This article first appeared on Floating Path.
On the same day we heard from European officials about their intention to limit dark pool trading, it has come to light that U.S. officials, along with exchange representatives and a host of brokers, met in secret in October to discuss the very same topic for markets here.
While no specific targets were mentioned regarding trading volumes, the methodology with which orders would be executed was leaked.
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The proposal would require brokers to offer public markets their best available price to buy or sell a stock before they could trade that price at off-exchange venues.
While some argue that an increase in dark pool trading “has diminished the value of publicly quoted prices,” it is also a symptom of the highly fragmented and often toxic HFT-dominated lit markets. In the U.S., more shares are now transacted in dark pools than on any single lit exchange, and overall dark volume is responsible for nearly 40% of trading, according to Nanex.
Large institutions often look to dark pools for execution so as to not broadcast their intentions to all markets and participants. This proposal would seemingly nullify that ability.
This plan in specific and dark pool trading in general will again be discussed in December at an industry meeting hosted by the Investment Company Institute, an “influential trade body for large institutional investors.”
“The ICI meetings are part of an effort to have a constructive market structure debate between the industry outside of the public purview,” a person familiar with them said.. “The notion of broadcasting any indication of trading is not likely to be welcome by the buyside.”