Wall Street's Dark Pools Get Even Darker: The Rise of Private Trading Rooms
2025-03-17
Wall Street's dark pools, already shrouded in secrecy, are becoming even more opaque with the introduction of private trading rooms. These exclusive venues offer the core benefit of dark pools – hiding large trades to avoid price impact – but with added exclusivity, specifying who can participate. While currently a minority of dark pool volume, their adoption is rapidly growing among broker-dealers, market makers, hedge funds, and asset managers. This raises concerns about market transparency and fragmentation, but also offers improved execution quality and allows firms to handpick counterparties. However, this lack of transparency presents challenges, including difficulty gauging market depth and potential regulatory risks.