SEC Scrutinizing Actionable IOIs
Traders Magazine, November 2009
The Securities and Exchange Commission is taking a close look at the order messages sent out by dark pools to other trading systems.
As part of an overall review of dark pools, the industry's top regulator will examine whether to reclassify these messages in its rule book. The messages are often referred to as actionable indications of interest. They represent trading interest and can typically be traded against immediately by other systems.
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The SEC believes the messages resemble quotes or orders more than they do IOIs. It may revise its cornerstone quote rule to incorporate these messages. "The question is whether they should be treated as quotes," James Brigagliano, co-acting director in the SEC's Division of Trading and Markets, said at an industry conference recently, "and required to be placed in the quote stream."
The quote rule could be changed, Brigagliano added. SEC Rule 11Ac1-1, better known as the "quote rule," requires market centers to display quotes.
The practice of dark pools sending out order messages is controversial, as it suggests leakage of information. Some dark pools admit to receiving these messages. Few admit to sending them out. If they are reclassified as quotes, and have to be displayed in the public quote stream, the practice might end, sources note.
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