A health check for dark pools?

Over the past few years, dark trading has been the subject of considerable attention all around the world and its success in growing market share has everyone talking about this phenomenon.

When they first came into operation dark pools were embraced as an exciting new way to trade large orders with minimum market impact. More recently, however, with the increased levels of HFT and a continuing decline in average trade size, dark pools have become the subject of some concern amongst the regulators. So I couldn’t help but wonder, what is a ‘healthy’ market share for dark liquidity?

On 15th October a new regulation on dark trading was implemented by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organisation of Canada (IIROC) in an attempt to prevent investors from moving away from lit markets. Key elements of the new rule include “visible order priority”, “meaningful price improvement” and “minimum size”. This means all orders will be subject to the “trade-at” rule whereby visible orders will take priority over dark ones when traded on the same marketplace. Worried about pre-trade transparency and price formation, Australian regulators are also considering taking action to limit dark trading, proposing to increase the minimum size threshold for passive dark orders.

So do these measures outline the future of dark pools? While practitioners on both the buy-side and sell-side evidently welcome the services they provide, the regulators seem to have decided on the healthy limit for dark liquidity and prescribed the appropriate medicine to curb any excesses. Just how effective that particular treatment plan proves to be, only time will tell.

Leave A Comment

Copyright © 2019 Fidessa Group Holdings Limited. All rights reserved.

The information contained within this website is provided for informational purposes only. Fidessa will use reasonable care to ensure that information is accurate at the time it is made available, and for the duration that it remains on the site. The information may be changed by Fidessa at any time without notice. We also reserve the right to close the website at any time. No representation or warranty, expressed or implied, is given on behalf of Fidessa or any of its respective directors, employees, agents, or advisers as to the accuracy or completeness of the information or opinions contained herein or its suitability for any purpose and, save in the case of fraud, all liability for direct, indirect, special, consequential or other loss or damages of whatever kind that may arise from use of the website is hereby excluded to the fullest extent permitted by law. Any decisions you make based on the information in this website are your sole responsibility and information on the website should not be relied upon in connection with any investment decision.

The copyright of this website belongs to Fidessa. All other intellectual property rights are reserved.

Reproduction or redistribution of this information is prohibited except with written permission from Fidessa.