DONOHUE WANTS ADVISERS TO CONSIDER ALGOS AND DARK POOLS FOR BEST EXECUTION
In a recent speech, Buddy Donohue, the SEC’s Director of the Division of Investment Management, said that advisers, when fulfilling their obligations to ensure best execution, should consider the appropriate trading venue for securities including algorithmic trading, dark pools, and other “technology-driven methods of trade execution.” He noted how these new methods of trading have reduced commission rates, lowered implicit costs such as price impact and information leakage, and increased transparency. He also indicated that the increased transparency has impacted the SEC’s thinking on its upcoming soft dollar guidance because advisers and boards can determine the expense of research funded with commissions and “virtually unbundle” research and execution services.
OUR TAKE: The SEC has suddenly embraced dark pools and algos as a method to enhance soft dollar transparency. Mr. Donohue also recommends that an adviser must consider alternative trading venues to ensure best execution.