The Securities and Exchange Commission (SEC) is investigating several alternative trading systems. It is looking for the “right balance between a principled regulatory approach and an aggressive and comprehensive enforcement effort,” Daniel Hawke, chief of the SEC’s market abuse unit, stated. The SEC will be focused on regulating “dark pools,” private exchanges or forums not accessible by the investing public and known for their complete lack of transparency. SEC chief Mary Jo White has said the agency will update its rules for dark pools in order to come down hard on illegal trading.
The United States government is making sure regulatory agencies such as the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) are keeping pace with the US Equity markets, which are vastly and quickly changing due to the effects of technological innovation on market structure. Technology changes have always been first and foremost on regulators’ minds. During a senate banking hearing last week, the SEC relayed that it had stepped up its pace considerably in the way of technological innovation. Ever since May 6th, 2010, when trillions of dollars were quickly wiped out because of faulty algorithms, the market has changed significantly in order to rebound from algorithm-driven spoofing. Nowadays, according to numbers compiled by RBC Capital Markets and cited at the banking hearing, today’s fee schedules represent a highly fragmented market structure and many exchange business models are trying to counter some of the trends emphasized in that report.
When it comes to equities, there are many types of liquidity qualities in the stock market, depending on common trade flow metrics, including the needs of clients, the underlying securities and other variables, that when combined, result in the need for an equally high number of diverse trading choices for participants. Along with that, there are nearly 133 different order types across US market venues. These different trading needs of high and low-frequency trading operations brought about the growth of Alternative Trading Systems (ATS) and dark pools, yet got away from traditional systems such as National Market Systems (NMS). The SEC wants to test a ban for six months on eliminating rebates for a number of securities and participants, to study the effect it will have on the market.
During the Senate hearing last Thursday, under the committee on Banking, Housing and Urban Affairs, through its subcommittee on Securities, Insurance and Investments, a meeting titled “Regulatory Reforms to Improve Equity Market Structure” was held. The discussions covered topics such as defining Consolidated Audit Trail (CAT) market maker models, advisor misconduct and other areas of concern. The SEC also proposed a rule that would aim to amend the Securities Exchange Act of 1934, among other things.
Barclays and Credit Suisse have settled federal and state charges that they misled investors in their dark pools, and Barclays admitted it broke the law. The firms must pay a combined total of $154.3 million. Both are alleged to have misled investors in the dark pools, saying they would be protected from predatory high-frequency trading tactics. Dark pools are private exchanges or forums for trading securities, unlike stock exchanges, they are not accessible by the investing public and are known for their lack of transparency. Barclays is to pay $70 million split evenly between the Securities and Exchange Commission (SEC) and New York state. Credit Suisse will pay a $60 million fine split between the regulators, plus an additional $24 million in disgorgement to the SEC for executing 117 million illegal sub-penny orders out of its dark pool known as “Crossfinder.”Credit Suisse will neither admit nor deny the allegations as part of the settlement.
The U.S. Securities and Exchange Commission (SEC) is reviewing the New York Stock Exchange’s (NYSE) plans to limit trading in so-called “dark pools.” Dark pools are private exchanges or forums for trading securities, and are not accessible by the investing public. They have a complete lack of transparency. The new proposed rules by Intercontinental Exchange Inc’s NYSE governing broker-run private trading venues, (dark pools) are more restrictive than originally approved by the SEC. They are also more restrictive toward dark pools than proposals by BATS Global Markets and the Financial Industry Regulatory Authority (FINRA). The SEC is proposing to have a so-called “tick-size pilot” which will widen trading increments or “ticks” for 1,200 smaller companies’ stocks to 5 cents from a penny. This would make markets more liquid and are also expected to drive more trading into dark pools, which compete with exchanges, but do not display trade sizes and prices to the public prior to trades taking place. It could include a provision that would force some types of trades in some of the stocks involved to stay on exchanges, but it will also include exceptions.
The Securities and Exchange Commission (SEC) recently proposed significant changes to the regulatory requirements applicable to dark pools and other alternative trading systems (ATFs) that trade national market system stocks. The proposed changes are designed to: provide detailed public information to market participants about the potential conflicts of interest and operations of NMS Stock ATSs, their broker-dealer operators and the affiliates of their broker-dealer operators to allow such market participants to better determine where to send their orders, provide more information to the SEC so it may more effectively regulate NMS Stock ATSs and adjust the regulatory obligations applicable to competing ATSs and national securities exchanges. The role of ATSs have evolved significantly in 17 years. The number of NMS Stock ATSs (46) as well as the trading volume on those ATSs (15% of total share trading volume) has increased as well. They are operated by multi-service broker-dealers engaged in significant brokerage and dealer activities in addition to the operation of their NMS Stock ATSs. The SEC is concerned that there is limited information available to market participants about the operations of ATSs and the activities of their broker-dealer operators and their affiliates.
The Financial Industry Regulatory Authority (FINRA) ordered a Goldman Sachs unit to pay $1.8 million because of not reporting substantial details about its alternative trading system, and for other lapses in reporting. FINRA alleges that the failure to report the details occurred over a seven year period from 2006 to 2014. Alternative trading systems, also known as “dark pools,” which are private exchanges or forums for trading securities that are not accessible by the investing public. They completely lack transparency. FINRA also accused Goldman Sachs of sending inaccurate order data to the regulatory authority for more than eight years, and of not having adequate controls in place to detect and prevent the violations. For example, Goldman Sachs failed to send details regarding more than $6.3 billion “order events” to FINRA, which makes up about 6.1% of all order information the firm was required to send.