Dark Pools/Dark Indexes

I answer from my limited knowledge of dark pools.

Who uses Dark pool to trade?

Mostly institutional investors.

But if Dark Pool trades do not go through the normal exchanges, where/how do they interchange?

Mostly through a type of alternative trading system (ATS) called a crossing network, or through private arrangements.

They are legal?

In the US, they are legal. As stated above, dark pools are just another kind of ATS. The major feature dark pools is the lack of "pre-trade transparency" (explained below).

So in effect, if they put large blocks of purchases or sales, they do not get listed on a level-2 or 3 quotes at all?

Correct. Dark pool trades have no "pre-trade transparency"; quotes and orders are not public information. This is a major feature of dark pools. It gives institutions privacy about their orders, and reduces the market impact of their trades.

and no one can tell what went through?

In the US, this is incorrect. Dark pool trades do have "post-trade transparency"; trades have to be reported to a regulatory organization that will then disseminate information about the trade to the public. Off-exchange trades (including dark pool trades) have to be reported to a FINRA Trade Reporting Facility (TRF), and the trade information will then appear on the consolidated tape (which is distributed by Securities Information Processors [SIPs]).

To the uninformed, the term "dark pool" makes things sound more sophisticated, mysterious and sinister than it really is. I think of dark pools as merely a kind of ATS that lack of pre-trade transparency.

I know some sites charge for this data and make it available in real time. Is this true? And does anyone think the knowledge of these can have advantageous benefits at all?

I don't know. I will leave this for others to answer. What I do know is that the users of dark pools typically value their privacy, and would be unhappy if their large orders were to be publicly known before execution. Crossing networks cater to this demand for privacy, so most crossing networks keep their orders private and anonymous. If there were no privacy, other traders would know of the existence of large orders, and they may be able to front-run these orders. As this is disadvantageous to the parties placing large orders, privacy is considered important.

Further reading

• FINRA: Can You Swim in a Dark Pool?
• Effect of dark pool traded volume on current tape
• Wikipedia: Dark pool
• FINRA Makes Dark Pool Data Available Free to the Investing Public — Dark pool data is publicly available at https://otctransparency.finra.org.