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#DarkPoolAbuse Trends As Retail Traders Rally Against ‘Market Manipulation’ On AMC Stock

by : Cameron Frew on : 23 Jul 2021 20:16
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Reddit’s army of ‘ape’ traders are fighting to raise awareness of dark pool abuse, believing the 1% to be manipulating the market on AMC stock. 

Coming off the back of Reddit’s Wall Street Bets’ seismic ‘f*ck you’ to hedge fund operators and major financiers earlier this year with GameStop, everyday retail investors have been buying AMC with hopes of sparking a ‘short squeeze’ – i.e. when the bigwigs sell shorter shares (based on the bet of a company failing) to recoup money, causing the price to skyrocket ‘to the Moon.’

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Since the start of 2021, AMC’s price has risen by 831%. Meanwhile, hedge funds have taken a $12 billion hit as a result of meme-stock mania, motivating those with apathy towards stocks to download an app and start investing. It was an earlier tale of revolution, exposing the fragility of the market when normies want to play – but now, there’s something fishy going on.

#DarkPoolAbuse has been trending on Twitter, particularly in the US. You may be curious enough to click, where you’ll find enraged tweets, clips of market prognosticators and traders explaining (but not really, as they’re talking to their clued-up viewers) the apparent scandal taking hold of AMC.

Let’s break it down in the simplest terms possible. As you probably know, trades take place on the stock exchange, whether it’s New York’s, London’s or the NASDAQ. People can access these through trading websites and apps, and there are smaller exchanges for the likes of Dogecoin and Ethereum. Nothing controversial to see here.

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Dark pools are not open to the public. As per Investopedia, they’re ‘private exchanges for trading securities that are not accessible by the investing public’, nor are they viewable by the public, often criticised for their lack of transparency. A dark pool – in theory – is totally legal and (barely) regulated by the Securities Exchange Commission.

They were first created to ‘facilitate block trading by institutional investors who did not wish to impact the markets with their large orders and obtain adverse prices for their trades.’

Think of it this way: you’re a deep-pocketed investor looking to buy 10 million shares in a company. Such a purchase on the normal stock exchange would introduce some fairly instant volatility, as the price would increase dramatically, in addition to the risk of the stock’s value dropping due to a swell in supply and exposing their position. The same goes for selling.

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So, on a dark pool, also known as dark liquidity, they could buy the 10 million shares ‘over the counter’ off the exchange’s order books, matching buyers and sellers at prevailing exchange prices (but not necessarily the price a normal person would pay) with lower fees. The intentions of their trade are only revealed to the open market until after they’re executed, usually with a delay so to not ‘trigger price overreaction or underreaction’ – this exact length of this delay rarely faces scrutiny.

The intentions were good – but market makers started to act like hedge funds, leaving dark pools ‘susceptible to conflicts of interest by their owners and predatory trading practices by HFT firms.’ Off-market prices can be substantially disproportionate, often benefitting the institutional investors over your standard Reddit traders.

‘Institutional investors might be able to sell large holdings of a security on a dark pool before retail investors are aware of this activity,’ Market Realist notes. Dark pools have increased in popularity, now accounting for around 40% of the global equity market.

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So, back to AMC. Its current price is $37.24, down 8.68% today. As per Market Chameleon, 83.2 million shares were traded on AMC stock yesterday – that seems like a lot, right? Well, 71% of those trades took place via dark pools.

Why is this a problem? Well, while billions of dollars worth of trading is taking place on a dark pool, retail investors are none the wiser before it gets too late. On June 25, $40 billion worth of buying is estimated to have took place on AMC stock in dark pools, with $10 billion in selling.

If all dark pool trades took place on the open market, the price would propel to crazy numbers – and in turn, make normal people rich. But because hedge funds and other financiers appear to be routing their sales through the open market and buys through the dark pool, it’s keeping the price low and strong-arming people into selling their positions, without any oversight from the SEC.

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‘Hear me out. On 3/23, the dark pool volume was 59%. Over the past 20 days, average has been 62%. With 73% today, one thing has been made abundantly clear to me: They are losing control of this situation. I’m angry, but I’m looking at this from another perspective,’ one user wrote.

‘Former Wall Street lawyer here. Do Apes know that the SEC could halt or suspend Dark Pool trading any time they want? The govt tests pilot programs all the time. Why not pause for 30 days???’ another wrote, echoing widespread pressure on the commission to curb dark pools amid such unprecedented volume.

‘With AMC, we know that they are trading HUGE volumes of this stock between themselves. These huge volumes would obviously affect the share price… why do you think so many shares of AMC are being traded via dark pools? If all the buy orders for AMC were executed on the open market, the share price for AMC would be ridiculously high right now,’ Redditor ArcherOk6223 wrote.

‘As of now? We can do sweet FA. As always, all we can do is buy and hold. When they get together in their dark pools to trade, all they will see is nobody selling and everyone wanting to buy,’ they added.

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Cameron Frew

Entertainment Editor at UNILAD. 2001: A Space Odyssey is the best film ever made, and Warrior is better than Rocky. That's all you need to know.

Topics: Viral, no-article-matching, Reddit, Stocks and Shares, Wall Street

Credits

Investopedia and 3 others
  1. Investopedia

    An Introduction to Dark Pools

  2. Market Chameleon

    After Hours VWAP for AMC

  3. Market Realist

    What Are Dark Pools in Stocks and How Do They Work?

  4. @ArcherOk6223/Reddit

    What are Dark Pools?