Dark pool trading has risen substantially since Gary Gensler was appointed Chair of the Securities and Exchange Commission (SEC) in April of 2021 by President Joe Biden.
Gary Gensler announced exclusively on Bloomberg that 90-95% of retail orders don’t go through the lit exchange.
The SEC Commissioner says these orders are rerouted to dark pools rather than the NYSE.
What are dark pools?
Dark pools are privately organized platforms, also known to be an alternative trading system accessible to only institutions.
SEC Chairman and Commissioner Gary Gensler says payment for order flow is partly the reason why orders aren’t processed on the lit exchange.
He says retail orders go to wholesalers on an order-by-order competition.
Citadel’s Ken Griffin has praised PFOF stating it’s good for retail investors; however, in 2004 Citadel stated payment for order flow “creates conflicts of interest and should be banned”, according to an SEC file.
PFOF allows market makers to process retails orders in the ‘dark markets’, or dark pools, per SEC Chairman Gary Gensler.
Banning PFOF is one thing but what about retail demand that has been masked by dark pools?
The SEC actually has the power to ban dark pool trading.
Why dark pool trading has risen since Gary Gensler took office is something the retail community is trying to comprehend.
Dark Pools Have Been Robbing Retail Capital
When more than 50% of a stock’s trading volume goes to dark pools, the demand is cut by 50%, often times more depending on the trading day.
Half (or more) of retail’s money is not being reflected per the real demand of a security when trading has been rerouted to dark pools.
In other words, dark pools allow institutions to suppress shares from rising based on the true demand of a security.
Let’s take a look at AMC’s dark pool volume for July and August, 2023.
Dark pool volume rose as high as 64% in July and 60% in August so far.
This means that for every dollar retail put into AMC Entertainment stock, only 36%-40% of that dollar counted towards demand in the lit exchange.
Clearly a huge advantage for institutions going short on a company, especially one like AMC Entertainment who has a high short interest of 28%.
But this is happening to stocks all over the markets.
And the problem has only grown since Gary Gensler took office in 2021.
SEC Scraps Vote for Hedge Fund Transparency Rule
The SEC recently scrapped to vote for a hedge fund transparency rule.
The Securities and Exchange Commission scrapped plans to vote on a rule that would have increased regulators’ visibility into financial risks at some hedge funds and private equity funds.
After scheduling the vote earlier this month, the five-member commission “decided to take a little more time” on the rule, an SEC spokeswoman said.
The rule, proposed early last year over Republican opposition, would have increased reporting requirements for filers of a confidential document called Form PF.
Among other proposed changes, it would have required large hedge funds to file reports within one business day of incidents such as extraordinary investment losses, defaults by major counterparties or spikes in margin requirements.
The rule sparked pushback from lobbyists for the hedge-fund and private-equity industries in Washington.
The Managed Funds Association, which represents hedge funds, urged the SEC last week to hold off on finalizing the rule until it was ready to adopt a separate Form PF proposal issued last August.
The Managed Funds Association, or MFA, is an association made up of a variety of hedge fund managers, including Citadel, Two Sigma, Point72, and Millennium Management.
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