Private trading venues known as “dark pools” are the new focus of one of the nation’s top regulatory agencies. Richard Ketchum, who heads up the Financial Industry Regulatory Authority (Finra), said in an interview today that his agency is expanding its oversight of dark pools and keeping an eye on orders placed out in the public and whether they are done so for the purpose of moving prices or advancing their dark market trades.
Finra said it is also going to start keeping closer tabs on high frequency trading, especially rapid-fire trading that happens across exchanges. According to Ketchum, we will begin to see more enforcement on these types of trades this year.
As The Wall Street Journal reports, there has been concern throughout the financial world that some firms are placing orders both on public exchanges and in dark pools at the same time, thus pushing prices to their advantage. Dark pools operate as an intermediary in their execution of trade orders on public exchanges. Tabb Group reports that almost 15 percent of all stock trades are done on dark pools, a significant increase from 3 percent just six years ago. In general about a third of all stock trades are done entirely away from the exchanges.
Finra’s ramped-up efforts to crack down on dark pools and rapid-fire trading is just the tip of the iceberg. Last year the Securities and Exchange Commission signed a deal for real-time trade monitoring software which could also assist in the crackdown on these types of trades. Finra also said today that it has implemented a new system that tracks patterns of trading which “address more than 50 threat scenarios” in most of the stock market. Last year the regulator assessed $68 million worth of fines and ordered $34 million in restitutions.