Glossary
Dark Pool
A private trading venue that does not display orders publicly before execution, used mainly by institutions for large trades.
A dark pool is a private stock-trading venue that does not show its waiting orders to the public. Buyers and sellers are matched inside the pool, and the trade is reported to the tape only after it happens. In the US most dark pools are registered with the SEC as alternative trading systems (ATSs) and are run by banks, brokers or independent operators.
Why they exist
Large investors face a basic problem. A pension fund that needs to buy 2 million shares would push the price up against itself if it showed that order on a public Stock exchange, because other traders would buy ahead of it. Hiding the order until a match is found reduces that market impact.
How trades are priced
Dark pools generally do not set their own prices. Most match orders at prices derived from the public quote, often the midpoint between the best bid and offer, which is why they depend on lit exchanges for price discovery. The trades still appear in the consolidated tape, flagged as off-exchange, usually within seconds.
Concerns and oversight
Critics argue that as more volume moves off exchange, public quotes reflect less of the real interest in a stock. There have also been enforcement cases in which pool operators misled clients about who they were trading against, including high-speed firms. Under rules adopted in 2018, ATSs that trade stocks must file detailed public disclosures on Form ATS-N, and FINRA publishes weekly ATS volume data with a delay of a few weeks. For a retail investor the practical takeaway is modest: a broker may route part of an order to a dark pool, but the price must still meet best-execution duties.