Wall Street’s ‘Private Rooms’

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&gt;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&#x27;t impact prices — and add exclusivity, specifying exactly who can partake in any trade.<p>I&#x27;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 &quot;private rooms&quot; mentioned in this article just makes this slightly more automated than some trader messaging his buddies on the bloomberg terminal.<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Over-the-counter_(finance)" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Over-the-counter_(finance)</a>

It is not clear to me what nefarious things people believe are going on there that we should be worried about.<p>All the article says is that people are doing things we don&#x27;t know about, but implies that somehow we should feel not-okay about this.<p>I don&#x27;t know what&#x27;s going on in my neighbor&#x27;s house either, and it could certainly be bad stuff, but that&#x27;s doesn&#x27;t mean that it is bad or that I should start spying on them.

<i>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><p>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&#x27;t allowed to play the same game as them.

Ban high frequency trading, ban instant transactions (put them on hold for some time before buying&#x2F;selling (hours minmum, longer for larger quantities), make the held transactions public, and tax the profits on a time-owned scale.<p>This would turn &quot;investments&quot; 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.<p>Buying stocks of a company for 1.7 seconds and selling them back is not an &#x27;investment&#x27; by any kind of proper definition.

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.

I remember reading about dark pools and asking a friend in finance if the sector really is as corrupt as it sounds, his reply? &quot;Oh much more&quot;

&gt; a New York-based minority-run brokerage [...] wants to trade with similarly minded businesses, so it uses a private room provided by the ATS operator OneChronos. “It’s about exercising control, what liquidity a broker wants to interact with” 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.<p>The fact that, under this mechanism, one can quite literally choose the skin-color of the counterparty trader, under the banner of &quot;diversity&quot; and &quot;similarly minded&quot;-ness, is quite fascinating regardless of politics or morality.

After coming of age on Milton&#x27;s and Hayek&#x27;s views of the market--as a mechanism for processing information and allocating resources which was far better than any central planning could be--it was a huge eye opener when I actually did go to Wall Street.<p>The degree to which market players are going to make market signals to <i>not</i> have the correct meaning is amazing. Dark pools, chopping up buys and sells and strategically rerouting them--all meant to make the market as bad of an information source as possible.<p>In retrospect, it seems obvious that they would do this. If the market is the best source of information, you can&#x27;t beat the market, because you&#x27;ll never knew more than it will.

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 &#x2F; platform actually seems neat to me. The casino is big and brutal and smaller firms have roles too.<p>Will these lead to another London Whale? Time will tell.

Many comments are saying that these rooms have been created to give fund managers the ability to execute large trades while keeping the price similar or close to what is available on the open market. I guess my question is why should they should be allowed to be protected from this type of risk? If they were not protected from this large type of risk, then maybe we would have more competition in the large fund manager space because, like hedge funds have experienced, after managing a certain amount of money there is a diminishing return as others will see and follow your trend.

tons of trades have been filled for a long time by IBing your buddy down the street. i don&#x27;t see how this is particularly different&#x2F;worse besides maybe improving efficiency.

I don&#x27;t quite understand this - are these &quot;rooms&quot; 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?

What is interesting here is that if more &amp; more volume goes to private exchange activity, then as the volume dries up on public exchanges, there will be more volatility.. and more reason to move to private exchanges.<p>There must be some point where this becomes self defeating though, no?

I&#x27;ve been wading through terabytes of financial data over the past month. (I&#x27;m an ML&#x2F;AI software engineer trying to create a trading bot that makes me more consistent income during times of uncertainty that are outside my control.)<p>This is some of the data I&#x27;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.<p><a href="https:&#x2F;&#x2F;imgur.com&#x2F;a&#x2F;lcCwDsj" rel="nofollow">https:&#x2F;&#x2F;imgur.com&#x2F;a&#x2F;lcCwDsj</a><p>One of the things I found is that the dark pool trades predict price action very well on a few-minute time horizon. &quot;FINRA Alternative Display Facility&quot; 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.<p>Unfortunately the SEC only requires them to report transactions within 15 minutes, not in real time.

Wild that Bloomberg includes a trader who focuses on &quot;diversity funds&quot; as an example. Imagine now that traders focus on only non-diversity funds, and how that looks.

&quot;Wall Street&quot; and &quot;Transparency&quot; is an oxymoron.

Anyone remember the not so distant past when you were labeled a &quot;conspiracy theorist&quot; when you mentioned dark pools?

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.

Do all trades get reported to some agency of the government (including those done in private rooms)?<p>Do companies themselves know who owns their shares (including those done in private rooms)?<p>If the answer is no to either or both of the above, doesn&#x27;t that create all sorts of ownership problems? As an analogy, I&#x27;m imagining a country where there is no reliable municipal property registry, and no one knows who owns a particular house. Wouldn&#x27;t that create chaos?

Historically, the &quot;private dark room&quot; has always been a mechanism of goofy elites.<p>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.