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Rules for 'dark pool' trading need strengthening: report

Tuesday, September 15, 2015 - 20:20

[WASHINGTON] US regulators need to accelerate their efforts beef up the rules governing "dark pool"trading platforms to better protect investors from poor trade execution and conflicts of interest, according to a new report released Tuesday.

The report by the Health Markets Association urges the Securities and Exchange Commission to strengthen the quality of dark pool disclosures, take steps to mitigate conflicts of interest at dark pools, and update its rules designed to ensure investors get the best price and the most efficient execution for their trades.

It also takes a swipe at some of the enforcement actions the SEC has undertaken in recent years with dark pools such as Pipeline and UBS, saying settlements failed to take into account the true harm these platforms inflicted on investors.

"Even the largest, oldest and most well-respected dark pools are not above wrongdoing," the report said.

Healthy Markets Association is a non-profit advocacy group that was founded by two equities market experts at consultancy firm KOR Group and headed by Tyler Gellasch, a former counselor to SEC Democratic Commissioner Kara Stein and Michigan Senator Carl Levin.

The report comes at a time when dark pools have increasingly come under regulatory scrutiny.

Dark pools were created to allow large investors to trade big blocks of trades without tipping off the broader market. Brokerages also offer similar dark markets internally to their clients.

Such platforms are not required to publicly display bids or offers - a fact that some say might be harming price discovery on public exchanges.

Since 2011, the SEC has stepped up enforcement against dark pools that have violated rules.

To date, it has filed cases against six platforms for a variety of violations, from failing to disclose to customers that most of their orders were filled by an affiliate to misusing customer data.

The report said the SEC's cases focus more on disclosure failures, and the settlements could have done more to quantify the actual harm investors suffered.

It also says it is not optimistic that the SEC will move swiftly to write new rules. "To date, regulators have not proposed any substantive reforms," the report says.

REUTERS

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