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Comment by radlad | Hacker News Reader

Isn't the problem that this allows for all kinds of forms of insider trading?

> Insider trading—the practice of buying or selling a company's securities based on material, nonpublic information—has long been a contentious issue in financial markets.

https://www.investopedia.com/terms/i/insidertrading.asp

There's also a question of whether they are good for the health of the overall market: https://www.cbsnews.com/news/finances-dark-pools-explained/

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> Isn't the problem that this allows for all kinds of forms of insider trading?

No, it doesn't. All trades are made public after they happen, as per regulations. There is no difference to insider trading regulations if a bad actor trades via a lit exchange or via a dark pool. Dark pools only "hide" pre-trade information, such as standing buy or sell limit orders.

Really? Isn't knowing that an extremely large trade is about to take place insider information?

That is only insider information for the person making the trade.

And there are no other parties involved before the trade? That was not my understanding.

You may be thinking of front running, which is an agency problem, and also not this.

It stands to reason that if the buyer/seller are seeking private rooms there is something unfavorable for them about "lit" trading. That alone should raise red flags.

That raises red flags that the standard market regulations are bad - they are signalling that they believe an exchange with different rules is better for both traders. That would be bad for all the traders stuck on the exchange with inferior rules, but the solution is to reform the standard exchange.

Probably trying to get away from HFT if I were going to guess blindly.

It's by definition insider trading. If they made the trades in public the market price would change to reflect the demand. They don't want that to happen, they want the trade to happen at a non-market price set by people with information about the deal.

No, "I am XYZ hedge fund and I want to buy stock ABC" is not material non-public information to XYZ hedge fund. If it was, any buying or selling of stocks would always be illegal, since you would be "insider trading" on your desire to buy the stock.

The "insider" in "insider trading" refers to trading on privileged nonpublic information, not arranging the trades in a private venue.

Even in dark pools the trades have to happen within the NBBO, they can't just trade at whatever price they want.

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