Finra Starts Reviewing the Dark Pool Disclosures for the Users

The Securities Regulators are concerned that Dark Pools are not always providing the consumers a clear picture of their operational details and hence they have started examining the disclosures of the broker run trading venues. The Securities and Exchange Commission and Financial Industry Regulatory Authority already expressed their concern over this type of alternative trading system. A letter on this regard has already been published in Finra’s official website on its regulatory and examination priorities for the current year. Incidentally, most of these platforms are known as ATS and these are private venues owned by the brokers. These platforms match buy and also sell equity orders from the customers.

Incidentally, Finra, off late, is taking measurements to ensure limitation of risks and market integrity. They are also examining whether algorithmic and high-frequency trading operations can result into dislocations, thereby hurting the investors on the longer run. According to the letter published in the website, Finra will check if the high-frequency strategies are property tested before and after the introduction in the market. Finra will also examine whether these strategies lead to any sort of abusive trading or not.

Incidentally, this will mark start of scrutiny process on the automated stock trading practice that has gained popularity in the last 10 years. According to the Head of Market Abuse unit of SEC’s Enforcement Division, Daniel Hawke, this is an important step taken by Finra. These dark pools don’t show any quote publicly and therefore became popular among institutions to indulge into buy and sell without the need of moving the share prices. This also makes sure that brokers can avoid fees which are otherwise charged because of the transaction exchanges.

There are more than 40 such dark pools for trading the US equities and some of these are run by prominent groups such as Goldman Sachs Group, Credit Suisse Group AG, Getco LLC and Barclays Plc. These dark pools don’t identify the institutions or brokers that participate in buying and selling through their systems and also don’t publish any sort of information on the orders executed. Until the transaction is completed, the platforms are set to avoid any market impact of trading requests by keeping those out of view. Finra is mainly analyzing if the brokers are participating in their own dark pool becoming an agent or on principal basis.