Tuesday, July 14, 2009

SEC Chair says staff will "explore transparency issues" regarding Dark Pools

An excerpt from SEC Chair Mary Schapiro’s testimony before the United States House of Representatives Committee on Financial Services
Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.  Her remarks are entitled, “SEC Oversight: Current State and Agenda,” and were delivered Tuesday, July 14, 2009. 

"In addition, our staff has begun exploring transparency issues related to markets known as dark pools. Dark pools are defined in various ways, but generally refer to automated trading systems that do not display quotes in the public quote stream. We have heard concerns that dark pools may lead to a lack of transparency, may result in the development of significant private markets that exclude public investors (through the use of “indications-of-interest” that function similar to public quotes except with implicit pricing), and may potentially impair the public price discovery function if they divert a significant amount of marketable order flow away from the more traditional and transparent markets. Given the potential risks posed by dark pools, the Commission will take a serious look at what regulatory actions may be warranted to respond to the potential investor protection and market integrity concerns that dark pools may raise.”

I’m pleased to see that the SEC will be checking out dark pools with a focus on transparency.  My main concern about these pools is that their existence removes a great deal of liquidity from publicly displayed venues, which may be resulting in incorrect pricing. 

Good luck, SEC and Chairman Schapiro. 

Full testimony at http://www.house.gov/apps/list/hearing/financialsvcs_dem/sec_testimony.pdf

Posted by twcarey on 07/14 at 11:39 AM
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