Dark Pool Execution

Lore & Background

However, it does reveal that KCG Holdings and its predecessor companies operated dark pools as part of their business. Specifically, Getco Execution Services offered a dark pool, and Knight Capital Group also provided dark pools. The legal case Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, a 2016 Supreme Court case, involved naked short selling claims against KCG and Merrill Lynch, among others, highlighting how these private trading venues can become the subject of legal scrutiny.

Reader's Guide

Dark Pool Execution works by bypassing public exchanges like the NYSE or Nasdaq to trade securities in private venues accessible only to institutional investors and high-frequency traders. KCG Holdings engaged in market making, high-frequency trading, and electronic execution, and that its Getco Execution Services arm provided a dark pool. The primary advantage is stealth: large orders are hidden from the public order book, preventing other market participants from seeing the intent to buy or sell. This prevents 'front-running,' where algorithms detect a large incoming order and jump ahead of it to profit from the anticipated price movement. In the context of the source, these tactics were used by firms like Knight Capital and Getco, which had 1400 and 400 employees respectively at the time of their merger.

Did You Know?

• KCG Holdings was formed on July 1, 2013, from the merger of Knight Capital Group and GETCO Holding Company.
• In August 2012, a technological breakdown called the 'Knightmare' caused Knight Capital to lose $460 million in one trading day.
• KCG Holdings agreed to be acquired by Virtu Financial on April 20, 2017, for $20 per share in cash, in a deal valued at approximately $1.4 billion.
• Getco LLC was founded in 1999 by Stephen Schuler and Daniel Tierney, former floor traders in Chicago.
• Knight Capital Group was founded in 1995 as Knight/Trimark Group and had about 1400 employees at the time of its merger with Getco.