Dark pools, networks that provide liquidity for large share orders without traders having to reveal their position, has come under increased scrutiny from both the US Securities and Exchange Commission, and the European Commission.
Last week Mary Schapiro, SEC Chairman, said that her staff has begun to take a serious look at what regulatory actions may be warranted in order to respond to the potential investor protection and market integrity concerns raised by dark pools.
“We have heard concerns from market participants that the lack of post-trade transparency by dark pools makes it difficult, if not impossible, for the public to assess dark-pool trading and to identify pools that are most active in particular stocks,” Schapiro said.
According to the Financial Times, the European Commission is also looking to review MiFID, the catalyst for the growth dark pools, enacted in late 2007. A spokesman for Charlie McCreevy, EU internal market commissioner, told the Financial Times: We feel we have to look at this issue urgently as well, and the most appropriate way is to do it in the MiFID review,
It is unsure how far the consensus against attempting to make changes to a complex and highly competitive industry. At the recent International Organisation of Securities Exchanges in Tel Aviv, Hans Hoogervorst, head of the Dutch financial markets authority, told Reuters: “We might be faced with a loss of transparency so I think there are some issues that need serious evaluation. It would be rather ironic, as it is now accepted that one of the causes of the crisis is the lack of regulation. One market that was still functioning well is increasingly being pushed onto the OTC [onto dark pools]. It might be the case that in the securities market you have a reverse development in transparency. It’s still early to tell but I think we must evaluate this very thoroughly.
Eddy Wymeersch, chairman of the Committee of European Securities Regulators, had a straightforward opinion on changing regulation. Let the market function. There will be shakeouts and a few will disappear. We as supervisors do not want to say that you are the good guys and we keep you, and you are a bad one and we kick you out,” he told reporters. “The European Commission will be very hesitant to change this relationship between regulated markets and MTFs. They have opened Pandora’s box and it’s almost impossible to close it again. It’s a question whether we should close it,”