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Swiss exchange CEO: Dark pools the real problem

The world of high-frequency trading (HFT) is back in the spotlight after claims in Michael Lewis's new book 'Flash Boys' that the stock market is rigged.

The CEO of the Swiss stock exhange told CNBC he was more concerned about the lack of transparency in so-called dark pools than about HFT per se.

Dark pools are trading systems set up by banks outside regulated exchanges. Their operators argue that the platforms provide liquidity for bigger trades that are harder to execute on stock exchanges.

Lewis alleges that the information gleaned by banks in dark pools could be used by their own trading desks to guess which way the market is moving. He also claims that information could be sold to high frequency traders.

Spencer Platt | Getty Images

"As long as HFT traders are trading along the rules we have set up at our exchange, we don't have to be worried about transparency. What affects transparency to a big bigger extent is the move of trading activity away from regulated exchanges into dark pools," Urs Ruegsegger, group chief executive of SIX Group, the operator of Switzerland's national stock exchange, told CNBC.

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"There are good reasons to have some kind of trades, larger ones, where institutional investors have an interest, in dark pools or in a semi-dark environment, but retail trades have to be executed on a regulated exchange. That's what markets are all about."

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Data on whether HFT would affect ordinary retail investors is difficult to pinpoint, precisely because this kind of trading is by nature obtuse.

A paper by Terrence Hendershott, a professor at Berkeley who has published several large pieces of research on HFT, states that the average dislocation of the share price amounts to $0.034 – and then extrapolates from that to suggest that this amounts to around $0.006 per 100 shares, based on how often the dislocation occurs.