U.S. regulators propose rules to shine light on 'dark pools'

By John McCrank

(Reuters) - U.S. securities regulators on Wednesday voted unanimously to propose new rules that would increase the amount of information that alternative trading systems (ATSs), such as "dark pools," must disclose about how they work.

ATSs are private, broker-run electronic trading venues that compete with public stock exchanges. Many ATSs, known as dark pools, do not provide trading information, such as trade sizes and prices, to the public prior to trades taking place, with the aim of getting large orders done with minimal price movement.

The new measures proposed by the U.S. Securities and Exchange Commission would amend rules the regulator adopted 17 years ago when electronic trading networks were being developed to challenge the dominance of the New York Stock Exchange (NYSE: ICE).

The regulatory burden on ATSs was lighter than on exchanges in order to keep barriers to entry low and encourage innovation.

There are now at least 35 active ATSs and many are as sophisticated as exchanges. Some are owned by investment banks or proprietary trading firms, and none are required to publicly explain how they operate.

"To most people, dark pools are a little bit of a mystery, and that's because they often function in great secrecy. Today's proposal seeks to shine a light into that darkness," said SEC Commissioner Kara Stein.

The new rules, which will be made available for public comment, are aimed at helping investors assess the various platforms, which have come under increased regulatory scrutiny.

The SEC reached a $20.3 million settlement in August with Investment Technology Group (NYSE: ITG) on charges the brokerage ran a secret trading desk that profited off of confidential customer information within its dark pool.

That followed a $14.4 million fine to UBS (NYSE: UBS) in January for allegedly giving some customers advantages over others in its ATS, and a June 2014 lawsuit brought against Barclays by New York's attorney general alleging fraud in its dark pool.

The new SEC proposal would require ATS operators to disclose potential conflicts of interest, such as whether they or their affiliates trade on their platforms.

ATSs would have to make public whether they or any of their customers are given advantages over other customers, such as through the use of special order types or preferential access to trading information.

The venues would also have to detail how they send and receive orders, use market data and algorithms, and explain their policies and procedures for keeping subscribers' information confidential.

(Reporting by John McCrank in New York; Editing by Christian Plumb)

You May Also Be Interested In

• Fisker (FSR) files form 10-K, sees more job cuts, reiterates going concern doubts
• Centessa Pharmaceuticals (CNTA) Announces Pricing of $100 Million Public Offering of American Depositary Shares
• LuxUrban Hotels (LUXH) Files $50M Mixed Shelf