Tuesday, May 20, 2008

Wall Street Brokerages Look To Shed Light on Dark Pools (Wall Street Journal)


Goldman Sachs Group Inc., Morgan Stanley and UBS AG announced a series of deals that will allow their clients to share access to all three firms' pools of non-displayed liquidity as they try to address the growing complexity of market fragmentation amid so-called dark pools. The moves come as dark pools -- the secretive electronic trading networks that match buyers and sellers anonymously -- are booming in popularity as big institutional investors look for ways to trade blocks of stock without triggering ripples in the share price, as can happen on traditional stock markets such as the NYSE and Nasdaq Stock Market. But all that darkness is causing nightmares on Wall Street because there are now so many that using them is increasingly frustrating and time-consuming. The deals announced Tuesday allow algorithmic-trading orders of each firm to interact with the U.S. equity liquidity found in three of the nation's largest broker-dealer-operated dark pools -- Goldman Sachs' SIGMA X, Morgan Stanley's MS POOL and UBS' PIN ATS. Forty-two such U.S. trading networks now are competing for orders, up from seven dark pools five years ago, according to Tabb Group, a Westborough, Mass., research firm. Large brokerage firms, trading boutiques and even stock exchanges have designed systems that allow shares to be bought and sold out of the sight of prying eyes. "We're confident that providing our respective clients access to each other's liquidity will achieve even better crossing results for our clients in an increasingly fragmented market," said Greg Tusar, managing director of electronic trading for Goldman.

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