The Securities & Exchange Commission moved today to shine some light on dark pools.
In a unanimous vote, the five SEC commissioners proposed measures to give investors a clearer view of dark pools - private trading systems that allow participants to make trades without displaying quotations to the public.
The biggest pools are run by securities firms to execute orders by their customers and their own proprietary orders. The SEC estimates that there are now about 29 active dark pools, compared to just 10 in 2002.
The agency is concerned that the proliferation of dark pools could create a two-tiered market, depriving the public of information about stock prices and liquidity.
"We should never underestimate or take for granted the wide spectrum of benefits that come from transparency, which plays a vital role in promoting public confidence in the honesty and integrity of financial markets," said SEC Chairman Mary Schapiro in a statement. "Today's focus on dark pools is just one part of our broader ongoing review of how the equity markets are structured."
The proposed rules, which are open for public comment for 90 days, would:
Require actionable “Indications of Interest”— which are similar to a typical buy or sell quote — to be treated like other quotes and subject to the same disclosure rules.
Lower the trading volume threshold applicable to alternative trading systems for displaying best-priced orders.
Create the same level of post-trade transparency for dark pools - and other alternative trading systems - as for registered exchanges.