The Financial Industry Regulatory Authority is likely to publish a draft of a rule proposal requiring dark pools to report their trading volume in October or November, Traders Magazine has learned. That will be followed by the submission of a formal rule proposal to the Securities and Exchange Commission before the end of the year.
The chances for its approval next year are high, according to industry execs.
Christopher Nagy, head of KOR Trading told Traders Magazine that discussions are underway for a formal reporting rule. While no information has been made public by FINRA, he feels confident that a timeline for any possible rule is taking shape.
FINRA first announced its plans to promulgate a reporting rule in July.
Driving the idea for such a rule are complaints by exchanges that too much trading is taking place off-board in dark pools and brokers internalization engines. Such a disclosure rule is considered a positive first step in achieving an understanding of the extent of dark pool trading.
While a formal public regulation has yet to be drafted by Finra, one is in the works both executives said, saying talks began back in June. A draft of the proposed rule is likely as early as October or in November. Once a draft is put out and discussed, a formal rule proposal will be sent to the SEC, presumably later this year with a comment period to follow, likely stretching into 2014. Full approval and implementation could happen during the first half of next year.
KOR’s Nagy, who has experience in such matters from his days as managing director for order routing and market data strategy and co-head of government relations at TD Ameritrade, said that Finra was currently working with the broker-dealers that run their own dark pools, other alternative trading system operators and the buyside to come up with a reporting system all could work with.
“This regulation will get passed,” Nagy said of the to-be-announced regulation. “The feeling of some operators is this type of mandate to report is ok but the frequency of said reports needs to be sorted out first.”
Dan Mathisson, head of equity trading at Credit Suisse, who said he had not seen any proposal yet, agreed with Nagy that a rule governing dark pool volume reporting would likely pass. He told Traders Magazine that he supports the idea of a Finra proposal despite not seeing all the details just yet and that a date of early 2014 for a final rule was likely.
Credit Suisse was one of several dark pool operators that self-reported its volumes but subsequently stopped in April due to frustration concerning the lack of uniform reporting criteria among self-reporters, according to Mathisson.
FINRA failed to respond to an email seeking comment by press time.
