Three of the largest dark pools told customers to trade elsewhere during at least part of yesterday’s session as concern about Ebola and global economic growth spurred the busiest day for U.S. stocks in three years.
Goldman Sachs Group Inc., Credit Suisse Group AG and UBS AG told some clients to temporarily stop sending orders as volume surged, according to five people with knowledge of the matter who spoke on condition of anonymity. The instructions came as the broader market processed 11.9 billion shares, the most since Oct. 27, 2011, according to data compiled by Bloomberg.
Dark pools, private trading systems usually owned by banks, are just one component of the fragmented U.S. equity market, where buying and selling is spread across 11 exchanges and more than 40 alternative platforms. Older venues such as the New York Stock Exchange and Nasdaq Stock Market didn’t report any issues.
The dark pools’ requests didn’t prevent the U.S. equity markets from working normally for the vast majority of investors. Volume yesterday was several times greater than the busiest days during the 1990s technology bubble.
“Today shows that the market has the capacity to transact large volumes in a very volatile environment,” Remco Lenterman, managing director at Amsterdam-based market maker IMC, said yesterday. “Sure there are issues, but in the end of the day investors have the ability to transact very large transactions in a very deep and liquid market, no matter what critics will want you to believe.”
Today, a U.S. stock exchange run by Bats Global Markets Inc. had a malfunction that prompted other trading platforms to briefly stop sending orders there. The Direct Edge EDGX Exchange, which handled about 6.4 percent of U.S. equity volume last month, “experienced a brief hardware failure,” according to an e-mail from Bats.
Regulators are scrutinizing dark pools as part of broader probes into whether computerization has left the U.S. stock market too complex for individual investors to understand. According to Rosenblatt Securities Inc., about 17 percent of trading takes place on the private venues, where offers to buy and sell stocks are cloaked until trades are completed.
Tiffany Galvin, a Goldman Sachs spokeswoman, declined to comment, as did Credit Suisse’s Nicole Sharp and UBS’s Karina Byrne.
The UBS disruption lasted from about 3:25 p.m. to 3:57 p.m. New York time yesterday, according to a person familiar with the matter. Credit Suisse saw one of the communication lines into its dark pool malfunction at about 3 p.m. New York time yesterday, according to a person with direct knowledge of the matter. The issue affected about a dozen Credit Suisse clients, the person said.
Goldman Sachs, Credit Suisse and UBS weren’t the only dark pool operators to experience temporary issues, according to one trader who buys and sells shares across different venues.