Large Funds Fight Back With New ‘Dark Pool’ Trading Venue

Last year, Michael Lewis published Flash Boys, and shined a light on the ways Wall Street insiders gain an advantage through high-frequency trading. Now it appears that many large mutual funds and asset managers have a plan of attack and are developing a private venue of their own – known as a dark pool — that will enable them to trade stocks without the involvement of Wall Street firms and high-speed traders.

This news was first reported by the Wall Street Journal, which says that nine firms including Fidelity Investments, J.P. Morgan Chase & Co. and T. Rowe Price Group Inc. are collaborating on the dark pool and plan to begin trading later this year under the name Luminex Trading and Analytics.
This piece characterizes this new dark pool as “the beginning of the end” of high-frequency trading, but it’s unclear if the creation of another dark pool will give the average investor more power or just add another layer of confusion.
Dark pools are essentially private forums for trading stocks that let investors execute large trades without informing the exchange ahead of time, which often enables them to realize better prices. The dramatic rise in off-exchange trading in recent years, however, has resulted less transparency in the markets, and means that official stock prices may not be accurately reflecting the real market.
The focus of this site, of course, is the individual investor, and not the high-frequency trader that can gain an advantage by being a millisecond ahead.
We addressed this disparity in a recent column that acknowledged that individual investors cannot really compete with the large institutions, but must take a different, and much simpler approach to investing that is based on buying carefully selected stocks and holding them for the long haul.
For those who would like to learn more about dark pools, high-frequency trading and the ways that you as an individual investor can protect yourself, see this promotion: We’ll send you a free hardcover copy of the Michael Lewis book along with two reports offering tips for investors like you.