SEC bids to shed light on dark pools

Securities and Exchange Commission (SEC) chief Mary Schapiro says the agency is to step up its scrutiny of dark pools amid concerns about the risks posed to market transparency and integrity by the proliferation of off-exchange trading venues.

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SEC bids to shed light on dark pools

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In a speech to the New York Financial Writers Association, Schapiro revealed that she has asked staff to probe the impact of dark pool trading on publicly available prices and markets.

She said the SEC would be taking "a serious look at what regulatory actions may be warranted in order to respond to the potential investor protection and market integrity concerns raised by dark pools".

Earlier this month the New York Stock Exchange wrote to the SEC to complain about the use of pre-routing display strategies by dark pool operators such as Bats, Direct Edge and Nasdaq OMX, that are designed to give their users an advanced peek at unfilled orders ahead of the wider market.

In a letter to the SEC, Nyse's legal counsel Janet Kisane says that the delay in shipping orders flies in the face of Reg NMS which was introduced to guarantee best execution at the best price as soon as orders became available.

"Nyse Euronext believes that the time is ripe for the Securities and Exchange Commission to review not just the proposed Nasdaq and Bats functionality, but similar trading functionality used by registered alternative trading systems that provide non-public order information to a select class of market participants at the expense of a free and open market system."

Similar concerns have been raised across the pond in Europe. Earlier this year, the UK's Financial Services Authority called for modifications to the Euro Millennium dark pool operated by Nyfix in an effort to meet demands by the Committee of European Securities Regulators for more transparency in pre-trade pricing over the platforms.

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