Elan insider trading highlights value of dark pools


One of the more interesting aspects of the SAC Capital sell-off of Elan shares back in 2008 was the efficiency with which the hedge fund was able to exit a massive position with so few market ripples. 

It's unknown exactly how this was achieved, other than the firm's traders were able to use dark pools and algorithms to sell out, without tipping its hand to the market.

Reuters describes the big picture, relying on data and charts from Nanex: "When Elan opened for trade on Monday July 21, 2008, it was at a multi-year high of more than $35 per share, and SAC's long position was massively in the money — after all, they had been buying since it was less than $15. And then SAC started selling, aggressively.Over a four-day period, SAC sold its entire position of 10.5 million shares between Monday and Thursday, at a super-high average price of $34.21 per share. The head trader, who said that he sold the stock 'quietly and efficiently through algos and darkpools', continued to sell. By the end of the trading session on the 29th, he had sold more than 15 million shares for more than $500 million. The complaint notes that the SAC trading 'constituted over 20% of the reported trading volume in the seven days prior to the July 29 Announcement.' "

That's fairly stunning. There were some ups and downs in the stock. But "by the end, in the wake of $500 million of concerted selling in a pretty illiquid stock, the share price was about $33.50 — pretty much exactly where it was on the Friday before the selling started."

This is a powerful statement on the value of dark pools. They definitely worked as advertised in this case.

For more:
- here's the column

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