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Dark pools : où passe vraiment votre ordre de bourse ? — Transcript

by Xavier Delmas · 3,171 words · 481 segments · language en · Watch on YouTube

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0:00A quick question to start. In your
0:01opinion, out of 100 shares traded in
0:03the United States, how many actually go
0:04through the stock exchange? 90? 80?
0:07Well, the real answer is less than 50.
0:09Since 2025, and for the first time in
0:11history, more than half of all US
0:13shares, whether for individuals or
0:15professionals, are traded outside the
0:17stock exchange. 50.6%of the volume in
0:192025 and 50.1%in July of this year. In
0:23the world's largest financial market,
0:24the stock exchange has become a
0:26minority. And the craziest part is that
0:27almost no one knows where the other
0:28half goes. To find out, the best way is
0:30to follow an order. On a Sunday evening
0:32, somewhere in the United States, a
0:33young man we'll call Mike opens his
0:34broker's app. He buys 10 Apple shares,
0:36it takes him 5 seconds, and it costs
0:38him almost nothing. Sometimes it's even
0:39free, but we'll talk more about that
0:40later. He puts his phone down and goes
0:42back to his show. So, where did that
0:43order go? You know the statistic, it's
0:46roughly 50/50, but an order like Mike's
0:48, especially if advertised as free by
0:49his broker, has likely never set foot
0:51on the stock exchange. Sometimes when
0:54we hear that half of trades happen
0:55outside the exchange, we think, "Hmm,
0:57I've heard of Dark Pools, that must be
0:58where they go." A Dark Pool is a
1:01private platform, mostly used by large
1:03institutions, which resembles a stock
1:04exchange, except it doesn't display its
1:06order book. So basically, no one sees
1:08who wants to buy, who wants to sell, or
1:10in what quantity. Originally, it's
1:12actually something useful and there's a
1:13real need behind it. If you are a large
1:15fund and you need to place a sell order
1:17for tens of millions of dollars on the
1:19public book, naturally everyone will
1:21see your order or orders arriving. So
1:23everyone will want to sell before you,
1:25and you'll end up selling for much less
1:26than expected. The Dark Pool allows you
1:28to find a buyer discreetly. So far,
1:30nothing too malicious. It even seems
1:31quite legitimate as I said, but Dark
1:33Pools still have a bad reputation. And
1:35this reputation comes notably from a
1:37book released in 2014 called Flash Boys
1:39, written by Michael Lewis. This book
1:41shows how ultra-fast traders detected
1:43others 'orders a few microseconds in
1:45advance to get ahead of them and resell
1:46them the same shares at a slightly
1:48higher price. It's a fascinating book
1:50that reads very well, by the way, I
1:51highly recommend it. And this Michael
1:53Lewis, he went on a media tour saying
1:54everywhere that the American financial
1:56market was rigged. And that idea stuck,
1:57but there is some truth behind it. In
2:002016, for instance, Barclays and Credit
2:02Suisse together paid over 150 million
2:04dollars in fines for their Dark Pools.
2:06And Barclays, for example, promised its
2:08clients to protect them against those
2:10ultra-aggressive traders, those famous
2:11high-frequency traders denounced by
2:13Michael Lewis, when in reality its
2:14system protected nothing at all. So one
2:16might imagine that half of the American
2:18market has disappeared into these
2:19famous Dark Pools. Except no, the
2:21actual share of Dark Pools in the
2:22American market today is about 10%. So
2:25while off-exchange trading was
2:26exploding, going from a third to more
2:28than half of the market, the share of
2:29dark pools remained roughly stable
2:31around 10%. And I'll finish on these
2:33dark pools with a figure that will
2:35surprise you. On the UBS dark pool, one
2:37of the biggest in the world, the
2:39average transaction in 2016 involved 78
2:42shares, not 500,000 shares, 78. So the
2:45image of the huge secret transaction
2:46between two funds is over. A modern
2:48dark pool is mostly full of tiny
2:49transactions, a bit like a traditional
2:51stock exchange, ultimately. So if
2:52it’s not the Dark Pools that have
2:54eaten up half of the American stock
2:56market. Well, to understand that,
2:57we’ll go back to Mike and his
2:58purchase of 10 Apple shares. The first
3:01thing to understand is that his app,
3:02for example Robinhood—I mention it
3:03because it's the biggest app of this
3:05type in the US—doesn't send his order
3:06to the stock exchange, it sells it. Yes
3:09, yes, you heard that right, there are
3:11companies that pay brokers to receive
3:12their clients' orders. They are called
3:15wholesalers, if you will, in terms of
3:17stock orders. The biggest one is called
3:19Citadel Securities, an extremely
3:21well-known name in finance, and it
3:22handles nearly a third of all American
3:24retail orders. A third of all orders go
3:27through a single company. The
3:28wholesaler will therefore receive
3:30Mike's order. It will look at the
3:31official price displayed by the
3:32exchanges. It's what the Americans call
3:35the NBBO, the National Best Bid and
3:37Offer. So we have the best buying price
3:39, we have the best selling price, which
3:40are displayed publicly across all
3:42exchanges combined. Let's say Apple
3:44stock is quoted on the NBBO at $ 320 to
3:47buy and $ 320.02 to sell. The
3:50wholesaler will take 10 shares from
3:51their Apple inventory and sell them to
3:53Mike at $ 320.019. So Mike will pay a
3:57tiny bit less, 1/10th of a cent, a tiny
3:59bit less than what is shown on the
4:00official exchange. Now be careful, on
4:02this isolated transaction, the
4:03wholesaler hasn't earned anything yet.
4:05They just sold shares from their own
4:06stock. Their business is the round trip
4:08, because at the same time, especially
4:10with Apple and especially when you're
4:12Citadel Securities, there are probably
4:14clients selling, and what they will do
4:15is buy back these sold positions at the
4:17bottom of the spread, that is to say at
4:19$ 320. So they sell at the top, they
4:21buy back at the bottom, millions of
4:22times a day, in both directions of
4:24course. By order, they might very well
4:26lose money, but in volume, they will
4:27collect cash, a lot of cash, and a
4:29small fraction of that gain will go
4:30back to Robinhood. That is the famous "
4:33payment for order flow." And that is
4:35what finances the "free," or so-called
4:36free, service. If Mike doesn't pay a
4:38commission, it's simply because his
4:40order is the product. It is his order
4:42that is sold for a certain price. And
4:43Mike's order never touched the order
4:45book of an exchange. And if you
4:46multiply that by tens of millions of
4:48retail orders from Americans, you've
4:50found what pushes the market to the
4:52other side of the 50%. And if Mike
4:54hadn't been in a rush, imagine that
4:55instead of buying at market price,
4:57meaning "I sell to the best buyer,"
4:59imagine that this time he placed a
5:00limit order. I buy, but only if the
5:03stock goes down to $ 319. Well, for
5:05that order, the wholesaler can't do
5:06anything at all. In any case, not right
5:08away. In this case, there are two
5:09possibilities. Either they keep it
5:10themselves while waiting for the price
5:12to hit; or, and this is very frequent,
5:14they will send it to a real exchange
5:15where it will be placed on the classic
5:17order book, visible to everyone,
5:18because ultimately, with that order, it
5:20is much harder for the wholesaler to
5:22make money. And even there, the choice
5:24of the exchange isn't innocent because
5:25exchanges pay rebates to those who
5:26bring them orders. And guess which
5:28exchange Mike's order will go to?
5:30Obviously, to the exchange that pays
5:31the best. Retail investors still create
5:33a portion of the public price, you know
5:35, that NBBO that is then used by
5:36everyone, but only for their limit
5:38orders. Everything involving urgent
5:40flow, meaning market orders, is
5:41generally captured before reaching the
5:43order books of official exchanges. But
5:45let's get back to those market orders
5:46because these are the orders everyone
5:47is fighting for at this stage, and
5:49you're surely asking yourself the same
5:50question I am. Why? Why would one of
5:53the most sophisticated companies on the
5:54planet pay for the right to serve Mike
5:56at a better price than the exchange?
5:58What's the catch? The answer is super
6:00simple, and it's actually a bit
6:01insulting to Mike. It's simply that
6:03Mike doesn't know anything because our
6:04wholesaler is, at heart, a market maker
6:06. That's what Americans call a market
6:07maker. So, they are permanently ready
6:09to buy and sell, and they live, as
6:10you've understood, off the spread
6:12between those two prices. When a market
6:14maker is faced with a hedge fund,
6:15meaning a professional trader, they
6:16have a problem because that hedge fund
6:18might know something they don't. You
6:20can imagine that trading against
6:21someone better informed than you is not
6:22always a very good idea. In fact, it's
6:24the best way to lose money.
6:26Professionals have a name for this type
6:27of problem: adverse selection. It's the
6:29risk that the person you are trading
6:31with is better informed than you are.
6:32That's typically what we see in the
6:34used car market. When someone sells you
6:36a used car, they are much better
6:37informed than you about the potential
6:39problems that car might have. When Mike
6:42buys Apple stock on a Sunday night,
6:43it's because he likes his iPhone. We
6:45can agree that the probability of him
6:47possessing information that Citadel
6:48doesn't have is basically zero. It's
6:50even more harmless than Mike's order,
6:51for that matter. Think of the
6:52programmed investment plan, the famous
6:54DCA. Millions of people automatically
6:56buy the same ETFs, the same stocks, on
6:57the same day, every month, regardless
6:59of the price. An order that goes
7:00through on its own on a fixed date
7:02without even looking at the market. By
7:03definition, it contains no information.
7:06There is zero adverse selection, zero
7:07risk of running into someone smarter
7:08than you. For a market maker, this flow
7:10is gold. They can use it calmly and
7:12pocket the spread. And that is one of
7:15the reasons why retail flow is so
7:17valuable. That is the heart of the
7:18system. Mike's ignorance actually has a
7:20real market value. And that value is
7:22large enough to be split in two, with a
7:24profit for the wholesaler, a profit for
7:25the market maker, and a check for the
7:27broker. So, is Mike getting fleeced?
7:29Well, the honest answer is that you can
7:31never be sure. You will find research
7:32that tells you that, on average,
7:34off-exchange executions turn out better
7:36than comparable on-exchange executions.
7:38But those same studies show that for
7:39identical orders placed at the same
7:41time, the differences from one broker
7:42to another were huge, and some orders
7:44were significantly degraded compared to
7:46standard market execution. In 2020,
7:48Robinhood paid $ 65 million in fines to
7:50the US regulator because the way it
7:52routed orders degraded the execution
7:54quality for its clients without telling
7:56them. And despite the zero-commission
7:58policy that was advertised—orders are
7:59free. The SEC, the US stock market
8:01watchdog, if you will, calculated that
8:03its clients had lost about $ 34 million
8:05. Now, two questions remain. Where is
8:07the system heading if everyone acts
8:08like Mike? So, what if all orders flee
8:10the exchange, and are we observing the
8:11same phenomenon in Europe? That is the
8:13entire second part of this video. Just
8:14before that, a word from my sponsor,
8:16which is right on topic since this
8:18video is supported by Saxo Bank, which
8:19is also my daily order execution
8:21platform. And given what we've just
8:22seen, you might be wondering how things
8:23work with them. Well, it's very clear.
8:25Saxo does not practice payment for
8:27order flow and did not practice it when
8:28it was authorized in Europe. No one
8:30pays them to receive your orders. Their
8:32model is the traditional one. It's the
8:33simplest model: you pay a commission,
8:35it's transparent, and their routing
8:36system searches for the best price
8:38available across all exchanges and
8:39regulated platforms. At Saxo, you can
8:41invest in more than 50 markets with
8:43highly competitive rates. And right now
8:45, Saxo is offering you € 500 in
8:46brokerage fees over your first three
8:48months for opening or transferring a
8:49securities account, a PEA, or a
8:51corporate account if you follow the
8:52link in the description. Alright, let's
8:54get back to it. Now that we've met all
8:55the players, we're going to recap a
8:56little bit. So, on one side, we have
8:58the public exchanges. So we have the
9:00NASDAQ, the NYSE, the New York Stock
9:02Exchange, and then a good ten other
9:03players that are regulated exchanges
9:05with their order books displayed, and
9:07they retain about half the volume. And
9:09on the other side, we have all their
9:10exchanges. First, the famous market
9:12makers like Citadel Securities that
9:13internalize orders, especially retail
9:15orders, and they alone have about a
9:17third of the market. Next, we have the
9:19Dark Pools. These private platforms,
9:21mainly used by institutions, account
9:23for about a tenth of the market. And
9:25finally, there are a few direct
9:26circuits between banks, large clients,
9:28and so on. But basically, that's the
9:30landscape. We'll go back a little bit
9:32to the mechanism when the wholesaler
9:33executes Mike's order at 320.019.
9:35Because he didn't invent that price, he
9:37copied it. He relied on the famous NBBO
9:40, the best price publicly displayed by
9:42the exchanges. And the entire
9:43off-exchange system works like that. So
9:45wholesalers will align with the public
9:47price, and dark pools will most often
9:49execute in the middle of the public
9:50price in that famous spread. Everyone
9:52uses the public price. But where does
9:53this public price come from? Well, it
9:55comes from investors who agree to put
9:56their cards on the table. Those who
9:58place their visible orders on the
9:59exchange books, assuming that everyone
10:01can see them. They are the ones who
10:02create the public price that everyone
10:04uses. And I'm sure you see the problem
10:05coming. To me, it immediately makes me
10:07think of online commerce. I'm sure
10:08you've already done that. You went to a
10:10physical store, I don't know, a tech
10:11store or something else. You ask the
10:13salesperson questions, you check the
10:14product physically to see if it seems
10:16to be good quality, and so on, then you
10:17go home and order it online for 20%less
10:18. So on one side, we have the store,
10:21the physical store that did all the
10:22work, and the website that collected
10:23the sale. Individually, it's a
10:25perfectly rational choice, but if
10:26everyone does the same thing, we'll
10:28have a physical store that closes, and
10:29the day it closes, everyone is stuck.
10:31Even the online site is disadvantaged
10:33because since we can no longer see the
10:34products in person, we can't touch them
10:36or look at them, which will limit
10:37purchases. The public exchange is
10:39really the equivalent of a store, and
10:40all their dark pools are the equivalent
10:41of online orders. So the exchange is
10:43what keeps the system running; it’s
10:44what allows for prices to be displayed,
10:46visible, clear, and so on. But
10:48ultimately, half of the business—half
10:49of the transactions—happens elsewhere
10:51using that very information. That’s
10:53the real question of this video: what
10:55happens if everyone wants to use the
10:56price but nobody wants to create it
10:58anymore, nobody wants to show orders
11:00publicly? But honestly, the answer
11:02isn’t all that clear. The first camp
11:04among researchers says, "Don't panic,
11:05because when harmless orders like
11:07Mike's leave the exchange, what's left
11:09on the order book are the institutions,
11:10people who have much more information,
11:12who are better informed." And so,
11:14paradoxically, the public price might
11:15even become more accurate because it's
11:17not random orders—it's not Mike's
11:19orders—that bring real information
11:21about the price. There is a second camp
11:23that responds, "Agreed, but only up to
11:24a certain point." Beyond a certain
11:26level of invisible trading—that is,
11:27off-exchange trading—the quality of
11:28prices, of public prices, degrades.
11:31Spreads widen, and there was even a
11:32study published in early 2026
11:34suggesting that for stocks traded
11:36heavily off-exchange, bad news comes
11:38out more slowly. So the prices aren't
11:40the best prices, aren't the fairest
11:41prices, and we even face an increased
11:43risk of a stock crash, a brutal risk of
11:45collapse. So where exactly is that
11:46threshold? Nobody knows, but what we do
11:48know is that the US market has never
11:50gone this far in the direction of
11:52payment for order flow—hidden orders,
11:54if you will. And the thing is, the
11:56United States has no intention of
11:57turning back. A few years ago, the US
11:59regulator had considered cracking down
12:01on payment for order flow. The project
12:03was abandoned, and the new head of the
12:04SEC—the stock market watchdog, as
12:06you’ve gathered—is now even
12:07pursuing the opposite direction. That
12:09is to say, he wants fewer rules; he
12:10wants more competition between
12:11intermediaries. And meanwhile, Europe
12:13has made exactly the opposite choice.
12:15So payment for order flow, the core of
12:17the system we just described, is now
12:18banned in the European Union. The ban
12:20has been total since June 30, 2026. So
12:23your European broker is no longer
12:24allowed to get paid by a market maker
12:26for sending them your orders. So here,
12:28we really have two philosophies. We
12:29have the United States betting that
12:31competition among all intermediaries
12:32will ultimately serve the customer. And
12:34then we have Europe, which says a
12:36broker should only be paid by one
12:37person, their client, because
12:38ultimately that's the only way to be
12:40sure they are really working for them.
12:42Now, for my part, obviously, I prefer
12:43the European model because I find it
12:45much more transparent, much clearer,
12:46but I'll let you make up your own mind.
12:48But what is certain is that Mike, this
12:50Sunday evening, was apparently well
12:51served and even saw a small improvement
12:53on his order. He paid a tenth of a cent
12:55less. But what he doesn't see is that
12:57this displayed price, the one the whole
12:59system relies on, is being made by
13:00fewer and fewer people, by fewer and
13:02fewer players. So this famous NBBO is
13:04increasingly at risk. One last thing
13:06before we go, I always hesitate to make
13:07this type of video, the kind that
13:08reveals a bit of the behind-the-scenes
13:10of the markets, because I'm afraid it
13:11only interests me and that these are
13:12really niche topics. So there you go,
13:14let me know—I'll see it anyway by the
13:15number of views—but let me know if
13:16you are interested in this type of
13:17thing. I had already done a video a
13:18long time ago on Dark Pools, but do you
13:20like that or not? In either case, put
13:21it in the comments because it really
13:23helps me choose future topics. There
13:24you go, thank you all for your loyalty.
13:26Welcome to the new subscribers. Also,
13:28leave a like, even if it doesn't really
13:30do anything for the YouTube algorithm
13:31anymore. It still allows me to know if
13:33this type of video appeals to you.
13:34Alright, thank you all and see you soon
13:35.

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