Dark pools and other alternative trading systems would be required to file detailed disclosures about their operations, and the activities of their broker-dealer operator and its affiliates as part of proposed rules approved by the Securities and Exchange Commission on Nov. 18.
The proposed rules would govern any alternative trading system that trades stocks listed on a national securities exchange.
The disclosures would include information on the types of orders and market data used on the ATS, and its execution and priority procedures, according to a fact sheet of the proposal on the SEC's website.
The disclosures would be posted on the SEC's website.
As part of the proposal, the commission would certify whether an ATS qualifies for an exemption under Regulation ATS that allows securities markets to register as a national securities exchange or as an alternative trading system. Under that 1998 regulation, an ATS must register as a broker-dealer.
“Information available to market participants about the operations of ATS that trade (national securities exchange) stocks is often limited,” the fact sheet said. “In addition, little information is available to market participants about the relationship between these ATS and the other business operations of their broker-dealer operators.”
The proposal comes after a speech given by SEC Chairwoman Mary Jo White in June 2014 at the Sandler O'Neill + Partners Global Exchange and Brokerage Conference in New York. In that speech, Ms. White said the SEC would consider market structure reforms, including requiring more disclosure of institutional trades made through dark pools and other systems.
Recent enforcement actions against dark pools show why there is a need for more transparency, SEC Commissioner Luis Aguilar said in a statement on the proposed rules. “A common thread running through the enforcement actions ... is that market participants lack crucial information about how these (alternative trading systems) function — and about the serious conflicts of interest they can harbor,” Mr. Aguilar said.
Mr. Aguilar also said the SEC should consider additional rules for dark pools. “For example, are the conflicts of interest confronting many ATS so intractable that ATS should simply be prohibited from engaging in any activity other than operating the ATS?” he asked. “In addition, the commission should dust off its 2009 proposal regarding non-public trading, and determine whether the threshold for ATS to display their orders should be lowered to account for their much larger role in today's equity markets.” n
