Dark Pool Structure

Abstract

The trend toward off-exchange dealing has been accelerating in recent years, thanks to the catalysts we have described in the previous chapters. In this chapter we explore in more detail the general characteristics of dark pools, the mechanisms within established exchanges that create dark liquidity, and the venues that are partly or solely dedicated to fostering dark liquidity. Before embarking on this discussion, let us recall the key mechanisms for pooling or accessing dark liquidity noted in Chapter 1, as these will form the core of our discussion below:

• Exchange reserve/hidden orders and specialist/floor broker books

• Alternative trading systems/multilateral trading facilities, including electronic limit order books and crossing networks

• Broker/dealer proprietary desks

• Agency brokers