Markets Media Online
Financial firms and alternative trading systems (ATSs) keep coming out with new dark pools, even as regulators worldwide mull how to rein in the anonymous, opaque trading networks.
Proponents of dark pools say they provide price improvement and more efficient trading. Incumbent exchanges and regulators are wary that not displaying bids and ask prices undermines market transparency, and by extension, investor confidence.
“I am a fundamental believer in a transparent, neutral marketplace,” Tom Kloet, chief executive officer of TMX Group, told Markets Media on Thursday. “The market is best-served when the market can see the best bid and best offer. There is an argument that comes from some market participants that if I have a large order, when I go to the marketplace that order is destroyed, so let me have an off-market conversation or a private room. I don't subscribe to that being an optimal way to run markets.”
Just this month, Pragma Securities launched a dark crossing network called OneCross, and Liquidnet Holdings said it would offer dark-pool trading in New Zealand and Malaysia. On the regulatory front, the French government called for tighter pan-European regulation of ATSs, including dark pools. The U.S. Securities and Exchange Commission in November proposed a regulatory framework for dark pools.
“Dark pools are best in a neutral marketplace,” Kloet said. “They are best run by neutral marketplaces and exchanges that are open to ownership to everybody, no matter who owns the marketplace the dark pool sits in. Thus far the rules haven't quite captured this important conflict of interest.”
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