All these stories about dark pools remind me of the the stories about UFOs. The stories claim that shorters borrow shares, then sell them short on the market and then cover their shorts by buying shares in "dark pools" and return them to the lenders without having to report it.
IMO it is nonsense because no one is doing favors in this world especially the funds who are supposed to sell shares to the shorters via those "dark pools".
To make myself clear, let me give you a numerical example. Suppose shorters borrow 100 shares and sell them short at $1.05. They collect $105. Next, the price falls to $1.00. So now they will make $5 if they could buy 100 shares to cover their short and return them to the original lender. So, the story is that they buy those 100 shares in a "dark pool" and thus cover their shorts.
However, there is only one problem in this story. Where is the fund that will sell them via a dark pool 100 shares for $1.00? If the fund sells them for only $1.00, the fund now carries a loss of $5 because it had 100 shares at $1.05 before the shorting and now it is selling them for $1.00. So, the fund will not sell them at a $5 loss which is supposed to be the gain of the shorters. The fund managers are no fools. Why should they incur a loss to cover the shorters short?
So, now after I gave you a first grader example, I hope you understand that the whole "dark pools" story is a fool's story.
LYC Price at posting:
$1.02 Sentiment: LT Buy Disclosure: Held
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