Jargon Watch: Dark Trading

Dark trading – Buying and selling stock outside of public view in pools set up by investment banks such as UBS and Goldman Sachs. The practice allows clients to exchange stock at high volume without moving the market significantly. The benefits for doing things in this way mean that positions can be built up over time for a take over bid, without speculation pushing up the price of shares artificially.

It also allows them to avoid derivatives, on the flip side speculators in less regulated markets can speculate without the awareness of their target company, so the Porsche debacle could have been avoided.  This of course does rely on the investment banks not using the trading data from the dark pools as their very own prediction market and acting accordingly. Kudos to Wired magazine.