UK Regulator Delves into Dark Pools

UK regulator the Financial Conduct Authority (FCA) is to review so-called ‘dark pools’ electronic trading sites where high-frequency traders and other market participants are able to buy and sell anonymously.

The FCA marked the investigation as a priority as it issued its 2015-16 business plan.

“We have been considering the risks around dark pools and will also continue to increase our knowledge of the conflicts of interest that may be inherent in the operation of dark pools and explore how firms are managing them,” the FCA said.

The regulator’s announcement is the latest move in a stepped-up global review of dark pool trading activity. Mary Jo White, chairwoman of the US Securities and Exchange Commission (SEC), said last June that the regulator would work with the FCA to examine transparency questions about trading in dark pools.

“Although the trades of dark venues are reported in real time, the identity of participants in the dark venue is not disclosed to the public,” White said at the time. “And dark venues generally only provide limited information about how they operate.

“Transparency is one of the primary tools used by investors to protect their own interests, yet investors know very little about many trading venues that handle their orders.”

The SEC is investigating several large dark pools, looking at whether they properly disclose their operations to clients and treat all market participants equitably, the
Wall Street Journal
reported last year. The dark pool operated by UK banking group Barclays is among those under examination, it stated.

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