Dark pools are somewhat of a mystery to new retail investors. We hear about them a lot within the AMC community, especially through Trey’s Trades. We know that they allow hedge funds to make undocumented trades behind doors.
So what exactly are dark pools? And, is something being done about them? I want to expose this subject today.
Welcome to Franknez.com – the blog where you can digest content on personal finance, side hustle ideas, entrepreneurship, and trending investing topics.
Lets get started!
What is a dark pool?
A dark pool is basically a financial forum or platform for trading stocks or other securities. Dark pools are privately organized and are known to be an alternative trading system. These ATS’s are seldomly regulated.
The concerns regarding dark pools and AMC Entertainment has been that we simply don’t know what these communities are hiding from the SEC. This slimy strategy is what’s known as backdoor buying and selling.
Why are dark pools used?
Dark pools give hedge funds an advantage in the sense that they are able to conceal their moves. We can only speculate what type of information is being hid from the public here. Details within these dark pools are not accessible by the trading public.
This lack of transparency may allow dark pools to conceal information such as:
- The illicit activity of naked shorting
- Explanations behind millions of fails-to-delivers
- Any discussion regarding malpractice in the market
- Inaccurate filings and reports
Dark pools can very well be the place where short sellers get together to discuss strategies and the ruining of companies.
It could be the reason why we don’t know how many short sellers are shorting ‘meme stocks’ and other information that would otherwise prove a fair market for both institutions and retail investors.
Is the SEC looking into dark pools?
In a recent article regarding the high possibilities of automated margin calls, I point out some research I found on Gary Gensler, Chairman of the SEC.
He publicly announces that the SEC has been observing hedge fund activities since January and are taking action to regulate these entities shorting AMC and other ‘meme stocks’.
One of Gary’s proposals states that hedge funds could face 13-F filings. These filings would provide the SEC with insight on equity as well as dark pool disclosure.
I trust we will begin to see this new chairman make the right calls. It’s time for change and our generation will be the ones to make it happen.
Dark pools could explain the low short borrow fee
Could dark pools be the explanation as to why the short borrow fee is so low for hedge funds shorting AMC and GameStop? Now, because so much information is in the shadows, this of course is only speculation.
According to Investopedia, dark pools can charge lower fees than exchanges because they are often housed within a large firm and not necessarily a bank.
Why do these large firms (hedge funds) have this much power in the first place? This advantage is completely deceitful and unruly. It really does make you look at the SEC and think why in the world has no one taken action sooner.
Are dark pools illegal?
Dark pools are not illegal but they are certainly unethical. Per the SEC, we can expect real regulation to surround these exchanges relatively soon.
The Bloomberg Tradebook is a dark pool that is owned by Bloomberg LP. Bloomberg is a financial media company that has been trashing AMC Entertainment for quite some time now.
Bloomberg has published FUD (fear, uncertainty, and doubt) articles in efforts to scare people out of their money. This raises questions regarding the ethics of these manipulators who gather behind close doors in order to stray the public from squeezing shorts out of their positions.
Other dark pool exchanges
Institutions such as Morgan Stanley and Goldman Sachs also offer private trading to their clients through the use of dark pools.
The main concern here is that the information that is made public to the SEC can easily be manipulated. Mainly to conceal foul play and inaccurate information.
The information that is available on Stonk-O-Tracker regarding AMC and dark pools is the percentage of trading within these forums/exchanges; which is usually relatively high.
How does this affect AMC stock?
These private exchanges may be illegally trading naked shares behind close doors refraining AMC’s stock price from further climbing. Although AMC is up nearly 3000% year-to-date, hedge funds continue to attack it through sell walls and short ladder attacks.
And since these private forums could potentially have been getting away with inaccurate reports, the possibility of foul play in the market is certainly there.
AMC Dark Pool Trading
Andrew Hiesinger, CEO of Quant Data took to Twitter to expose AMC’s current dark pool trading volume.
Quant Data provides retail investors with real-time options order flow, alerts, dark pool prints & levels, and news. There has been approximately 34 million shares exchanged in dark pools just in today’s trading day (8/18).
This equates to $1,268,475,800.46 in notional value, says Andrew.
64.21% of trading in dark pools won’t allow AMC’s stock price to reflect the actual price action. This primarily because this amount of trading is done behind closed doors where buy orders aren’t being reported.
This form of manipulation is clouding AMC’s real share price. #DarkPoolAbuse has been trending on Twitter.
Bookmark this article for updated news on dark pool abuse in AMC.
How can retail investors fight these predatory trading practices?
Retail investors have several advantages over hedge funds shorting AMC and other ‘meme stocks’. The community must stay the course if they are to squeeze these short sellers out of their positions.
Not only are hedge funds losing billions, but the SEC has finally begun to implement new regulations that could automate margin calls in overleveraged accounts. I’m personally not worried. These house of cards are falling at the times they should.
Support the blog on Patreon.