Price Discovery
For an asset that can be only publicly traded, the standard price discovery process is generally assumed to ensure that at any given time the price is approximately "correct" or "fair". However, very few assets are in this category since most can be traded off market without printing the trade to a publicly accessible data source. As the proportion of the daily volume of the asset that is traded in such a hidden manner increases, the public price might still be considered fair. However, if public trading continues to decrease as hidden trading increases, it can be seen that the public price does not take into account all information about the asset (in particular it does not take into account what was traded but hidden) and thus the public price may no longer be "fair".
Yet when trades executed in dark pools are incorporated into a post-trade transparency regime, investors have access to them as a part of a consolidated tape. This can aid price discovery because institutional investors who are reluctant to tip their hands in lit market still have to trade and thus a dark pool with post-trade transparency improves price discovery by increasing the amount of trading taking place.
Read more about this topic: Dark Liquidity
Famous quotes containing the words price and/or discovery:
“Surely the apple is the noblest of fruits. Let the most beautiful or the swiftest have it. That should be the “going” price of apples.”
—Henry David Thoreau (1817–1862)
“One of the laudable by-products of the Freudian quackery is the discovery that lying, in most cases, is involuntary and inevitable—that the liar can no more avoid it than he can avoid blinking his eyes when a light flashes or jumping when a bomb goes off behind him.”
—H.L. (Henry Lewis)