before it's released to publicly-available trade streams.
|
| But what would be the penalty if you are caught? A few
| hundred million dollar fine? Absolute peanuts to any of the
| firms operating these pools. Of course there is corruption
| in the system, it is set up to facilitate corruption.
| Without corruption there would be little reason for these
| to even exist.
| dmurray wrote:
| That's one of the purposes of darkpools, to let institutions
| trade large size without moving the market. No one's getting
| manipulated here: both the buyers and sellers know what's going
| on.
|
| You can trade on these yourself - the darkpool operators are
| always looking for new market makers. All you need to do is
| agree to quote a few hundred US equities in decent size inside
| the NBBO, six and a half hours a day, and you too can have
| access to this flow.
| ElliotM wrote:
| > Unfortunately the SEC only requires them to report
| transactions within 15 minutes, not in real time.
|
| TRF reports must happen within 10 seconds or be submitted with
| a late modifier [0]. An executing broker systematically
| submitting all reports 15 minutes late would be investigated
| pretty quickly.
|
| You can buy access to the consolidated tape from a marketdata
| provider, although this is going to be pretty prohibitively
| expensive for an individual.
|
| [0] https://www.finra.org/rules-guidance/rulebooks/finra-
| rules/6...
| qweiop wrote:
| I remember reading about dark pools and asking a friend in
| finance if the sector really is as corrupt as it sounds, his
| reply? "Oh much more"
| Nifty3929 wrote:
| Did he elaborate on this?
| LatteLazy wrote:
| Goldman and others got in trouble for selling access to the
| supposedly secret orders in their dark pools back in the day.
|
| They were fined 800k I think?
|
| I believe dark pools started growing post flashboys when
| people realising what hft meant and wanted an escape (see
| comment below). But as they got big they became a target in
| and of themselves (ecology in action I guess).
|
| I worked in algo trading at the time (not hft, but anti hft)
| gaadd33 wrote:
| Dark pools started in the 1980s once the SEC permitted
| securities to be traded off the exchange they are listed
| on. I think that was well before flashboys.
| LatteLazy wrote:
| I had no idea they went that far back? Good knowledge!
| QuantumGood wrote:
| And then they found that some of the liquidity in dark
| pools was by dark HFT.
| ketzo wrote:
| Most informed "dark pools" comment
| reverendsteveii wrote:
| The only reaction more adverse than the one you get asking
| coders about remote voting is the one you get asking finance
| people about transparency and anticorruption. It's an open
| secret at this point that any effort that would weed out a
| significant proportion of the fraud would cripple our finance
| sector overall just because everyone who runs it would be in
| prison.
| _bin_ wrote:
| it's more like because governments have started to try to
| assign criminal liability to seniormost execs, not just to
| the people responsible. this is a response to the wink-and-
| nod cases that do exist but glaringly fails to account for
| the complexity and scope of large financial institutions and
| the fact that the guy at the top can't always supervise
| everything personally.
|
| i don't know who you're talking to but no, it's not that
| criminal. it may be "corrupt" in the sense of rent-seeking or
| recapture-heavy institutions. it may be "corrupt" in the
| sense that your average IB analyst knows he's pulling long
| hours to churn out reams of 80% BS. it may be "corrupt" in
| that the VP at a PE fund knows that 7 turns of leverage and
| an inflated multiple for this middle-market shitco isn't
| _actually_ a good buy. but there are a lot of honest people,
| enough that you can choose to do business with the same.
| markus_zhang wrote:
| Back in the day when I was day trading in a firm, dark pool was
| pretty much the only place that I could offload some stocks
| quicly when they went the other way. It was pricey though so we
| were told to use it as a last resort.
| zeroq wrote:
| I worked for an investment bank and on the inside no one even
| pretends, it's just a part of the job.
| tedunangst wrote:
| Funny, I got the same answer from my neighbor when I asked him
| how much the NSA satellites can see.
| Nifty3929 wrote:
| It is not clear to me what nefarious things people believe are
| going on there that we should be worried about.
|
| All the article says is that people are doing things we don't
| know about, but implies that somehow we should feel not-okay
| about this.
|
| I don't know what's going on in my neighbor's house either, and
| it could certainly be bad stuff, but that's doesn't mean that it
| is bad or that I should start spying on them.
| johnmaguire wrote:
| Isn't the problem that this allows for all kinds of forms of
| insider trading?
|
| > Insider trading--the practice of buying or selling a
| company's securities based on material, nonpublic information--
| has long been a contentious issue in financial markets.
|
| https://www.investopedia.com/terms/i/insidertrading.asp
|
| There's also a question of whether they are good for the health
| of the overall market: https://www.cbsnews.com/news/finances-
| dark-pools-explained/
| ajross wrote:
| It's _by definition_ insider trading. If they made the trades
| in public the market price would change to reflect the
| demand. They don 't want that to happen, they want the trade
| to happen at a _non-market_ price set by people with
| information about the deal.
| ikmckenz wrote:
| No, "I am XYZ hedge fund and I want to buy stock ABC" is
| not material non-public information to XYZ hedge fund. If
| it was, any buying or selling of stocks would always be
| illegal, since you would be "insider trading" on your
| desire to buy the stock.
| gruez wrote:
| The "insider" in "insider trading" refers to trading on
| privileged nonpublic information, not arranging the trades
| in a private venue.
| oangemangut wrote:
| Even in dark pools the trades have to happen within the
| NBBO, they can't just trade at whatever price they want.
| ikmckenz wrote:
| > Isn't the problem that this allows for all kinds of forms
| of insider trading?
|
| No, it doesn't. All trades are made public after they happen,
| as per regulations. There is no difference to insider trading
| regulations if a bad actor trades via a lit exchange or via a
| dark pool. Dark pools only "hide" pre-trade information, such
| as standing buy or sell limit orders.
| JKCalhoun wrote:
| Really? Isn't knowing that an extremely large trade is
| about to take place insider information?
| tedunangst wrote:
| That is only insider information for the person making
| the trade.
| JKCalhoun wrote:
| And there are no other parties involved before the trade?
| That was not my understanding.
| tedunangst wrote:
| You may be thinking of front running, which is an agency
| problem, and also not this.
| JKCalhoun wrote:
| It stands to reason that if the buyer/seller are seeking
| private rooms there is something unfavorable for them about
| "lit" trading. That alone should raise red flags.
| crazygringo wrote:
| Insider trading.
|
| Also potentially tax evasion?
| reverendsteveii wrote:
| It's manipulation by definition. These hidden trades exist to
| prevent other people from being able to act in their own best
| interest based on available information. This isn't about
| what's going on in your neighbor's house. Your neighbor's house
| is private, markets are public. This is about being at a public
| auction in the middle of bidding on something when someone else
| walks up to the crier, whispers a few words in his ear, and
| then the crier just quietly says "bidding is closed" and you
| have no idea who bought the item or for what price but now you
| have to try to price similar items.
| oangemangut wrote:
| In the case of Dark Pools, it would actually be the crier
| saying "a lot 10x the size of what I'm auctioning just traded
| somewhere else where none of you lot can trade for xx price".
| So after they say that you actually do know the price that
| they bought the item(s). This is since the dark pools have
| requirements to report to the trade tapes their trades in
| fairly similar latency to the exchanges themselves.
|
| EDIT: The rules also dictate the allowed prices the dark
| pools trade at. They have to be within the national BBO, they
| can't just trade at whatever price they want. So the public
| auction is actually helping them find the prices, without
| their pre-trade information affecting the price before
| execution.
| gruez wrote:
| >It's manipulation by definition. These hidden trades exist
| to prevent other people from being able to act in their own
| best interest based on available information.
|
| So if I have a RTX 4090 to sell (a very sought after
| commodity these days), and I sell it to my buddy rather than
| listing it on ebay, I'm doing market "manipulation"?
| wesapien wrote:
| Depends on the volume
| gruez wrote:
| Fine, is OpenAI doing "manipulation" when they buy 10k
| H100s from nvidia directly, rather than on the open
| market?
| fedeb95 wrote:
| your graphic card isn't a stock market.
| gruez wrote:
| A market is a market, is it not?
| reverendsteveii wrote:
| no, securities aren't the same as retail products
| gruez wrote:
| That might be so, but the original comment wasn't talking
| about "securities manipulation", just "manipulation".
| reverendsteveii wrote:
| only if you take it entirely out of the context in which
| it's in, which is the comment section on an article about
| securities
| charcircuit wrote:
| The graphics card would repesent a stock. Both are a
| good.
| charcircuit wrote:
| Your analogy is bad because this doesn't happen at a public
| place. People can't privately sell goods between each other.
| If someone someone sells their gold to a gold buying shop,
| that was not a public auction, yet people are still able to
| price gold.
| infecto wrote:
| Not manipulation as most/all of these execute around the
| NBBO. Exceptions exist for extreme block trades that may give
| some price advantage do to the sheer scale but we are not
| talking about manipulation.
|
| I can easily see the retail price of a good, I can go to a
| wholesaler or some other holder of this good and ask them if
| I can buy it at a cheaper price. They might tell me to kick
| rocks if I don't have volume. Pretty similar to a dark pool.
| Markets are both private and public everywhere.
| oangemangut wrote:
| If you look up RegNMS the goal is to make public markets fair
| by having rules that have to be met in order to trade. Dark
| pools allow participants to 'hide' information that's not
| public. It is mostly about the order books. If dark pool sell
| order for 1B of TSLA stock goes on the order book, only other
| members of the pool get that information. The dark pools are
| required to still follow RegNMS rules for trade prices, but
| there is an inherent asymmetry in the market information in
| this case as the dark pool participants can see the public
| markets and their dark pool in order to make trading decisions.
|
| In your neighbor's house example, it would be like if there was
| a street market auction for trading cards happening in your
| neighbor's front yard, but in the house your neighbor and
| another neighbor had gotten together to trade 100x the average
| #of cards using the prices they hear from outside, and the
| people outside only see the deal they made after it's done.
| gruez wrote:
| >Dark pools allow participants to 'hide' information that's
| not public. It is mostly about the order books. If dark pool
| sell order for 1B of TSLA stock goes on the order book, only
| other members of the pool get that information. The dark
| pools are required to still follow RegNMS rules for trade
| prices, but there is an inherent asymmetry in the market
| information in this case as the dark pool participants can
| see the public markets and their dark pool in order to make
| trading decisions.
|
| But traders can easily hide the size of their "true" order by
| breaking it up into chunks and constantly refilling the order
| if it's taken? This is basically trading 101. If you want to
| do a big selloff, you're not going to dump all of that in one
| order.
| rtkwe wrote:
| But by breaking up the order they have to wait and the
| market can move in reaction to their sell off unless they
| do it very slowly. Dark pools can completely hide a large
| sell or buy order from the market long enough to execute at
| the current strike if there's another member in the pool
| buying. They wouldn't use it if it didn't give them an
| advantage because it costs more than regular trades.
| gruez wrote:
| >But by breaking up the order they have to wait and the
| market can move in reaction to their sell off unless they
| do it very slowly
|
| it kinda works out because the other side is also smart
| and will also break up their orders. Putting in a massive
| buy order is a good way to pay through the nose.
| thaumasiotes wrote:
| > In your neighbor's house example, it would be like if there
| was a street market auction for trading cards happening in
| your neighbor's front yard, but in the house your neighbor
| and another neighbor had gotten together to trade 100x the
| average #of cards using the prices they hear from outside,
| and the people outside only see the deal they made after it's
| done.
|
| Isn't that how everything is traded? Am I supposed to be
| outraged that everything I buy retail also exists in a
| wholesale market?
| nowayno583 wrote:
| Markets are supposed to be decision makers, and having pricing
| information be public helps firms and other allocators take
| better decisions. The question at hand is if the flow of
| information today is so fast that it deters smart decision
| makers because of other participants who can extract their
| decisions from them before they can act on them. Wether you
| believe markets should be more or less opaque should be decided
| by where you sit on this spectrum imo.
| mmooss wrote:
| > I don't know what's going on in my neighbor's house either,
| and it could certainly be bad stuff, but that's doesn't mean
| that it is bad or that I should start spying on them.
|
| Massive public investments and global finance could result in
| you and your neighbor losing your jobs and houses, and cost you
| a lot of tax dollars rescuing them. It's happened multiple
| times. That's why they need to be regulated.
| 6stringmerc wrote:
| Great points - to put it another way, considering the data is
| available and investors now have the horsepower to crunch the
| numbers...why doesn't Wal-Mart publish their entire inventory
| for every store in their system in an easy to digest CSV or
| whatever? Investors deserve to know!!!
|
| Or, you know, sometimes people do business behind closed doors
| because day to day operations aren't useful in many scenarios.
| ajsnigrutin wrote:
| Ban high frequency trading, ban instant transactions (put them on
| hold for some time before buying/selling (hours minmum, longer
| for larger quantities), make the held transactions public, and
| tax the profits on a time-owned scale.
|
| This would turn "investments" into investments again... you
| really believe that company XY will do something good? Buy stocks
| and keep them for few years until they grow. Politican John
| Bobson dumps his stock of ZX company? Well, now we know before
| they actually get dumped, and can sell our stocks too.
|
| Buying stocks of a company for 1.7 seconds and selling them back
| is not an 'investment' by any kind of proper definition.
| tremarley wrote:
| Banning something doesn't make it go away.
|
| Millions of people will be doing it, irregardless if it's
| banned or not.
|
| The best thing you can do is let it happen, monitor it and call
| out bad actors.
| jandrese wrote:
| Calling out bad actors doesn't work so well if said actors
| have no shame.
| JKCalhoun wrote:
| Wild if true.
| MegaButts wrote:
| Do you also believe we shouldn't make laws just because
| people will still break those laws?
| mmooss wrote:
| > Banning something doesn't make it go away.
|
| It does make it much more expensive, and something that
| people with other options won't want to be involved in. If
| 'dark room' trading was illegal, Goldman, etc. would exit
| those markets.
|
| It's true that people break laws, but the extreme idea that
| laws and law enforcement are therefore useless is obviously
| wrong. Look, for example, at the Republicans and their allies
| banning DEI - it's had quite an effect.
| jandrese wrote:
| But mah liquidity!!!
|
| I'm not sure what value you are getting out of the second
| paragraph. If some politician dumps a ton of stock X and I go
| "oh no, I'd better get out of that as well", won't I still be
| in line behind not only the politician but also everybody who
| has bots that automatically act on his actions within
| nanoseconds? It gives you warning that a stock is about to
| crater, but there's nothing you can do about it without giving
| someone the power to jump the line, and power like that can
| only be abused.
| markus_zhang wrote:
| 109%, but of course such legislations won't get passed.
| kubafu wrote:
| This. What's the difference between hft and gambling? Yet we
| put tight rules on gambling.
| computator wrote:
| Do all trades get reported to some agency of the government
| (including those done in private rooms)?
|
| Do companies themselves know who owns their shares (including
| those done in private rooms)?
|
| If the answer is no to either or both of the above, doesn't that
| create all sorts of ownership problems? As an analogy, I'm
| imagining a country where there is no reliable municipal property
| registry, and no one knows who owns a particular house. Wouldn't
| that create chaos?
| gruez wrote:
| >As an analogy, I'm imagining a country where there is no
| reliable municipal property registry, and no one knows who owns
| a particular house. Wouldn't that create chaos?
|
| That's basically how it works in many (most?) US states.
| There's no authoritative record of all claims on a property.
| Land registries exist, but they're not authoritative. Liens can
| exist without being registered on it, and surface later. Hence
| the need for "title insurance".
|
| https://www.bitsaboutmoney.com/archive/working-title-insuran...
| hobermallow wrote:
| Yes there is a record for most trades done. The regulating body
| depends on the type of instrument (equities, options, futures,
| fixed income, etc.)
|
| The Consolidated Audit Trail (CAT) is the primary location for
| this data as it relates to equities.
| https://www.finra.org/rules-guidance/key-topics/consolidated...
|
| The settlement cycle also dictates the frequency of reporting
| for many investment instruments.
| https://www.finra.org/investors/insights/understanding-settl...
| robertlagrant wrote:
| I don't quite understand this - are these "rooms" where ownership
| of shares is tracked separately to how an exchange tracks them?
| E.g. I own 80% of a company, and I keep the official ownership,
| but let people buy them from me and from each other, but I keep
| the record of who owns them?
| infecto wrote:
| It's simply a mechanism to allow trades to happen outside of
| the lit market, not much to do with ownership tracking. The
| DTCC still "owns" the shares and the brokers are keeping track
| of individual ownership. There may be a clearing house to
| facilitate trades between brokers. Dark pools are available to
| retail traders via some brokers but of course most are not that
| easy to get into. Its really no different than trading on the
| open market but there is less available information.
| gruez wrote:
| >They're offering what are dubbed private rooms, gated venues
| that take the core benefit of a dark pool -- the ability to hide
| big equity deals so they won't impact prices -- and add
| exclusivity, specifying exactly who can partake in any trade.
|
| I'm not sure what all the consternation is about. Even without
| dark pools you could always do direct trades[1] with a party of
| your choosing, which is even more private and exclusive. The
| "private rooms" mentioned in this article just makes this
| slightly more automated than some trader messaging his buddies on
| the bloomberg terminal.
|
| [1] https://en.wikipedia.org/wiki/Over-the-counter_(finance)
| PeterStuer wrote:
| Anyone remember the not so distant past when you were labeled a
| "conspiracy theorist" when you mentioned dark pools?
| moomin wrote:
| If you think this is cause for concern, consider that most
| economic activity in the US isn't even on an exchange to begin
| with.
| _bin_ wrote:
| tons of trades have been filled for a long time by IBing your
| buddy down the street. i don't see how this is particularly
| different/worse besides maybe improving efficiency.
| mitchbob wrote:
| https://archive.ph/eUY8T
| onepremise wrote:
| It sounds like they want to hide congressional investments and
| stock trades from their constituents, or at least this could be
| used in a way to achieve that.
| 6stringmerc wrote:
| This actually sounds really cool as a vetting of counterparties
| and risk reduction for liquidity. I worked munis 2008-2010 in
| support but learned a ton about all sorts of Wall Street products
| - traditional and synthetic. So these are for trades, formal,
| with a bit more teeth to them than CDS type transactions, which
| even post crash were crazy amounts of money on paper but
| structured by usually pretty knowledgeable firms (in our pool).
| Every tool can be misused, and the minority owned room / platform
| actually seems neat to me. The casino is big and brutal and
| smaller firms have roles too.
|
| Will these lead to another London Whale? Time will tell.
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