The Securities and Exchange Commission is unlikely to require the Financial Industry Regulatory Authority to disclose the identities of dark pools at the time it reports their trades.
The Commission proposed such real-time reporting of the identities of alternative trading systems, including dark pools, last November in a three-part package of rules in an effort to equalize the trade reporting requirements of ATSs and exchanges.
It is said to be backing away from the idea. "Based on feedback from regulators, clients and the industry, our assumption is that the Commission will opt for end-of-day reporting," Dan Mathisson, in charge of Credit Suisse’s AES division, said at last week’s Traders Magazine conference. Credit Suisse operates the industry’s largest dark pool, Crossfinder.
Dark pools today report trades in real time to FINRA’s trade reporting facilities. FINRA, in turn, disseminates those trades to the Consolidated Tape. It does not reveal the identities of the dark pools. Mathisson expects this practice to continue, but that the identities of the dark pools will be revealed at the end of the day.
Any change in the SEC’s stance would likely be due to the pushback it received from buyside traders and dark pool operators. They argued in the months following the SEC’s proposal that such a requirement would needlessly expose their orders to predatory traders and push up their execution costs.
Some on the buyside still object to end-of-day reporting. "Do I want real time display of where I’m getting my order done?" Joe Roman, a trader with Atlanta Capital, asked at this year’s Security Traders Association conference. "No. Do I want end-of-day with a name designation? No."
Roman notes he would accept end-of-day reporting under the dark pool’s ID if the report aggregated all securities traded by the ATS, but he opposes end-of-day reporting on a security-by-security basis.
John Russell, a trader at Franklin Templeton, also objects to end-of-day reporting on a security-by-security basis. His concern is over trades of small- and mid-cap stocks, which might take several days or weeks to complete. "To know that some fund bought 20,000 shares of a given stock yesterday, giving it a position of less than 1 basis point of the portfolio, signals that that fund may be in the market for a while," Russell said at the STA confab. "That’s too much loss of control."
The SEC’s dark pool proposal excludes those prints of $200,000 or more. The comment period for the "Regulation of Non-Public Trading Interest" proposal, which also addresses actionable indications of interest, ended in February.
