Trader Talk

More Transparency For Dark Pools

The SEC has voted 5-0 to propose new regulations for dark pools.

DARK pools are private trading venues designed to match large blocks of stock.

The SEC is trying to increase the transparency under which these dark pools operate.

The first proposal would make information about an investors buying or selling interest available to the public rather than just the participants in the dark pool.

The concern is that these pools operate like a private club and that some participants may be getting better pricing and information than those outside the dark pool.

The second proposal would lower the amount of trading that could be done in individual stocks. Currently, there is a limit of 5 percent of trading volume, but the SEC is proposing to lower that limit to 0.25 percent.

Finally, the SEC is proposing that dark pools be required to disclose their identity when they execute, or "print", a trade.

Market participants will be allowed to comment for several months before the SEC officially adopts the amendments.

The SEC must strike a very delicate balance here. They must be able to show that dark pools pass the “sniff test” of fairness for all players in the market, and that it is not a two-tiered trading system consisting of dark pools on the one side, and everyone else on the other.

On the other hand, they cannot so overregulate these pools that the liquidity dries up and is forced elsewhere—like offshore.



Questions?  Comments?