U.S. stock-market regulators approved a plan for new rules
requiring private trading venues such as "dark pools" to disclose
and detail trading activity on their platforms.
The move will give market authorities their clearest view yet
into private markets that claim a growing slice of daily stock
dealing and will help police abusive trading practices, according
to regulators.
The effort is "a real positive step from a market integrity
standpoint," said Richard Ketchum, chief executive of the Financial
Industry Regulatory Authority, in a post-board meeting report to
members late Thursday.
The Washington-based regulator's board of governors on Thursday
approved plans for rules that will require alternative trading
systems like dark pools to report trading activity on a
stock-by-stock basis to Finra each week, which it will publish on
its website.
Rules will also be proposed requiring dark pools to identify
trades that take place on their platforms so regulators can
distinguish them from trades made on other exchanges, potentially
helping Finra sniff out attempted market manipulation, according to
Mr. Ketchum.
Finra's deeper look into dark pools--platforms run by banks and
broker-dealers that match up trades anonymously--comes as
regulators work to beef up surveillance and controls for
electronic-trading practices that have come to dominate most
markets.
Dark pools process about 15% of daily stock trading in the U.S.,
according to research by Rosenblatt Securities Inc., triple their
total five years ago. Traders use the platforms to carry out big
trades without alerting faster-moving rivals, and to help avoid
paying fees charged for trading on exchanges.
The platforms' growing role has drawn scrutiny from regulators,
who have brought action against some dark pools recently. The
Securities and Exchange Commission in 2011 fined Pipeline Trading
Systems LLC $1 million for not disclosing that one of its trading
units handled most customer business, and last year the SEC settled
with another dark pool, LeveL ATS, over charges that customer
information was shared with an outside firm.
Many dark pools voluntarily report trading volumes to
researchers at Rosenblatt and other firms, but some of the
industry's biggest players don't.
A move by Credit Suisse AG (CS, CSGN.VX) earlier this year to
stop disclosing activity for its dark pool--one of the industry's
most heavily trafficked--caught regulators' attention and played
into the decision to propose disclosure rules, according to people
close to the discussions. A representative for Credit Suisse had no
immediate comment.
Write to Jacob Bunge at jacob.bunge@dowjones.com
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