[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.

[smoorman1024]

There are Market Makers on IEX. Look at the Brokers at the end of this list: http://www.iextrading.com/services/

Virtu, SUN, etc. They are market makers.