New SEC Rules Will Significantly Limit Dark Pools and ATSs
The SEC voted to issue proposals that would significantly curtail the effectiveness of dark pools, private markets for securities execution. The proposals will require Indications of Interest (IOIs) to be made publicly available and require that dark pools be identified in post-trade reporting. The SEC wishes to prevent the creation of a two-tiered trading system. Excluded from the proposals will be large orders i.e. IOIs for $200,000 or more.
OUR TAKE: This is one of those government solutions in search of a problem. The “two-tiered” trading system that the SEC criticizes helps all parties (including buy-side funds and advisers) achieve better execution through competitive markets. Dark pools provide competitive execution and allow firms to make trades without the interference of free-riders. The new rules will eliminate the execution advantages of dark pools in favor of the public exchanges.