Dark pools / Dark pool liquidity / Upstairs market


    Dark pools are private electronic networks that allow institutions to trade directly with each other off (outside of) the central stock exchange.

    They are called “dark” because the stocks traded, prices and volumes are not visible on the central exchange, and hence are ‘dark’ to the public. Dark pool trades do not appear in Level 1 or Level 2 depth data.

    Volume statistics from dark pools may, however, be included in the daily volumes statistics published by the central exchange — this varies from exchange to exchange.

    Institutions are increasingly using dark pool trading due to lower execution costs, greater (or complete) confidentiality and less risk that their trades will influence stock prices.

    However, trades in dark pools are usually limited to only the most liquid high cap stocks. To trade in mid cap and small cap stocks, institutions still generally need to trade across the central stock exchange. Any orders not filled in dark pools are usually routed to the central stock exchange for execution.

    Dark pool operators include Instinet, Liquidnet, Nasdaq Cross and Chi-X. In addition, major investment banks such as Goldman Sachs, Morgan Stanley, UBS and Credit Suisse offer dark pool facilities.