Questions Regarding so-called Dark Pools or Dark Liquidity

[Billy]

Hi--

Since I'm not an expert on the subject, I can only ask in the most vague way: How do OTC transactions influence or not influnece the calls of the robots? Have these pools been factored into the EV methodology? If so, how?

These time consuming questions are, of course, directed to Pascal and Billy. Can you both again indulge my questions or point me to prior threads on this subject?

Many thanks always,

Nickola,

OTC and dark pool transactions cannot influence the calls of the robots since the data is not available to their algorithms.

These pools have not been factored into the EV methodology for the same data issues. The EV (and 20DMF/robot) methodology is precisely trying to detect large players activity from available reported data in the absence of available minute-by-minute "third market" data.

The dark pool issue has already been discussed and documented at length in the old VIT Group. I can only encourage you to search the VIT archives.
Billy

[nickola.pazderic]

Pascal wrote in Working Money:

Another great danger is also looming -- financial "black holes." These are the parallel closed markets that are developing only for institutional players, where volume transactions can take place at a discount to traditional markets. Why is this a danger? Because the price is set in the official markets while an increasing amount of volume is exchanged in these parallel markets. This is a clear recipe for price manipulation -- why not push the price down in the official market by selling small amounts of shares at periods of illiquidity, thus establishing a low price that will be used to close a huge transaction in the parallel market?

WHAT SHOULD BE DONE? What can be done? The technical analysis community must get its act together and develop a new set of tools that can match the power of algorithmic trading and resolve the issue of cross-market manipulation. All the sophisticated trading execution software must go through an approval process that guarantees that they do not include price manipulation techniques. Parallel markets must be open and regulated in order to guarantee a fair market price for all.

Since traditional technical analysis tools today are way off the mark and regulatory authorities have their hands full with problems in the credit markets, traders may want to mostly rely on fundamental analysis and mainly concentrate on sector trackers, which are not prone to manipulation. This is a matter of survival until technical tools are adapted to the new trading ecosystem.


As I feared, the struggle will not be so simple as following robots. I'm glad Pascal and Billy are well aware of this.

Good luck to all...