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The SEC Agenda: Hurry Up and Wait |
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FinanceTech
November 9, 2010
Behind high-frequency trading, perhaps the most controversial market structure issue the SEC has been examining is the proliferation of dark pools, private venues that match institutional orders without displaying a quote to the market. There is ongoing concern from buy-side traders that dark pools, as they continue to increase their volume, will detract from the price discovery process on the primary displayed markets. According to the SEC's January 2010 concept release, as of September 2009, there were approximately 32 dark pools, which controlled 7.9 percent of overall volume, while internalization of orders within 200 brokerage firms accounted for 17.5 percent of volume -- meaning that about 25 percent of the market's total volume is executed off-exchange in non-displayed trading centers.
"The SEC is struggling with the unintended consequences of a disincentive to display liquidity," comments Cheevers & Co.'s McDevitt, whose firm uses dark pools as part of its execution process. "But if the SEC acts to limit the influence of dark pools, they better be careful about the unintended consequences."
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