Happy New Year! Good to be back after a two-week break from The Map. Karen and I spent Christmas in Texas, where there remains a general lack of fear of federal government.

I’m glad when winter solstice passes, that shortest and gloomiest of days. After that, we’ve rounded the corner from darkness toward light no matter what winter yet holds.

But in trading markets, darkness thrives. Monday in the Wall Street Journal, Jacob Bunge, who covers the exchanges, wrote that 34% of trades in December matched up off the exchanges in “dark pools,” doubling from last year. Why is money streaming off exchanges in search of darkness, and does it mean your shares aren’t priced right?

Let’s clarify “dark pools.” There are trading facilities like Liquidnet, Pipeline, ITG Posit and Aqua that offer twists on paths to more share-supply. They’re like the Millionaire Matchmakers of trading, finding liquidity love for willing parties. But these independent platforms and their broker-dealer counterparts at Credit Suisse (Crossfinder), Goldman Sachs (Sigma X) and Barclays (LX) command about 12% share. Continue reading →

A word on the markets: options expired last week, while swaps and counterparty agreements pegged to volatility measures lapse tomorrow. Speculation and risk management trading are high as a result. If you expect your stock to behave as though everybody buying and selling it acts on fundamentals, you’ll encounter the unexpected.

The NYSE and Charles Schumer were talking today about rules for dark pools. The NYSE is partnered with dark-pool operator Liquidnet and is building a massive high-speed trading facility in New Jersey. The Nasdaq meanwhile plans to launch an exchange next year that will give priority to orders of size, to compete with the size advantage dark-pool operators offer.

Continue reading →