Dark pools are private exchanges where large blocks of shares are traded anonymously, preventing market impact and price fluctuations that would occur on public exchanges like the NYSE. While beneficial for large institutional investors, dark pools raise concerns about market transparency and fairness for individual investors.

Patty Hersh, a senior editor at Marketplace, explains the concept of dark pools, which are private exchanges where shares are traded without public visibility. She discusses the advantages for large sellers like pension funds to use dark pools to avoid market impact and price depreciation that would occur on public exchanges like the New York Stock Exchange.

Sam, a public pension fund manager, sells a billion dollars in General Electric stock through an anonymous electronic system known as a dark pool. The buyer, Alisa, also a public pension fund manager, announces her purchase, ensuring transparency while avoiding market disruption during the transaction.

Dark pools, primarily used by large institutional investors, are causing concerns due to their secretive nature and the exclusion of individual investors. These private trading venues are drawing activity away from public exchanges like the NYSE and Nasdaq, leading to calls for regulation to ensure transparency and fairness in the market.