Inching Toward Dark Pool Reporting

Shedding Light on ATS Volume Numbers

Traders Magazine, August 2009

Nina Mehta

Goldman Sachs Electronic Trading told clients in June it would begin reporting volume executed in Sigma X, its dark pool, based on single-counted matched executions. That was a departure from how Goldman had been calculating Sigma X volume. More generally, dark pool operators are now mulling their options after the Securities and Exchange Commission expressed concern over the lack of reporting standards for non-displayed alternative trading systems.

"Without an absolute industry protocol, we're advocating doing what exchanges have been doing for a very long time:

reporting single-counted matched-only volume," said Dave Johnsen, vice president for Sigma X business development at Goldman. "If everyone else puts themselves on the same metric, the dark pool numbers will add up to 100 percent of dark pool volume."

Goldman did this in part because the SEC had recently suggested it wanted more information about how much volume was occurring in dark pools and where that volume was executing. Dark pools are not required to publish this information publicly, although they must print their trades to trade-reporting facilities. There is no standard for how dark pools calculate this off-board volume when they issue volume figures.

The SEC's worry is that this lack of information could impact investors' execution decisions and impair transparency in the market as dark liquidity grows. SEC Chairman Mary Schapiro said in June that the Commission had 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."

 

 

Degree of Information

Dark pools accounted for 8.6 percent of consolidated volume in May, compared with roughly 5 percent in early 2008, according to institutional broker Rosenblatt Securities.

But while Goldman is interested in seeing the industry adopt a uniform reporting methodology, it has not committed to publishing its volume figures publicly every month. Johnsen emphasized that there should be industry discussion and customer feedback about various alternatives and the degree of information that could be provided publicly, including monthly volumes.

The SEC is particularly concerned about the lack of a uniform reporting methodology for dark pools. James Brigagliano, co-acting director of the SEC's Division of Trading and Markets, said in a May speech that dark pools "do not use a uniform methodology and may effectively overstate their true executed volume because of double counting...or by including 'touched' volume of orders routed elsewhere for execution with the 'matched' volume that they actually execute." Most dark pools double-count their volume, unlike exchanges, which single-count matched trades.

For more information on related topics, visit the following channels:

• Crossing Networks/ATSs
• Brokerage