To the Editor:
It is dispiriting to see how much falsehood and misinformation gets passed off as reasonable commentary in the debate over market structure. The opinion piece you published from Stephen J. Nelson is a case in point.
Dark pools are not ECNs — in fact they are opposites. ECNs are ATSs that publish quotes, dark pools are ATSs that do not. The first dark pool was Posit, not Optimark. Reg NMS did not raise the cost of executing large orders in public markets. Whether you are for or against Reg NMS, satisfying its obligations generally improves execution quality for institutional orders.
Reg NMS did not make dark pools profitable, and certainly not because dark pools offer a means of avoiding the obligations of Reg NMS. Dark pool transactions are subject to immediate trade reporting and Reg NMS requirements to protect public quotations, like all transactions.
Dark pools have had nothing to do with flash orders, which have been a feature of the displayed venues–ECNs and exchanges.
Nobody pays "extra money" to trade in dark pools for purposes of avoiding the public markets. Dark pool trades generally provide opportunities for price improvement and reduced transactions costs for both parties.
The growth of dark pools happened in the wake of Reg ATS, not Reg NMS. As a result of both Reg ATS and Reg NMS there is now interaction between institutional and retail order flow at an unprecedented level, to the benefit of both.
The implication that the SEC’s proposed new rules for dark pools will somehow result in their elimination is way off base. Rather than become extinct, dark pools handling small orders will simply curtail their use of "executable IOIs."
Traders Magazine can serve as a great forum for spirited debate about the public policy issues facing our industry. But an argument is only as good as the facts on which it is based. This commentary did nothing to advance the current market structure conversation.
Regards,
Kevin Foley
President and CEO
AQUA
