Dark pool

A dark pool is a private trading venue, registered in the US as an alternative trading system (ATS), that matches buy and sell orders without publicly displaying them beforehand. Trades become visible only after execution, when they are reported to the tape.

How it works

Dark pools are operated by banks, brokers and independent firms. Institutions use them to buy or sell large blocks without revealing their intentions, which could move the price against them on a lit exchange.

Key mechanics:

• Pricing. Most dark pool trades execute at or within the NBBO, often at the midpoint, so they reference prices set on public exchanges.
• Reporting. Trades are reported to a FINRA trade reporting facility and appear on the consolidated tape, but the tape does not identify which dark pool executed them.
• Disclosure. NMS stock ATSs file Form ATS-N with the SEC describing how they operate. FINRA publishes weekly ATS volume by stock on a delay of a few weeks.

Dark pools are one part of off-exchange trading. The other large part is wholesalers filling retail orders, which is also reported through FINRA facilities.

Why it matters for traders

Off-exchange trading accounts for a large share of US equity volume, so the lit order book shows only part of the real supply and demand. Large prints at round sizes reported off-exchange are sometimes read as institutional accumulation or distribution, though without direction (buy or sell) they are hard to interpret.

FINRA's daily short volume files cover off-exchange trades, including dark pool activity. A high short volume reading largely reflects market maker and dark pool mechanics, not necessarily bearish bets.

FAQ

Are dark pools legal?

Yes. Dark pools are regulated as alternative trading systems by the SEC, and operators must register as broker-dealers and file disclosures about how they operate.

Can I see dark pool trades?

You can see the prints after they happen, marked as off-exchange trades on the tape, but not the orders resting in the pool beforehand.