MemberJuly 14, 2021 at 1:02 pm
Dark Pools are the current name of the historical methodology of the stock market. Before clearing houses, each broker had to carry physical certificates to the brokerage who buys them. One was selling on behalf of a customer and one was buying on behalf of a customer. Papers were exchanged and the certificates were delivered by courier.
Clearing houses allow multiple exchanges of shares to happen expeditiously. But Brokers can still just do it the old way if it makes sense. One of the ways it makes sense is if one broker has a huge quantity of a stock and it is being bought by another brokerage so that each has enough to service their customers. This should be done with accounting at the current price. If it were done through the clearing house, then the price would artificially rise or fall due to misperception.
They are only called Dark Pools because they are not done in public, but between brokers.
But as has been said, this means there is room for malfeasance. A “market maker” has the duty to “provide liquidity”. Let us say one brokerage house “buys” 624 million shares more than it sells on the dark pool. Then let us say that the broker then sells those “shares” on the open market. The effect would be to drive down the price. All 624 million shares are synthetic, of course, because there are only 528 million real shares and those are all owned by apes or institutions. Those 624 million must be covered. About four million have been sold in the dark pool making the current total just over 200 million more shares bought in the dark pool than were sold. Those still have to be covered. This does not count short sales and naked shorting which were done on the exchange.
The law enforcers and the big banks are closing in on the malfeasance. Eventually it must all be covered. The worse the hedge funds behave today, the better it will be for us when it all settles.
I am like you, however. I do not see how “providing liquidity”, by creating a share that does not exist, makes any legal sense. If someone wants to buy a share, and there are none for sale, let them bid higher until the share is available or let them pull their order. If I sell something that doesn’t exist, I go to jail for fraud. If I sell a security that doesn’t exist then I get one sentence for fraud and another for counterfeiting.
The hedgies are like a felon on the run. Every day they are out of jail they have to steal to stay alive, only adding to their troubles when they get caught. They can’t stop, though. The second they stop they are had, so they keep running and keep breaking the law.