This comment seems to be off the mark at a number of levels -- I love hacker news, and am doing this to return some of the value I have gotten from the community here.
Take "e.g., buy blue chip stocks that have low PE) so that they don't ban you. .. Now you feed the information about displayed liquidity on high volatility stocks that you are interested in trading (e.g., small biotechs) from those exchanges.."
If you are trading blue chips at an illiquid (CSFB run) market center what information will that give you about "small biotechs"?
".. dark pools aren't obligated to conform to NBBO" : this is an incorrect understanding of how US stock markets work -- dark pools, with exceptions that don't count for too much volume, will have to print at the NBBO (Reg NMS, Rule 611, if you want chapter and verse http://taft.law.uc.edu/CCL/regNMS/rule611.html).
Also you don't need to trade at this venue to see what is being traded there: another provision of Reg NMS requires all ATSs to print within a short period of time into the tape, which is also by law disseminated nationwide as the last sale info in the name. By simply looking to see prints from this center, and which side of the midquote the prints are on (called the Lee-Ready test in the field, after a 1991 paper by those guys) will tell you if there are long duration buy orders or long duration sell orders active.
Turning to the merits of the proposal above, seems like a good idea, although the fact that csfb (or any big bank) is running it will cause most experienced traders to be skeptical of the exalted rationales being presented. If a broker that is handling flow runs a market center as well, without exception they wind up abusing the flow or the market center to make more $$.
Have read a lot of good stuff here; keep up the good work, all.
Kudos to doing and citing the research. You are right, every exchange has to conform to NBBO. But some of dark pools don't necessarily keep quotebooks to be coy, they instead keep a book of "IOI" (indications of interests). So in an event where a regular trader get a better price at dark pool versus say BATS/INET, their order wouldn't get redirected to dark pool for execution at NBBO. But if a trade does happen between the participants in a dark pool, if a third-party exchange can offer better price then the pool is obligated to redirect to that market to fill at that price.
Your second point of RegNMS requiring exchanges to print all their trades. Dark pool report their trades in their own idiosyncratic way. Suppose a large block order went down, I and my counterparty could agree on a VWAP price and just slowly complete our trade over the course of the day or even several days to obscure the order from the market. So reporting might be done, but it might be done as slow and as obscured as possible.
And talking about Credit Suisse, CSFB and other banks used to have a suite of VWAP algo's for their customers but they have curiously not updated the algo in the past 4 years. Why not? CSFB's internal trade desk probably is probably constantly developing better algo's but because they want to keep their own customers from having better market obfuscation and be able to front-run; they don't release these tools to their customers.
Take "e.g., buy blue chip stocks that have low PE) so that they don't ban you. .. Now you feed the information about displayed liquidity on high volatility stocks that you are interested in trading (e.g., small biotechs) from those exchanges.."
If you are trading blue chips at an illiquid (CSFB run) market center what information will that give you about "small biotechs"?
".. dark pools aren't obligated to conform to NBBO" : this is an incorrect understanding of how US stock markets work -- dark pools, with exceptions that don't count for too much volume, will have to print at the NBBO (Reg NMS, Rule 611, if you want chapter and verse http://taft.law.uc.edu/CCL/regNMS/rule611.html).
Also you don't need to trade at this venue to see what is being traded there: another provision of Reg NMS requires all ATSs to print within a short period of time into the tape, which is also by law disseminated nationwide as the last sale info in the name. By simply looking to see prints from this center, and which side of the midquote the prints are on (called the Lee-Ready test in the field, after a 1991 paper by those guys) will tell you if there are long duration buy orders or long duration sell orders active.
Turning to the merits of the proposal above, seems like a good idea, although the fact that csfb (or any big bank) is running it will cause most experienced traders to be skeptical of the exalted rationales being presented. If a broker that is handling flow runs a market center as well, without exception they wind up abusing the flow or the market center to make more $$. Have read a lot of good stuff here; keep up the good work, all.