Vanderbilt Law Review

First Page



A dark pool, a form of Alternative Trading System ("ATS"), is a private securities trading platform that-unlike public exchanges such as the New York Stock Exchange-allows participants to execute large block trades with delayed public disclosure. As neither party in a dark market transaction is trading on the public, or "lit," market or knows the identity of its counterparty, dark market trades allow participants to trade anonymously and keep trade strategies from competitors. Further, because dark market trades do not have to be publicly disclosed in real time, the price of a given security will, theoretically, stay relatively stable as the order is filled. As such, dark market trades are said to have "reduced market impact," which generally results in more favorable overall pricing to buyers and sellers. While a number of larger banking institutions advertise "dark pool" services, these services vary widely in size and nature." Furthermore, these relatively new financial instruments have little recognition within the law. Despite the regulatory issues posed by the mortgage crisis in 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010 does not directly address dark pool trading within U.S. equity markets. While dark pools offer a number of benefits to both retail and institutional investors, including the supposed ability to hedge against HFT arbitrage, a number of informational and regulatory gaps brought about by dark pools' statuses as ATSs present issues to the Securities Exchange Act of 1934's goal of "protecting investors, maintaining fair, orderly and efficient markets, and facilitating the formation of capital."