SIE practice questionhardDark Pools
Dark pools are alternative trading systems (ATS) that are primarily used to:
- AFacilitate the trading of newly issued IPO shares
- BProvide a marketplace exclusively for penny stocks
- CEnable large institutional orders to be executed without publicly displaying the order before execution✓ Correct answer
- DAllow retail investors to trade after regular market hours
Explanation
Why C — Enable large institutional orders to be executed without publicly displaying the order before execution
Dark pools are private alternative trading systems that allow institutional investors to execute large block trades without publicly displaying the order size or price before execution. This helps prevent market impact — if a large order were visible on a public exchange, it could move the price unfavorably before the order was filled. Dark pools are not limited to after-hours trading, penny stocks, or IPOs. They are regulated by the SEC as ATSs under Regulation ATS.
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