We believe the SEC is striking an appropriate balance by shining a light on so much of the murky and small-execution size dark pools, and forcing their flow to the public quote, while still acknowledging the role of block trading and innovation for the institutional and retail community alike. We also appreciate the SEC looking broadly at our market structure as it exists today, and broadly looking at issues like co-location, specifically in how it relates to unfair advantages in the delivery of market data. We expect overall liquidity to not be materially affected, and perhaps the spreads even tighten, especially in the lower capitalization stocks.
Beginning with REG ATS in the late 90’s, the SEC has had the stated goal of transparency, and equal access to pricing by all market participants. Unfortunately, with decimalization and REG NMS, the velocity of trading has skyrocketed. While this spawned some innovative products, nevertheless it has fragmented the market place and hurt the price discovery process in an unintended way. Never did they expect there would be over 30 dark pools trading over 20% of the volume, with a great number of them being internalization engines. And never did they intend for such a large percentage of the order flow to be regulated in a different way than orders on public exchanges. Multi-tiered markets were wrong in 1998, and they are wrong today.