Perhaps the danger that the public will completely lose faith in the financial system is spurring a modest push for reforms. Of course we are still only talking about the SEC, which has proven itself totally incompetent at enforcing existing regulations.
(Dow Jones)--The U.S. Securities and Exchange Commission unanimously agreed Wednesday to consider three proposals aimed at shedding more light on non-public electronic trading entities including dark pools, which match big stock orders privately.
The proposals would require dark pools to make information about an investor's interest in buying or selling a stock available to the public instead of only sharing it with a select group operating with a dark pool. They would also require dark pools to publicly identify if their pool executes a trade.
"We should never underestimate or take for granted the wide spectrum of benefits that come from transparency," SEC Chairman Mary Schapiro said. "Transparency plays a vital role in promoting public confidence in the honesty and integrity of financial markets."
Dark pools, a type of alternative trading system that does not display quotes to the public, are just one part of a broader probe the SEC is conducting into market structures. Recently, the SEC also voted to consider banning flash orders, which let some traders get a sneak peak at market activity. The agency is also looking into other areas like co-location, high frequency trading and direct market access.
The SEC said Wednesday it's seeking to address some concerns stemming from an indication of interest, an electronic message transmitted to a limited group of market players signaling that a dark pool has interest in buying or selling a security. These messages can be transmitted within a dark pool itself or to other dark pools that have formed a private network, raising some concerns about a lack of fair access.
"What this means is that participants in these private pools have access to information about a trade in which other investors are denied," Schapiro said. "What's more, these participants are able to use and rely upon prices provided by the publicly displayed markets, without contributing information of their own."