The National Best Bid and Offer (NBBO) is a quote that reports the highest bid price and lowest ask (offered) price in a security, sourced from among all available exchanges.
Retail orders can either be sent to an exchange, or they can be fulfilled in a dark pool.
If the orders are sent to an exchange, then those orders will impact the calculation of NBBO price (by definition).If the orders are sent to a dark pool, they will not impact the NBBO price, but they will be filled at the NBBO price.
Now imagine you are Citadel, and you have the ability to choose how retail orders are routed. Could Citadel abuse this power to artificially suppress the price? Absolutely, here’s how.
Imagine, for example, what would happen if they were to send 100% of retail orders to be settled in dark pools. According to the rules, all trades executed on the dark pools MUST be within the NBBO price…and of course, because they are on a dark pool, they don’t go into the NBBO calculation. In other words, you could send an infinite number of buy orders to the dark pool and the NBBO price wouldn’t move.
After routing all the retail trades to dark pools, the only thing Citadel has left to do to control the price is to inject a small amount of trades to the actual exchanges to set the NBBO price. Voila.
Honestly, we know this has been happening. There’s been multiple DD’s already showing that the majority of retail orders are being routed to darkpools. Apparently like 90% now?https://www.reddit.com/r/Superstonk/comments/o7dbqt/135_market_share_on_06232021_90_off_exchange_how/
I believe this is what the NYSE president meant when he said that due to the usage of dark pools, “price may not properly reflect demand”:https://www.reddit.com/r/Superstonk/comments/o25oi1/nyse_president_admitted_dark_pool_exchanges_are/
Honestly, it really doesn’t take a genius to understand how dark pools can be used to suppress the price when you consider the above factors. And yet, surprisingly, \dlauer claims to be completely ignorant of this even today in his most recent post, where he says:
I also have never heard of this idea that firms will choose whether to execute on-exchange or off-exchange based on where they want “buying pressure” or “selling pressure” to show up.
…
can you use dark pools and off-exchange trading to artificially hold down the price of a stock? I struggle to see the mechanism by which this can be done. I’ve never heard of it
Really? Seriously?
Let me ask you: do you find it suspicious that \dlauer, a former Citadel hedge fund trader, is not aware of how dark pools can be used to suppress the price, when it’s so obvious from the way that NBBO is calculated, and we have the head of the NYSE even admitting it? Does this not seem the least bit suspicious to anyone? I hope it also makes you think twice before taking the words of \dlauer as gospel, especially when he’s defending the usage of dark pools and naked shorting.
Fortunately, even despite the dark pool shenanigans, I would like to remind everyone that we still see an exponentially increasing floor. That tells me that Citadel is losing control. Simultaneously, awareness of their fuckery is growing, and the regulations are closing in.
Eventually, they must cover. I can wait. I’m patient.