Pros Say Complete Disclosure Is Way to Get Ahead of SECs Reg ATS Provisions

It is no secret that the Securities and Exchange Commission is going after alternative trading systems (ATS) and how they operate. But there is a way to stay a step ahead of potential future regulation and possible sanctions – full and complete disclosure.

Disclose, disclose, disclose – that was the advice of several market structure and Wall Street equity trading pros to attendees at the recent 36th Annual Security Traders Association of Florida on how to deal with the SECs recently published Reg ATS regulation. While the actual regulatory filing is approximately 686 pages, two words – disclosure and transparency – can solve most problems either the buy- or sellside might face in so-called offboard or dark pool trading.

Volumes (dark pool) keep going up and through the roof, and now Congress wants to regulate and keep an eye on electronic trading, said Richard Levin, attorney at Bryan Cave, explaining the current regulatory environment. If you dont disclose, youll get sanctioned. We tell all our clients to over-disclose.

And Levins clients include some of Wall Street biggest brokers, who consequently operate some of the largest dark pools.

Christopher Nagy, who runs the Healthy Markets Association and KOR Trading, said that while the SEC is constantly playing regulatory catch up the Commission is intent passing some sort of dark pool regulation given the recent incidents regarding their operation, referring to such cases as Pipeline, ITG, Barclays and Credit Suisse.

They are looking for any types of conflict of interest, Nagy said. Specifically, they want to see what kind of information leakage goes on. There has been a big lack of disclosure and that is why were seing this Reg ATS.

Fidessas Jay Biancamano, Head of Product Marketing and Business Development, Equities Americas, added that when he worked at ITG back in 1996 through 2003, said that the SEC only asked dark pool operators if they filed a Form ATS – nothing else.

All you had to do back then was file the Form, Biancamano said. There were never really any rules pertaining to disclosure.

Bryan Caves Levin added that back during the late 90s and early 2000s there was no continuity among Reg ATS filings from one firm to another.

Some filings were pure garbage, Levin said. Now, we tell clients that when choosing an ATS to check out their Form ATS thoroughly – and make sure it is updated and current.

Biancamano agreed with Levin, adding that besides examining a firms Form ATS that a face-to-face meeting should be part of the buysiders plans when selecting an ATS operator.

You have to look these ATS guys in the eye – ask them questions in person. You might see things in their eyes youd never see on a Form ATS, Biancamano said.