Dark pools need to lighten up – literally, according to Healthy Markets Association.
Healthy Markets Association, non-profit coalition of asset managers working to promote data-driven reforms to market structure, on September 15, issued a new report, “The Dark Side of the Pools: What Investors Should Learn From Regulators’ Actions.” In the report, presented to Congress, the group said that U.S. regulators have been behind the curve in properly regulating dark pools and that these alternative trading venues need better oversight.
On its website, the group noted that rapid technological revolution in the equity markets and the slow evolution of regulations, have left investors exposed to unprecedented abuses-including in dark pools.
“This Report outlines how some dark pools have abused investors in the past, and outlines concrete steps investors and regulators can take to better protect investors,” the website said.
Reuters reported that the report urged the Securities and Exchange Commission to strengthen the quality of dark pool disclosures, take steps to mitigate conflicts of interest at dark pools, and update its rules designed to ensure investors get the best price and the most efficient execution for their trades. Furthermore, the report added that previous enforcement actions, such as the ones levied against UBS and Pipeline, fell short and failed to properly compensate investors for the risks dark pools bring to the market structure.
“Even the largest, oldest and most well-respected dark pools are not above wrongdoing,” Reuters reported the association wrote.
The report also said the SEC’s cases focus more on disclosure failures, and the settlements could have done more to quantify the actual harm investors suffered.
It also says it is not optimistic that the SEC will move swiftly to write new rules.
“To date, regulators have not proposed any substantive reforms,” Reuters quoted the report.
Healthy Markets Association is a non-profit advocacy group that was founded by KOR Group and headed by Tyler Gellasch, a former counselor to SEC Democratic Commissioner Kara Stein and Michigan Senator Carl Levin.