And the Financial Industry Regulatory Authority said, Let there be light.
After years of keeping their trade data hidden in relative secrecy, alternative trading systems, or dark pools, now have to disclose their trade data publicly. And while the hotly contested debate still rages over just how soon these trading venues have to publish their trade data after the actual execution, what was once a dark secret is no more.
According to industry data, dark pools currently see 17 percent of trading volume in the $24 trillion U.S. stock market. In comparison, NYSE and its smaller offshoots account for 23.1 percent of volume, Nasdaq 19.7 percent and BATS 20 percent. All told, the exchanges or lit venues control 62.8 percent of all U.S. equity trading volume.
Shares changing hands in private venues, including dark pools, accounted for 40.4 percent of total share volume this past summer, reaching a two-year high, according to data compiled by Bloomberg. Thats the most since 41.7 percent took place off-exchange in June 2012. The three biggest exchange companies each matched about 20 percent of trading during the summer.
FINRA, which began publishing data on private venues in June, has continued to discuss additional ways to make off-exchange trading more transparent, bringing more light and transparency to dark pools. Several proposals being circulated advocate for making ATSs disclose more information about their order books and expand the data they publish about the volume of over-the-counter trading by stock. Also, ATSs could be forced to disclose their supervision and governance policies, as well as report and register the algorithm developers a pool uses and trade clock sequencing.
While regulatory pressure has been brought to bear this year, the ATS operators arent standing pat and waiting for the next government fiat as to what they should do. Already, several brokers have responded to increased scrutiny by publishing their dark pools Form ATS, a file that describes how the platform operates. Once buried in the files of the SEC, these documents, which detail the intricacies of a pools inner workings, such as order types or routing procedures, are now available on the brokers websites. Credit Suisse, Deutsche Bank, Goldman Sachs and JPMorgan Chase have all published their forms, as have IEX, KCG Holdings, Liquidnet and ITG.
