"Dark" Liquidity Pools in the Context of Alternative Finance

Abstract

The concept of alternative finance is explored from a narrow and broad perspective. The latter defines it as segments of "gray" financial markets, outside the scope of regulation and traditional finance. "Dark" liquidity pools—trading transactions of major players in securities and currencies, operating anonymously, opaquely, and hidden from the public in the over-the-counter space through automated digital trading platforms—are presented as one element of the alternative finance system. The advantages and disadvantages of "dark" pools for financial market participants and exchange infrastructure are discussed. The problem of liquidity fragmentation caused by "dark" pools is highlighted, a problem inherent in decentralized finance, where liquidity is not concentrated on a single platform or trading system, but distributed among many. Emphasis is placed on the insufficient or complete lack of oversight and regulation of this alternative financial market segment. Examples of legislative and regulatory acts in a number of countries are provided.