The Securities and Exchange Commission (SEC) is conducting a discussion in Washington on dark pools.

What are dark pools and how do they function? Dark pools are private U.S. stock venues, like a hidden stock exchange. Big players use these venues to trade large blocks of stock off the exchange floor. The identity of traders using dark pools is kept secret. This is a big departure from trading on the NYSE floor where trades are made via the open outcry system. The size of trades is made public on the ticker tape. In dark pools none of this information is public.

What are dark pools and how do they work? The words "dark" and "pool" are used to identify large pools of stock that are traded "off exchanges," or in private, and are not shown to the general public. There is no transparency.

Years ago, all stock trades were made on listed exchanges. Expert stock traders would "read the tape" and follow the price changes in large blocks of stocks. Whether they were done on an uptick or down tick would give the trader a hint as to whether the trade was done on the buy or sell side. Every trade on the tape had an equal number of shares on the buy and on the sell side, so if the tape showed a trade of 10,000 shares of a stock, it meant that there was a buyer of 10,000 shares matched with a seller of 10,000 shares.