cudeco(cdu) trading - representations, page-65

James, you seem to have got your hydraulic hoses twisted.

A market of any kind requires both buyers and sellers. Whether its a listed market like the ASX or a dark pool, its not a market without both sets of participants.

We all know that it is demand for stock, ie buyers that causes the price to rise. No buyers, no upward price presure. Your analogy is predicated on the buying presure being diverted from the lit markets by simply opening a valve to the dark side and thus reducing the share price of the securities in the lit market. You fail to consider that for the buyers to be diverted from a lit market then so must an equivalent number of sellers also. Buyers aren't going to be diverted to a market which cannot supply them with stock. So exactly how do the dark pools drain buyers (and the related buying presure that determines the share price) without also encouraging the required number of sellers to go offmarket?

Since you have decided to teach us all about hydraulics, you have presumably heard of an equalibrium. If I have a 20,000 ltr tank on top of a hill connected to a 50mm pipe feeding my house, then I throw away the 20,000 ltr tank and replace it with 2 x 10,000 ltr tanks both connected to the same pipe feeding my house, you are suggesting that somehow my water presure is going to drop dramatically. Thats exactly what your analogy implies but it is simply not true. If the size of the pipe and my ability / desire to consume the fluid is unchanged then the presure will remain the same.

Presure is purely the result of an imbalance and the natural worlds desire to reach an equalibrium. Dark pools are no doubt an impediment to the efficiency of the price discovery process because they dragment both buyers and sellers into multiple smaller markets but your theory and explanation that they blatently lower the SP of a company by sapping buyers but not sellers doesn't hold water.

There are multiple purposes for dark pools and I suggest that one of the key ones is clipping the ticket rather than wholesale price manipulation on the scale which you suggest.

I'm always happy to "try to understand" as your opening line in all your posts to us dummies demands but if you are going to finish with the egotistical preaching statement "Any argument to the contrary is false, pure and simple", then surely it would be better if you made sure you analogy actually made sense first !