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U.S. to Shine Light on Mysterious Dark Pools

Friday, 04 Dec 2009 01:50 PM

Officials at two bank-run dark pools — the anonymous stock-trading venues that face sweeping rule changes — expect U.S. regulators to modify a proposal that would make it immediately clear where trading takes place.

The Credit Suisse and Goldman Sachs Group Inc officials told Markets Media's Global Markets Summit that two of the U.S. Securities and Exchange Commission's three proposals to shed more light on dark pools would likely be adopted next year.

The third proposal, requiring all dark pools to identify themselves in real time when they report trading, would dissuade investors from using the venues, the officials said late on Thursday.

Currently, dark pools need not identify themselves. And unlike formal exchanges, they are not required to immediately report trading to the public — providing the anonymity some traders desire.

"Most likely, that would be softened," Dave Johnsen, head of business development at Goldman Sachs' Sigma X dark pool, said of the third proposal.

Dmitri Galinov, head of liquidity strategy at Credit Suisse's advanced execution services, suggested the SEC instead allow dark pools a week-long delay before they must report trading.

Credit Suisse runs the Crossfinder dark pool, which had 1.91 percent of U.S. equity volumes in October, the most of any dark pool, according to agency broker Rosenblatt Securities, which tracks volumes.

Sigma X was third-largest of the venues Rosenblatt tracks, at 1.35 percent.

The SEC, under pressure from some lawmakers, says it is concerned the private venues create a two-tier market that disadvantages those without access to the information they contain.

Dark pools, including those run independently such as Liquidnet, account for an estimated 10 percent to 15 percent of overall U.S. equity volumes. They are ideal for trading larger blocks of stock without tipping off the wider market.

The SEC also proposes to treat private electronic messages, known as "actionable indications of interest," like regular quotes, and to restrict the overall volume in a particular stock that can be hidden from the public.

The regulator, a big part of the Obama administration's sweeping financial markets overhaul, voted to approve all three proposals on October 21 and is accepting public comments on them until February 22, 2010.

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