Courtesy of Pam Martens
If you are buying stocks based on what your stockbroker (a/k/a “financial advisor”) is telling you the research analysts at his brokerage firm are recommending, our headline above should provide a cautionary warning.
On July 21, Philip Van Doorn, a reporter for Dow Jones’ MarketWatch, published a chart showing that 82 percent of bank research analysts on Wall Street have a “buy” rating on the stock of Citigroup. According to MarketBeat.com, among the stock analysts making “buy,” “outperform,” or “overweight,” recommendations on Citigroup are those receiving a paycheck from Goldman Sachs, Credit Suisse, Morgan Stanley, JPMorgan, Deutsche Bank, UBS, and Bank of America – all of whom have a vested interest in wanting Citigroup – and each other — to stay strong because they are all interconnected as derivative counterparties.
All of these banks are in a unique position to help Citigroup reach the elevated price targets set by their research analysts because the Securities and Exchange Commission (SEC) continues to allow Wall Street’s mega banks to trade each other’s stock, as well as the stock of their own bank, in their own Dark Pools. Dark Pools are, effectively, unregulated stock exchanges operating inside the bowels of the largest Wall Street banks.
For example, while its stock analyst is encouraging the public to buy the shares of Citigroup, during the week of July 1, 2019 (the most recent week that Dark Pool data is available, which was a light-trading, holiday shortened week that contained the 4th of July when markets were closed) Goldman Sach’s Dark Pool in the U.S. called Sigma X2 traded 194,567 shares of Citigroup in 1,585 separate trades. But Goldman Sachs owns Dark Pools that trade on three other continents under separate regulatory regimes, so the U.S. public actually has no idea how many shares of Citigroup are being traded in Goldman’s Dark Pools, or, for that matter, how many shares of its own stock it’s trading each week. (See Wall Street Banks Are Trading in Their Own Company’s Stock: How Is This Legal?)
Morgan Stanley is, insanely, allowed to operate three separate Dark Pools called MS Trajectory Cross ATS-1; MS Pool ATS-4; and MS RPool ATS-6. Those three pools traded a total of 584,400 shares of Citigroup in 3,109 separate trades during the same week. Since Dark Pool trading is dark and reporting of trades is delayed, how can the public have any confidence that Morgan Stanley’s Dark Pools aren’t making a two-sided market in Citigroup’s shares while its bank analyst is touting the stock to the public?
Why should any Wall Street bank be allowed to make research recommendations on stocks and then trade in those very same stocks in a Dark Pool it owns, let alone three Dark Pools all under the same ownership?
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