[marcinw]

Matt Levine sheds more light on this story[1], backed by evidence whereas the NYTimes is just hearsay. Why would Barclay's screw over institutional investors who account for a large majority of their $4 billion in revenue for HFT who bring in only $3 million? Because without HFT (which is a bad, bad word to the ATG's ears), nobody would be trading on it, and nobody wants to admit that. It just doesn't make sense.

[1] http://www.bloombergview.com/articles/2014-06-26/barclays-no...

[keithpeter]

Explains how HFT can bring liquidity into a market (at a cost). Useful.

[Mandatum]

I don't understand how a darkpool could exist without rogue HF traders bumping up the revenue from stock trades. If the current stock market won't allow for it, what makes them think a private market will? At the end of the day whoever operates the pool has to foot the bill if they're trading outside of the official exchange.. Unless they turn it into a Ponzi-type scenario or outright lie to their investors.

[kasey_junk]

The basic theory of a dark pool is that by restricting who can access the other participants in the market, you can provide for your dark pool's clients better execution costs.

That is, by only allowing similar market participants (think other hedge funds, pension funds, etc) and excluding "predatory" speculative market participants (HFT, day traders, pit traders, etc.) you can match "natural" trades to each other, without paying the middle man.

In reality, this never happens. Speculative "predatory" traders are a necessary component of the market and without them there isn't sufficient liquidity for the market to operate.

In this particular case, an ibank stands accused of lying about this fundamental fact to their clients. It has nothing to do with the underlying validity of the market structure.

[Retric]

HFT add liquidity on a second by second basis, but nothing on even a short term basis. Market makers speed up transactions slightly, but the cost for doing so is vary high.

[tptacek]

Citation needed.

[cbr]

What about IEX?

[kasey_junk]

IEX is trying something slightly different to get around allowing/paying market makers into their dark pool. They are using publicity and Michael Lewis to try to convince retail investors to provide free liquidity for their backers.

It remains to be seen if this tactic will work.

[fr0sty]

Not for free, liquidity providers are paying to trade in IEX (and paying the same rate as the takers).

[kasey_junk]

I guess "for free" was a bad phrase. I meant that IEX is hoping for retail investors to make up for the lack of market makers who get paid via the bid/ask spread.

[thriftybuzzard]

The article explains why it makes sense. The institutional investors' trades don't match up that often. If you allow HFT's then they will buy/sell on other exchanges (or in other dark pools) that match the other side of your (barclays in this example) dark pool's institutional investors trades.

You don't charge the HFT firms since they allow you to charge your other investors.

[tptacek]

This is a great article. Thanks for posting it!

[ams6110]

It's actually an editorial, not a news article.

[keithpeter]

Whatever part of the newspaper it appears in, the article provides a nice illustration of data presentation. Use of colours, sampling, even the choice of axes and time-scales.

[mathattack]

Matt Levine is a great writer. He comes from Dealbreaker and still retains an edge in his writing, as well as lots of footnotes.