The disputes of principle exchanges and securities company are not only for individual investors but also for institutional investors.
Recently, institutional investors use mainly dark pools operated by securities companies.
In many advanced countries like Japan, the use of dark pools is regulated as a separate market from PTS transactions, and have characteristics that are very different from the normal transactions we envision.
First of all, the origin of the name of the dark pool, and the biggest feature is that “the liquidity information and the price board information are not disclosed”.
In other words, you can’t know how many orders are in what price without actually placing an order.
Looking only at this, it is easy to highlight the disadvantage of not being able to trade at the intended price or quantity, but this is rather convenient for institutional investors.
In general, the amount of stocks traded by institutional investors can range from 0.01 billion dollars to 1 billion dollars.
If this transaction is bought and sold in a market where transaction information such as TSE is disclosed, there is a disadvantage for institutional investors.
That is, before buying a certain quantity at the intended price, other market participants will perceive the market price trend.
Depending on the liquidity, it may take several days or more to handle sales of billion dollars for institutional investors.
In the meantime, the intention of trading may be known by other retail investors or institutional investors.
In this case, other market participants will be actively trading to back up the stable trend created by institutional investors, causing the stock price to rise or fall significantly before the planned number of shares is raised or fallen.
In the case of buying, there is still an option to interrupt the transaction, but it is more difficult if it must be sold out.
If you use a dark pool, you can execute trading without impacting the market.
In other words, it is a matching service between institutional investors.
In recent years, there are more movements to open the dark pool to individual investors.
For individual investors, there is an advantage in that a trade can be executed at a better price than the market price, and for institutional investors, there is an advantage to absorb the buying and selling market flows of individual investors anonymously.
Dark pool is also a market operated by a securities company like PTS.
According to data from the Japan Exchange Group, the share of the dark pool has reached 5.6% in 2016, and is expected to increase further due to the increasing numbers of individual investors.
When combined with PTS, at least 10% of the market share is lost from TSE.