Call for tighter dark pool regulations

16 September,, Lagos – A new report got released by the non-profit advocacy group Healthy Markets Association. This report specifies that U.S. regulators need to step up their effort in the regulation and supervision of activities for “dark pool” trading platforms. Aiming for a better protection of investors from poor trade execution, conflicts of interest and other possible dubious acts that may go on. As a result of the anonymity of dark pool operations which they believe can be achieved through tighter dark pool regulations.

Another point made in the report concerns the update of rules for investor protection, in order to ensure that investors get the best price and the most efficient execution for their trades. The Healthy Markets Association has criticized on some of the enforcement actions, which was undertaken by the SEC in recent years with dark pools, such as Pipeline and UBS. Arguing that such settlements failed to take into account the true harm these platforms inflicted on investors. “Even the largest, oldest and most well-respected dark pools are not above wrongdoing,” the report said.

What are Dark pools?

Coming at a period when dark pools are under regulatory scrutiny due to various reports of wrongful dealings. Dark pools were created to allow large investors to trade big blocks of trades without tipping off the broader market. Some brokerage firms also offer similar dark markets internally to their clients.

Such platforms are not required to publicly display bids or offers – a fact that some say might be harming price discovery on public exchanges. Dark pools are an ominous-sounding term for private exchanges or forums for trading securities; unlike stock exchanges, dark pools are not accessible by the investing public.

Why are they called Dark pools?

Known as “dark pools of liquidity,” they are so named for their complete lack of transparency. Dark pools came about primarily to facilitate block trading by institutional investors, who did not wish to impact the markets with their large orders and consequently obtain adverse prices for their trades, as defined by investopedia.

Since 2011, the SEC has stepped up enforcement against dark pools that have violated rules. To date, it has filed cases against six platforms for a variety of violations, from failing to disclose to customers that most of their orders were filled by an affiliate to misusing customer data.

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