In an interview one year ago, Robert Gasser-then CEO of NYFIX-told Traders Magazine that 2006 would be the year of the dark pool. “This year  is the year of the algorithm, but 2006 will be the year of the dark book,” said Gasser, who has since taken the reins as CEO of ITG. Boy, was he right! The evolution of the dark pool has certainly been a recurring theme this year. In fact, it seems Traders Magazine has written a story on this topic just about every month since Gasser’s prediction. And this issue is no exception.
Nina Mehta writes this month about an ITG/Merrill Lynch partnership, which is promoting an ITG-devised service meant to drive volume to ITG’s POSIT dark pool. This venture has the popular Liquidnet square in its sights with a blotter-scraping technology of its own. But as you know, more systems than just these two-31 more at last count-are fighting to find a successful niche in this ultra-competitive space.
You will also find editorial from Traders Magazine’s block trading conference in this issue, with a focus on dark pools and crossing networks. When organizing the dark pool panel, our goal was to attract some of the smartest Wall Street pros in this area and challenge them. The goal was met, as panelists offered interesting possible scenarios about where the dark pool arena is headed. There is a separate story on risk trading from the conference in this month’s Industry Watch section. This piece explains how bulge-bracket firms are taking a fresh look at capital commitment and exploring how to revive it in a big way.
Looking on the horizon for 2007, Reg NMS is expected to be fully operational by July and the New York Stock Exchange’s hybrid market will be in full stride before then. With more electronic trading expected, traders admit to anxiety about job security. That’s understandable. They intuitively realize there are fewer of them today-down about 18 percent since 2001 when trading in penny increments began. Clearly, there will be winners and losers.
The same could be said of dark pools. Rob Hegarty of TowerGroup predicts that the dark pool/crossing network space will consolidate over the next two years. Innovation and attracting liquidity will be key to firms’ survival, he told attendees at the Traders Magazine
conference. Stay tuned over the next 12 months. The one prediction I feel comfortable making is that this publication will be covering the stories that count and providing you with the answers and information you need.