Dark pools, sinister as they sound, were originally a sensible idea. Pools such as Liquidnet and PositAlert were created as venues in which an institution that wanted, for example, to sell 100,000 General Electric shares could find another that wanted to buy that amount. They could make the trade at the market price before being ambushed by algorithms. “I don’t think that many investors know what is going on inside the dark pools now,” says Rhodri Preece, director of capital markets policy at the CFA Institute. “There is a lot of high-frequency trading and they are not being used for their original purpose.” Suffice to say, the industry term for much of the trading that now takes place inside dark pools is “toxic liquidity”. The fact that many dark pools no longer offer to investors what they promised might be fine with the banks that operate them if they were making money. But high-frequency trading is far less profitable than it was, even for the leading firms. Tabb Group estimates its revenues in 2014 will be $1.2bn compared with the peak of $7.2bn in 2009.

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