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Private Stocks And 'Dark Pools' In American Finance

Dark pools – private stock trading platforms not available to the public – are under investigation by the SEC. We look at inequities in the stock market and what they mean for public investors.

In this file photo, Securities and Exchange Commission (SEC) Chair Mary Jo White attends the meeting of the Financial Stability Oversight Council (FSOC), Thursday, April 25, 2013, at the Treasury Department in Washington. (AP)

In this file photo, Securities and Exchange Commission (SEC) Chair Mary Jo White attends the meeting of the Financial Stability Oversight Council (FSOC), Thursday, April 25, 2013, at the Treasury Department in Washington. (AP)

We don’t want to be “shocked, shocked” that the US stock market is not kindergarten.  That just maybe not everything is perfectly fair and clean and open at every moment.  We get that.  On the other hand, Wall Street is supposed to be the great engine of American investment.  And it is where an awful lot of people’s savings – one way or another – end up.  College savings.  Retirements.  And they expect the system not to be rigged.  But maybe it is.  Everybody’s talking “dark pools” these days.  This hour On Point:  Wall Street’s “dark pools” – where you don’t know what’s going on.

– Tom Ashbrook

Guests

Scott Patterson, financial regulation reporter for The Wall Street Journal. Author of “Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market.” (@pattersonscott)

Joshua Brown, financial adviser at Ritholtz Wealth Management. Author of “Backstage Wall Street” and “Clash of the Financial Pundits.” (@ReformedBroker)

Shah Gilanicontributing editor at Money Morning and the Money Map Report, contributor at Forbes. (@theShahGilani)

From Tom’s Reading List

The Wall Street Journal: ‘Dark Pools’ Face New SEC Probe — “The Securities and Exchange Commission is investigating a number of big ‘dark pools,’ according to people familiar with the probes, as stock-market regulators ramp up pressure on the private trading venues. Investigators are exploring whether the trading systems are properly disclosing to clients how they operate, treating all investors fairly and protecting confidential client information, among other concerns, the people said.”

The Reformed Broker: “The stock market is a giant distraction to the business of investing.” – “The stock market is a derivative of the value of corporate America. The intrinsic value of a corporation can be estimated by the dividend yield when you purchase the stock and the subsequent earnings growth. It is corporate America that creates value; the stock market itself creates none. In fact, the stock market subtracts value, due to all the costs we pay to play the game. It’s a little bit like the casino, one might say. And I say that advisedly.”

Bloomberg: Dark Pools Take Larger Share of Trades Amid SEC Scrutiny — “Shares changing hands in private venues such as dark pools accounted for 40.4 percent of total share volume on June 10, according to data compiled by Bloomberg. That’s the most since 41.7 percent took place off-exchange on June 22, 2012. The three biggest exchange companies each matched about 20 percent of trading on June 10.”

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