Regulators Charge Up The Batteries In Their Dark Pool Flashlight
Yesterday, the WSJ reported that this was the year that FINRA was going to get serious about finding out what the heck is going on in those dastardly dark pools. The headline read “Finra to Shine Light on Dark Pool Trading” and it featured some quotes from FINRA CEO Richard Ketchum:
“Richard Ketchum, chief executive of the Financial Industry Regulatory Authority, said in an interview Tuesday that the regulator is expanding its oversight of the dark-trading venues, with an eye on whether orders placed in public exchanges are “trying to move prices or encourage sellers that may advance their trading in the dark market. The regulator also is boosting its surveillance of high-speed trading and is increasingly looking at rapid-fire trading across exchanges, he said. “You’re going to see more [focus] in those areas in 2013,” Mr. Ketchum said.”
Forgive us for being cynical, but we think we have seen this movie before and it didn’t have much of an ending. Maybe you recall this press release from the SEC in October 2009 – SEC Issues Proposals to Shed Greater Light on Dark Pools :
The Securities and Exchange Commission today voted unanimously to propose measures intended to increase transparency of dark pools so investors get a clearer view of stock prices and liquidity. “Today’s proposals are intended to prevent the development of a two-tiered market in access to pricing information, further promote displayed liquidity, and enhance transparency of trade information,” said James Brigagliano, Co-Acting Director of the Division of Trading and Markets (Footnote: Mr Brigagliano no longer works at the SEC. He now works for the law firm/lobbyist Sidley Austin)
None of the October 2009 SEC dark pool proposals were ever approved. And since 2009, trading in dark pools has more than doubled and now represent over 1/3 of the trading in the US stock market (many active names have over 50% of their shares traded in dark pools).
We sincerely hope that FINRA is serious about investigating the abuses that could be occurring in the dark pools. Since FINRA runs the largest trade reporting facility where most dark pools print their executions, they should probably have access to some good data.