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Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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July 15, 2007

No New Regs Will Be Coming to Dark Pool Land

By Gregory Bresiger and Nina Mehta

The Securities and Exchange Commission is not overly concerned about the recent surge in the number of dark pools. Erik Sirri, director of the SEC's Division of Market Regulation, said his group has no immediate plans to regulate dark pools. "I'm not sure we have any concerns right now," he said at Baruch College's annual conference on the financial markets. "We really have let a thousand flowers bloom."

The number of dark pools, or crossing systems, has increased sharply over the past year and a half to several dozen. Sirri noted that there are now more than 40 venues to buy and sell shares of companies. That number includes markets with dark as well as displayed liquidity.

"We have good competition for order flow," Sirri said, adding that electronic linkages and electronic access address concerns about the fragmentation of liquidity across venues.

According to the market reg chief, the SEC wants to understand why people use dark pools and how they're used.

"Dark pools," Sirri observed, is a moniker "that covers a multiplicity of structures and styles." But at bottom, he said, "dark" refers to order books that are opaque and that do not publish information about the orders within their books.

What might lead the regulator to act on dark pools? "Were someone to be leaking information [about orders within a crossing system], you can see why we'd be concerned about that," Sirri said. In effect, dark pools must remain dark.

At the Security Traders Association's annual Washington, D.C., conference, Sirri also said the SEC would be concerned if dark pools didn't treat clients equitably or if they didn't follow their own rules.